According to Brian, on the investment side we’re still seeing rates that are pretty well depressed, but not in a negative way. In some areas, they’re even going down a tiny bit because there’s so much investment activity and there’s a lot of competition among lenders. Everybody’s feeding for the borrowers and depressing rates a little bit. While there’s a little interest rate bump for consumers, the investment rates are staying stable overall, and in some cases they are even reducing a tiny bit.
This is great news!
There’s so much money out there chasing some kind of yield without being able to get it, but lending provides that. When speaking with Brian I was a little surprised to hear this perspective — I just hadn’t really heard that rates are stable in this way. I wondered if it was happening more with private lenders and not so much the Fannie and Freddie lenders.
Brian explained that there are two buckets — one bucket would be government-backed money like Fannie and Freddie banks and the other bucket would be all the private lenders. When we say private lenders, we’re not just talking about the nice guy that you sit next to in church who’s got a couple of hundred thousand in their IRA, we’re talking about what have now become, in the last five or six years, multi-billion-dollar companies that have raised huge rounds of capital.
These include hedge funds, private equity funds and substantial private institutions that are in the business of making loans to real estate investors, for fix and flip and buy and hold investments. The difference is that these types of companies are not governed by United States government regulations and stockholders, in most cases.
These companies are basically governed by the owners of the company, who on a given morning might say, “Hey, let’s get into this business. Hey, let’s lower rates. Hey, let’s do higher LTVs. Let’s go compete with this company or that company. I want 50 more borrowers this month. Let’s do another $50 million this month.” Just that fast, they can lower their rates because it’s their money.