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Lenders: Goldman Sachs, Zillow entering fix-and-flip market is a good thing

“A rising tide lifts all boats”

Over the last few years, the market for financing fix-and-flip projects and single-family rentals has grown significantly.

In just the last year or so, massive players like Goldman Sachs, Zillow, Redfin, and others have entered those markets. And one might think that current operators in the fix-and-flip market would view those big companies entering the market as a bad thing, but that’s not the truth.

According to several lenders that operate in the fix-and-flip and single-family rental lending space, bigger companies entering those markets shows that the markets are not a flash in the pan.

Last year, Goldman Sachs bought Genesis Capital, a specialty commercial lending platform for professional residential real estate developers, and fully entered the fix-and-flip financing space.

Separately, real estate giants Zillow and Redfin both recently expanded into direct buying from home sellers. Both companies make the necessary upgrades and repairs to the properties and then sell them.

That model is also used by companies like Opendoor, which has been raising serious money at a valuation of more than $1 billion; OfferPad, which announced recently that it secured $150 million in new funding to continue growing its direct buyer business; and a newcomer named Perch launched recently with $30 million in funding; just to name a few.

Those companies getting into the business shows that there is a long-term future for fix-and-flip financing, according to several lenders operating in the space.

The topic was one of many broached during the “Debt Financing Sources Comparison-Hard Money Vs. Banks Vs. Private Money Vs. Securitized Lender” panel, which took place Tuesday morning in Miami at the Single Family Rental Investment Forum hosted by IMN.

During the discussion, the panelists talked about whether Goldman Sachs and Zillow entering the fix-and-flip space is a threat to their business – and the general consensus is that those big guns are not a threat.

“Goldman coming in is a good thing,” Sean Tierney, executive vice president of A10 Capital, said during the panel. “It shows that this (fix-and-flip financing) is no longer just a trade. It shows that it’s not going away.”

Matt Neisser, the chief operating officer of LendingOne, agreed.

“It takes some of the stigma from the industry away,” Neisser said. “A rising tide lifts all boats. That’s how I see it.”

Neisser also said that he doesn’t think Goldman Sachs is going to take drastic measures to capture investor financing business.

“The reality is that Goldman is very thoughtful about its business,” Neisser said. “Just because their cost of funds is cheap, it doesn’t mean they’re going to go out and undercut the market.”

Michael Gifford, director of strategic accounts at LendingHome, and Robert Greenberg, chief marketing officer at Patch of Land, both noted that there is still room for growth in the industry.

“Our biggest competitors are still cash deals. The majority of the deals in fix-and-flip are still cash,” Greenberg said. “The cost of capital is coming down, which is bringing in more players, but cash is still king.”

That leaves opportunities for initialized players like the panelists’ companies to grab market share.

“We still think we can grow fix-and-flip business by 30%,” Gifford said.

Gifford also noted that there appear to be some segments that Goldman won’t be going after. Gifford said that he spoke to a property investor this week who said that Goldman doesn’t want the investor buying occupied properties. The reason? Goldman doesn’t want the headline risk of being associated with “Wall Street” buying lived-in properties.

As for the future, the panelists believe that there will be more players coming into the market, whether they’re insurance companies (perhaps like the life insurance companies that finance multifamily deals), real estate investment trusts, or others.

And while market downturn will eventually occur, things will bounce back as they always do.

“It’s a cyclical business. Money’s easy to get right now,” Greenberg said. “Somewhere between now and five years from now, money might not be easy to get. But it will come back. It always does.”

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