Contact Info

Address:

10811 Washington Blvd, Suite 370
Culver City, CA 90232

Phone:

(310) 280-9173

Email:

Chris@CoastalCapital.com
Scott@CoastalCapital.com

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February 2025 Latest Updates & InSights

COASTAL CAPITAL INSIGHTS

Each month Coastal Capital strives to bring you the latest updates and insights into the California real estate market for both investors and brokers.  We always welcome new investors who enjoy above-average returns that are not correlated to the equity markets.  As always, we appreciate both new investor and broker referrals, as the network builds it brings more value to all through diversification.

Please note that you can add on to your existing investment in any amount.  While an initial investment requires an investment of $100,000; existing partners in the Fund can add on in any amount from $2,500 or more.

 

 

MARKET UPDATE

Return to normalcy appears to be the phrase of the year for 2025 when it comes to real estate investing in numerous ways.  First off, supply across residential housing (both SRF and multi-family units) is starting to increase. Listings are increasing for a few key reasons. The mortgage rate lock-in effect is fading. Many homeowners who scored ultra-low mortgage rates during the pandemic have been staying put because moving would mean taking on a higher rate. However, people can’t stay put forever as job relocations and family situations cannot be delayed indefinitely. Homes are lingering on the market longer. The typical home that sold in January was on the market for 56 days. That’s a week longer than a year earlier and marks the longest period for any January since 2020. In California that meant sales were down a nominal 1.9% as compared to January 2024. Most of this can be contributed to demand slowing as fewer people can afford to buy homes or increase their existing mortgage payment.

Housing demand is finally starting to act normal.  As mortgage rates go up, less buyers are in the market. The average interest rate on a 30-year-fixed mortgage was 6.96% in January, up from 6.72% a month earlier and the highest level since May. It comes as no surprise to us that more deals in escrow are falling through as well since mortgage payments on average in California are 10% higher than just 12 months ago according to the California Association of Realtors.

The median home sale price rose in the Golden State rose 5% from a year earlier to almost $789,000. That’s 45% higher than the January before the pandemic. When you combine higher purchase price with higher rates approaching 7% it finally seems affordability has finally reached its limits. Then add back in tariffs, reductions in the Federal work force and return to office mandates; there is a ton of uncertainty for California consumers. It seems that our 30-year average of sustainable normal real estate appreciation rates of 3% to 5% per annum has finally returned.

 

Source: Redfin

 

Most other housing analysts still expect U.S. house prices to rise a modest single-digit amount in 2024. This includes forecasts by:

  • Mortgage Bankers Association: +4.1%
  • Fannie Mae: +2.4%
  • Wells Fargo: +2.5%
  • Goldman Sachs: +0.6%
  • AEI Housing Center: +4.0%
  • CoreLogic: +2.6%
  • Zillow: 0.0%

With all the experts forecasting in such a narrow range, we agree that most markets will hold steady and desirable areas will see normal appreciation of a few percentage points for most areas in California.  Our core markets of Los Angeles, Orange and San Diego counties may see more elevated appreciation rates.

 

Multifamily, the largest pool of assets securing our trust deeds, is holding strong and continues to perform well. Although rent growth has slowed, the vacancy rate has remained roughly 5% throughout 2023. Current interest rates will likely keep mortgage rates up near or above 7%, continuing to price out would-be homebuyers and sustaining the multifamily rental market demand. The only notable concern is the lack of demand for luxury apartments. They may be easy to build, but they’re not necessarily easy to occupy. As a result, many high-end apartments have reduced rents and offered concessions to attract residents.  The good news is that these large, luxury developments are usually 70-units or more and Coastal Capital is not a viable financing partner due to the needed financing amount.

 

Commercial real estate trends continue to be a mixed bag across market segments.  The office building vacancy rate reached 19.2% in Q3 according to Moody’s Analytics. That’s up from Q2 and approaching the historic peak of 19.3%. Despite these headwinds for office, it’s important to remember that while there is and will continue to be obsolete office, the office is not obsolete.  Older, less-desirable Class B and C offices may face obsolescence, but Class A is booming. Employers, especially tech, are realizing that they must upgrade to attract workers to return to office.  Many are going with downsizing from Class B and paying more per square foot for newer offices but a less total monthly lease cost.

 

Industrial continues to perform well, especially cold-storage properties, but the signs of softening are starting to show. The asset class may be moderating as the post-pandemic demand for more inventory decreases and renters hold off on expansion due to uncertainty of how rising interest rates will

While the rental rates are no longer sky rocketing, they are holding steady and creeping up. For landlords this continues to drive the demand for multi-unit buildings as the average age of first-time home buyers is at an all-time high of 38 years old. Keep in mind that is a national number and pretty sure that number is in the 40s for California. Younger Californians won’t be surprised to hear that homeownership rates are declining in their age group, and they are staying renters much longer.

Specifically in Southern California’s unaffordable home buying market is also pushing up the cost of renting one. Landlords have never seen rents this high on average, hence why they are borrowing to renovate as fast as feasibly possible. Rentometer tracks rent for three-bedroom houses in 857 cities nationwide, including 84 in Southern California. In 2024 the average rent in our 84 local communities was $4,154 per month up $122 or 3% from 2023. This is only $1,000 less than the average mortgage payment of $5,060 per month for owners in the same markets! 

The major problem is that to purchase the median priced home of $800,000 in Southern California one has to come up with a 20% down payment of $160,000! Remember that these are the averages for California. As one gets closer to the Pacific Ocean affordability is reserved for only the top 15% of the population as the California Association of recently shared below.

In comparison the typical American renting a single-family house pays $2,357 monthly – nearly half of what’s charged across Southern California. Without new building starts or a massive migration exiting California we expect that landlords will continue to make up much of our application volume, especially in Southern California from Santa Barbara to the Mexican border. The light commercial and industrial markets continue to chug along as normal as the California economy continues to shine brightly. Our applications desk has seen an uptick in deal flow in this segment. Fix and flippers continue to be very profitable in San Diego, San Francisco & San Jose which are three of the top five markets in the US to flip homes. In fact, in San Jose’s tech region the average, net profit from a flip is $275,000! Small business owners continue to turn to private money lenders for their business-purpose loans in droves. Across all markets in California for private mortgages & trust deeds we are seeing elasticity in rates that borrowers are consistently willing to accept rates 13% or more. Thank you for all our existing partners who have been referring over friends & family to join us. Just a reminder that initial investment amount requires $100,000; existing partners in the Fund can add on in any amount from $2,500 or more. If you want to compound your interest instead of receiving monthly distributions just email us. Please note that completed 2024 K1 forms for investors are scheduled for distribution on or around March 15th.

PORTFOLIO HIGHLIGHT

  • TOWN HOME 4 BED / 3 BATH
  • Irvine, CA
  • Position: 2nd TD
  • Rate: 12.99%
  • CLTV: 65%
  • Appraised Value: $1,695,000

Looking for a way to get more from your retirement savings? A self-directed IRA (SDIRA) could be the answer. We constantly get asked on how to set this up and asked the firm we recommend providing some insight with our investors:

What is a Self-Directed IRA?

Self-Directed IRA (SDIRA) is quite simply, an IRA. All IRAs abide by the same laws and possess the same capabilities. Unlike other IRAs held at banks, brokerage firms and other institutions, with a SDIRA, you’re not limited to stocks, bonds, or mutual funds.

 

What are the benefits?

A SDIRA gives you the opportunity to build a more diversified and resilient portfolio. It allows you to take advantage of alternative investments such as real estate, precious metals, private equity, notes, and more. A custodian/administrator is required to do the record keeping for the assets in your account, but nothing moves in or out of it without your direction. You decide how much, when, and most of all, what to invest in, giving you the freedom to invest in what you know best.

Investing in Real EstateWith a Self-Directed IRA

Real Estate is a popular investment among SDIRA holders because it is a tangible asset that people know and trust. With a SDIRA, you can invest in a wide range of real estate assets: residential or commercial properties, developed or undeveloped land, condos, hotels, mortgage notes, and more. Depending on what type of account you choose, earnings can continue to be either tax-free or tax-deferred.

The level of control and flexibility associated with a SDIRA does come with its own set of responsibilities. For example, investments made with your SDIRA are owned by your SDIRA, not by you personally, making self-dealing prohibited. Click here for more information on SDIRA rules. 

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Brokers Always Welcome

Coastal Capital is always looking for referrals from brokers and open to new investors in the fund. Please share this email or connect us directly.

Asset Based Loans on Business Purpose Real Estate

  • Loan Amounts: Loan Amounts: $25,000 to $250,000 – Exceptions required for larger amounts
  • Origination Fees: 1 to 3 points with a  minimum of $2,000
  • Serving Location: State of California Only
  • Purpose: Business or Investment Purpose Only
  • Types: SFR Rentals, Multifamily, SFR Additions, Fix & Flip, ADUs, Light Commercial & Retail, Land.
  • Fix Loan Term: 6 months to 18 months
  • Rates: from 9% up to 18%
  • Loan to Value: 65% without exceptions, higher available
  • Loan to Cost: Up to 80% with hold back for exceptions
  • No minimum credit score. Low FICO credit score okay

HOW TO REACH THE TEAM AT COASTAL CAPITAL

Chris Tomasewski
Chris@CoastalCapital.com
310-529-5678

Scott Griest
Scott@CoastalCapital.com
310-529-9975

Chio Baldocchi
Chio@CoastalCapital.com
310-280-7223

Phil Guertin
Phil@CoastalCapital.com
949-378-2713

Quarterly Summary – Performance Recap Q4 2024

Coastal Capital experienced another busy and exciting quarter. The fund continues to grow providing more diversification and consistency in deal flow.

The fund managers update on investment outlook Newsletter.
Please click this link for the Investor Newsletter

Detailed current & historical performance metrics for the Fund.
Please click this link for the 3rd quarter of 2024 Summary

As always, we appreciate all our partners & brokers who we count on to make the Fund a success. Referrals for new investors and brokers are welcome anytime!

November 16, 2024 by Coastal Capital 0 Comments

Quarterly Summary – Performance Recap Q3 2024

Coastal Capital experienced another busy and exciting quarter. The fund continues to grow providing more diversification and consistency in deal flow.

The fund managers update on investment outlook Newsletter.
Please click this link for the Investor Newsletter

Detailed current & historical performance metrics for the Fund.
Please click this link for the 3rd quarter of 2024 Summary

As always, we appreciate all our partners & brokers who we count on to make the Fund a success. Referrals for new investors and brokers are welcome anytime!

Quarterly Summary – Performance Recap Q1 2024

Coastal Capital experienced another busy and exciting quarter. The fund continues to grow providing more diversification and consistency in deal flow.

Investor Newsletter

The fund managers update on investment outlook Newsletter.
Please click this link for the Investor Newsletter

Fund Performance Report

Detailed current & historical performance metrics for the Fund.
Please click this link for the 1st quarter of 2024 Summary

As always, we appreciate all our partners & brokers who we count on to make the Fund a success. Referrals for new investors and brokers are welcome anytime!

December 19, 2023 by Coastal Capital 0 Comments

Coastal Capital – December 2023 Latest Updates & InSights

COASTAL CAPITAL INSIGHTS

Each month Coastal Capital strives to bring you the latest updates and insights into the California real estate market for both investors and brokers.  We always welcome new investors who enjoy above-average returns that are not correlated to the equity markets.  As always, we appreciate both new investor and broker referrals, as the network builds it brings more value to all through diversification.

Please note that you can add on to your existing investment in any amount.  While an initial investment requires an investment of $100,000; existing partners in the Fund can add on in any amount from $2,500 or more.

MARKET UPDATE

The median sale price for existing single family residence homes is up 3.4% year-over-year as of October, according to the Fed. The average rate on the 30-year fixed mortgage had dropped to nearly 7% at the end of August, but then began rising sharply, jumping over 8% by mid-October. Rates have since retreated somewhat. This past week, well qualified buyers can get a low-7% rate again which has boosted mortgage application rates.

As we close the books on November another month has passed. Another month of higher home prices coupled with a lower number of homes selling! The number of existing home sales in October by volume was down 14.6% lower than they were a year earlier. We expect November’s numbers when released will reflect similarly. Last month, Lawrence Yun, the National Association of Realtor’s chief economist was quoted saying “Prospective home buyers experienced another difficult month due to the persistent lack of housing inventory and the highest mortgage rates in a generation.” We expect the current trend of modest appreciation in most California real estate markets to continue being fueled by low inventory levels.

Morgan Stanley analysts recently sent out a new 59-page report to investors, detailing their views on the U.S. economy, housing market, and bond market in 2024. Morgan Stanley analysts believe that the U.S. economy will avoid a recession, incomes will continue to rise, mortgage rates will decrease slightly, and U.S. housing activity will pick up a little.

Source: Morgan Stanley

Most other housing analysts still expect U.S. house prices to rise a modest single-digit amount in 2024. This includes forecasts by:

  • Mortgage Bankers Association: +4.1%
  • Fannie Mae: +2.4%
  • Wells Fargo: +2.5%
  • Goldman Sachs: +0.6%
  • AEI Housing Center: +4.0%
  • CoreLogic: +2.6%
  • Zillow: 0.0%

With all the experts forecasting in such a narrow range, we agree that most markets will hold steady and desirable areas will see normal appreciation of a few percentage points for most areas in California.  Our core markets of Los Angeles, Orange and San Diego counties may see more elevated appreciation rates.

 

Multifamily, the largest pool of assets securing our trust deeds, is holding strong and continues to perform well. Although rent growth has slowed, the vacancy rate has remained roughly 5% throughout 2023. Current interest rates will likely keep mortgage rates up near or above 7%, continuing to price out would-be homebuyers and sustaining the multifamily rental market demand. The only notable concern is the lack of demand for luxury apartments. They may be easy to build, but they’re not necessarily easy to occupy. As a result, many high-end apartments have reduced rents and offered concessions to attract residents.  The good news is that these large, luxury developments are usually 70-units or more and Coastal Capital is not a viable financing partner due to the needed financing amount.

 

Commercial real estate trends continue to be a mixed bag across market segments.  The office building vacancy rate reached 19.2% in Q3 according to Moody’s Analytics. That’s up from Q2 and approaching the historic peak of 19.3%. Despite these headwinds for office, it’s important to remember that while there is and will continue to be obsolete office, the office is not obsolete.  Older, less-desirable Class B and C offices may face obsolescence, but Class A is booming. Employers, especially tech, are realizing that they must upgrade to attract workers to return to office.  Many are going with downsizing from Class B and paying more per square foot for newer offices but a less total monthly lease cost.

 

Industrial continues to perform well, especially cold-storage properties, but the signs of softening are starting to show. The asset class may be moderating as the post-pandemic demand for more inventory decreases and renters hold off on expansion due to uncertainty of how rising interest rates will affect their business.  One highlight we are hearing in this market segment is re-shoring and nearshoring efforts are gaining traction in manufacturing and may provide a further boost for the sector.

 

Retail remains strong considering 85% of all shopping is still done at the retail locations.  The American Dream is still alive and well throughout California.  New entrepreneurs are constantly trying new restaurant menus, peddling innovative gadgets, and testing new ways to bring value with unique services.  Unless a major recession hit (which is not currently in the forecast) we expect to see slow and steady growth in this segment.


With national and regional banks tight credit standards the demand for the Fund’s short-term, business-purpose financing product continues to be in high demand.  If our pool of capital was even five-fold larger we would have no issues in deploying capital into high-quality deals.  Small business owners continue to request financing to grow their businesses, launch new locations or smooth out a cashflow issue.  Landlords continue to access the equity built up in their properties to complete renovations on existing properties to raise rents and increase cashflow from their units in the long term.  We expect both drivers of demand for our trust deeds to persist in the short-, medium- and long-term horizons.

 

Thank you to all our existing partners who have been referring over friends & family to join us.  Please note that our initial minimum investment is $100,000; however existing partners in the Fund can add on in any amount of $2,500 or more.

 

PORTFOLIO HIGHLIGHT

A third-generation business owner with near perfect credit needed a quick infusion of cash to seize an opportunity. Yes, he could have gone to the bank but without a credit line in place it was going to take a week, or two & he needed funds in less than a week or else lose out on the deal. His broker knew who to call to get him fast cash.

With a low, loan-to-value ratio and a home that beams with pride this was an easy underwrite. Thanks to an organized and responsive borrower we got the deal done in four days! We think we’ll see some more business from the broker soon.

  • SFR 5 BED / 4 BATH
  • Fullerton, CA
  • Position: 2nd TD
  • Rate: 12.99%
  • CLTV: 45%
  • Appraised Value: $1,700,000

Looking for a way to get more from your retirement savings? A self-directed IRA (SDIRA) could be the answer. We constantly get asked on how to set this up and asked the firm we recommend providing some insight with our investors:

What is a Self-Directed IRA?

Self-Directed IRA (SDIRA) is quite simply, an IRA. All IRAs abide by the same laws and possess the same capabilities. Unlike other IRAs held at banks, brokerage firms and other institutions, with a SDIRA, you’re not limited to stocks, bonds, or mutual funds.

 

What are the benefits?

A SDIRA gives you the opportunity to build a more diversified and resilient portfolio. It allows you to take advantage of alternative investments such as real estate, precious metals, private equity, notes, and more. A custodian/administrator is required to do the record keeping for the assets in your account, but nothing moves in or out of it without your direction. You decide how much, when, and most of all, what to invest in, giving you the freedom to invest in what you know best.

Investing in Real EstateWith a Self-Directed IRA

Real Estate is a popular investment among SDIRA holders because it is a tangible asset that people know and trust. With a SDIRA, you can invest in a wide range of real estate assets: residential or commercial properties, developed or undeveloped land, condos, hotels, mortgage notes, and more. Depending on what type of account you choose, earnings can continue to be either tax-free or tax-deferred.

The level of control and flexibility associated with a SDIRA does come with its own set of responsibilities. For example, investments made with your SDIRA are owned by your SDIRA, not by you personally, making self-dealing prohibited. Click here for more information on SDIRA rules. 

uDirect Logo

Brokers Always Welcome

Coastal Capital is always looking for referrals from brokers and open to new investors in the fund. Please share this email or connect us directly.

Asset Based Loans on Business Purpose Real Estate

  • Loan Amounts: Loan Amounts: $25,000 to $250,000 – Exceptions required for larger amounts
  • Origination Fees: 1 to 3 points with a  minimum of $2,000
  • Serving Location: State of California Only
  • Purpose: Business or Investment Purpose Only
  • Types: SFR Rentals, Multifamily, SFR Additions, Fix & Flip, ADUs, Light Commercial & Retail, Land.
  • Fix Loan Term: 6 months to 18 months
  • Rates: from 9% up to 18%
  • Loan to Value: 65% without exceptions, higher available
  • Loan to Cost: Up to 80% with hold back for exceptions
  • No minimum credit score. Low FICO credit score okay

HOW TO REACH THE TEAM AT COASTAL CAPITAL

Chris Tomasewski
Chris@CoastalCapital.com
310-529-5678

Scott Griest
Scott@CoastalCapital.com
310-529-9975

Chio Baldocchi
Chio@CoastalCapital.com
310-280-7223

Phil Guertin
Phil@CoastalCapital.com
949-378-2713

December 15, 2023 by Coastal Capital 0 Comments

Unveiling Hidden Treasures: The Investor’s Guide to Secondary and Tertiary Real Estate Markets

Have you ever serendipitously discovered a charming café tucked away in an unexpected corner and wondered, “How have I never heard of this place?” In the realm of real estate, similar hidden treasures exist in the form of secondary and tertiary markets. These markets, akin to undiscovered cafes, hold unique opportunities for investors. Let’s delve into this fascinating world:

Primary Markets: Major urban centers like Dallas, Los Angeles, and Chicago dominate these spaces. Secondary Markets: Cities such as Austin, Nashville, and Portland, which are on the rise. Tertiary Markets: Lesser-known yet promising areas like Bend, Oregon, or Macon, Georgia.

Considering investments in fix-and-flip projects or rental properties in these relatively obscure regions? Let’s examine the benefits and challenges.

Advantages of Investing in Secondary and Tertiary Markets:

  1. Cost-Effective Entry: These markets typically haven’t undergone the rapid urbanization and commercialization of primary cities. This lack of hype keeps property prices more affordable, allowing investors to make strategic investments without the financial burden associated with prime markets.
  2. Reduced Competition: Unlike the highly sought-after primary markets, secondary and tertiary markets fly under the radar. This means less competition, offering investors time to thoroughly evaluate properties and make more informed decisions.
  3. Potential for Strong Returns: The relatively untapped nature of these markets suggests significant growth potential. Investors can benefit from both immediate returns and long-term property appreciation as these areas develop.
  4. Stable Growth: Influenced more by local factors than global trends, secondary and tertiary markets often experience more predictable, steady growth. This stability is appealing for investors seeking sustainable returns.

Challenges in These Markets:

  1. Intensive Research Required: The lack of extensive data in these markets necessitates more hands-on research. Engaging with local realtors and community members can provide deeper insights into the market.
  2. Gradual Appreciation: Growth in these markets might be slower compared to primary markets. However, this steady pace allows investors to adapt their strategies over time.
  3. Networking Efforts: With fewer real estate events, investors may need to take the initiative in building networks through local meetups or online forums.
  4. Market Sensitivity: Local economic shifts can significantly impact these markets, making it crucial for investors to stay informed and adaptable.

Diving In: Research Tips for New Investments

  1. Local Expertise: Collaborate with local real estate agents or brokers for insights into the market dynamics.
  2. Community Engagement: Participate in local online forums and social media groups to stay informed about local developments.
  3. On-Site Visits: Explore the neighborhoods in person to gauge community spirit and local demand.
  4. Assess Local Amenities: Look for signs of community growth like new schools or recreational facilities, which can enhance property values.
  5. Stay Informed: Continuously update your knowledge about the local market to keep pace with changes.

For fix-and-flip projects, understanding local architectural preferences is key. For rental properties, it’s crucial to know the target tenant demographics, whether they’re families, young professionals, or retirees.

Conclusion

Navigating secondary and tertiary markets involves embracing their unique challenges and opportunities. The key is thorough knowledge, careful planning, and a reliable financial partner. In the evolving landscape of real estate investing, staying informed and flexible is crucial.

So, whether you’re making a major dive or a cautious foray into these markets, remember: every market has its distinct narrative. Happy investing, and may you discover your next great opportunity!

December 15, 2023 by Coastal Capital 0 Comments

Distressed Properties – A goldmine for Fix & Flippers

Distressed properties can be a goldmine for fix and flippers, offering the potential for significant profits. However, this venture also requires careful consideration and strategy. Here’s an insightful look into the world of distressed properties and how they can be transformed into profitable investments.

Understanding Distressed Properties

Distressed properties are typically homes that are under foreclosure or are being sold by lenders. Often, these properties are sold below market value because they require significant repairs or because the owner needs to sell quickly.

Why They’re a Goldmine for Fix and Flippers

  1. Lower Acquisition Costs: Since these properties are usually in less-than-ideal condition, they are often priced lower than other homes in the area. This lower entry price can translate into higher profit margins after renovations.
  2. Less Competition: Not every investor is willing or able to take on the challenges that come with distressed properties. This can mean less competition for fix and flippers who specialize in these types of homes.
  3. Potential for Significant Value Increase: With the right improvements, distressed properties can increase substantially in value, offering an excellent return on investment.

The Challenges Involved

  1. Extensive Repairs Needed: These properties often require more extensive and expensive repairs. This can include structural issues, outdated systems, and neglected maintenance.
  2. Financial Risks: The costs associated with renovating distressed properties can be high, and there’s always a risk that the property won’t sell for as much as anticipated.
  3. Time-Consuming: The process of renovating and selling a distressed property can be time-consuming, which can impact the overall profitability if the market changes.

Strategies for Success

  1. Thorough Research: Understand the local real estate market and the specifics of the property. This includes evaluating the cost of necessary repairs and the potential market value after renovations.
  2. Build a Skilled Team: Work with experienced contractors, real estate agents, and legal advisors who understand the nuances of dealing with distressed properties.
  3. Effective Budgeting: Keep a tight rein on renovation costs. It’s easy to overspend on renovations, which can eat into your profit margins.
  4. Creative Vision: Often, these properties require a creative approach to unlock their full potential. This might involve reimagining the space or using innovative design solutions.

Conclusion

Distressed properties can indeed be a goldmine for fix and flippers, but they require a mix of market knowledge, strategic planning, and a willingness to tackle challenges head-on. With the right approach, these properties can turn into lucrative investments. Remember, success in this area often hinges on the ability to see potential where others see problems.

October 23, 2023 by Coastal Capital 0 Comments

Loan to Cost Ratio – Explained

The Loan-to-Cost (LTC) ratio is a financial metric used in commercial real estate that measures the percentage of a property’s acquisition, rehab, and construction costs that’s financed by a loan. It’s calculated by dividing the loan amount by the total cost of the project.

Here’s the formula:

For instance, if the cost of acquiring and rehabilitating a commercial property is $1 million, and you secure a loan of $700,000, the LTC would be 70%.

LTC is an important metric for several reasons:

1. Risk Assessment: Lenders use LTC to assess the risk associated with a real estate loan. A higher LTC ratio indicates that the borrower has less equity invested in the project, implying a higher risk for the lender if the project fails or the borrower defaults.

2. Loan Approval and Amount: The LTC ratio also helps determine whether a lender will approve a loan and how much they’re willing to lend. Most lenders have a maximum LTC ratio that they’re willing to extend. If a project’s LTC ratio exceeds this limit, the lender may not approve the loan, or they may require the borrower to invest more of their own equity.

3. Investor Equity Requirement: From the investor’s perspective, the LTC ratio can help determine how much of their own equity they’ll need to contribute to a project. For example, if a lender has a maximum LTC ratio of 75%, the borrower will need to contribute at least 25% of the total project cost.

4. Profitability Analysis: Investors can also use the LTC ratio in their profitability analysis. If the loan amount covers a large percentage of the project cost, the investor could potentially realize a higher return on their equity investment, assuming the project is successful.

Remember that while the LTC ratio is a useful tool in the loan evaluation and investment decision process, it’s just one of several financial metrics used in real estate finance. Other important metrics include the Loan-to-Value (LTV) ratio, the After-Repair Value (ARV), and the Debt Service Coverage Ratio (DSCR).

October 11, 2023 by Coastal Capital 0 Comments

Most common rehab loans

Rehab loans, also known as fix-and-flip loans or renovation loans, are used by investors to purchase and renovate properties. Here are some of the most common types of rehab loans:

1. FHA 203(k) Loans: These loans are insured by the Federal Housing Administration (FHA), and are intended for owner-occupied properties. There are two types: standard and limited. Standard 203(k) loans can be used for structural repairs and renovations, while limited 203(k) loans are for non-structural repairs. The property must be at least one year old, and there are limits on the loan amount, which vary by location.

2. HomeStyle Renovation Loans: This loan is offered by Fannie Mae and can be used for almost any type of renovation, including luxury items like pools or landscaping. It can be used for investment properties, second homes, and primary residences. Borrowers need a minimum credit score of 620 and the renovations must be completed within 12 months.

3. Hard Money Loans: These are short-term loans offered by private lenders, often used by experienced investors for properties that require extensive renovations. The loans are typically interest-only with a term of 1-3 years, and the lender usually requires a detailed renovation plan and budget. They are ideal for properties that need quick closing or that may not qualify for traditional financing due to their condition.

4. Bridge Loans: Also known as swing loans, these are short-term loans that “bridge” the gap between the purchase of a new property and the sale of an existing one. They can be helpful when an investor needs to act quickly on a new opportunity but hasn’t yet sold an existing property.

5. Cash-Out Refinance Loans: This is when an investor refinances an existing property for more than the current mortgage balance, and receives the difference in cash. This can be used to fund renovations on the property.

6. Investment Property Line of Credit (LOC): This is a revolving line of credit that an investor can draw on to fund property renovations. This can be a flexible option for experienced investors who have multiple properties.

Remember, each loan type has its own qualification criteria, interest rates, fees, and terms. It’s important to understand the details of each type of loan and to work with a lender who specializes in rehab loans.

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