As I travel around this country training my clients on Renovation Lending, I am consistently hearing issues with shortages in housing inventory. It is hard to go a day without seeing another article pointing out inventory shortages in some part of the country and the issues it is creating.
Inventory shortages are often brought up in the training classes I give for my client’s sales staff for renovation. What many don’t realize is the incredible opportunity these shortages open up for renovation. There may be some down side as well and I’ll walk through both the pros and the cons.
Often times, when in an area of low inventory, renovation loans may initially take a back seat. If a home only needs small upgrades or repairs or is just a little dated, sellers may not accept offers which include financing the purchase with a renovation loan. Many times sellers may get all cash offers or offers with standard non-renovation financing and those will be more readily accepted as they will close faster, in most instances, than a renovation loan. However, this is not the demise for renovation!
While minor items and turnkey properties may not be likely renovation options, there are still many other opportunities for renovation. Often in tight inventory areas the homes that are most abundant are homes that need substantial work! These homes are often priced well below market value, even in a seller’s market, and make prime opportunities for utilizing a renovation loan for the purchase. Many of these homes may not qualify for standard financing and the only other option will be cash buyers. Eventually, cash buyers run out in an area while homes are still available.
This creates a fantastic opportunity for borrowers to find homes at a discounted price, in good neighborhoods, and use a renovation loan for the purchase and improvement of the home. In areas where inventories have been low for some time, these may be some of the few homes that are available for any amount of time! This creates great opportunity for renovation. These homes are not only REO and total gut rehabilitation properties, but properties which may not have a functional heating system, water leaks, broken windows, etc. Homes which are priced below market, due to condition, but not abandoned foreclosure REO properties. Some will be in very rough shape, others just need a specific item or 2, but all would qualify for a renovation loan!
Offering renovation and marketing these homes with a renovation loan may also allow lenders to gain entrance into Real Estate offices. If an office has sufficient lending outlets, it can be difficult to “break” into that office. Find properties that office has listed, which can use a renovation loan to help it sell and it might be the key to unlocking that relationship.
Another opportunity which many forego, are homeowners who love their neighborhood, but are outgrowing their home or are getting older and their home is not very well suited for an aging homeowner. In these instances, a renovation refinance may be the best answer! If the homeowner can’t find another home in their area which would meet their needs, they can use a renovation loan to modify their existing home into the home they need, whether that means an expansion and addition, or modifying key areas to be more suitable for aging in place. As long as the completed value of the home will support the improvements or repairs needed, a renovation loan could be a perfect solution.
Even though we may not be in a true refinance market and the homeowner may need a rate slightly higher than their current rate, this is still likely to be the most inexpensive way to finance the improvements. It may be considerably less expensive than finding a new home in a nearby area that meets their needs, if they could find one at all, in a tight inventory market. Many buyers have difficulty finding affordable homes that would meet their needs in areas they wish to live. These are all tremendous opportunities to use a renovation loan, be a step ahead in your market, and bring solutions that others are not offering.
Understanding the real value renovation lending can bring can have a dramatic change on your production. Don’t leave opportunities in the street for someone else to exploit. Use renovation lending to open doors to more loans, referral partners, and help more borrowers find solutions to their housing needs.