Not Again

| May 15, 2018
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I had to do a double take when reading this story in The Wall Street Journal.

Residential Transition Loans

Borrowers of residential transitional loans—or flip loans, as they are better known—use the money to buy a property, renovate it and then try to quickly resell at a profit. They have become a lucrative and growing niche of finance in recent years. Nomura Holdings Inc. estimates that flippers will borrow some $15 billion this year, nearly 25% more than last year.

Reaching For Yield

These loans command juicy interest rates of 8% to 12% and often have maturities of around 12 months, though many borrowers repay earlier. A one-year U.S. Treasury, by comparison, yields, around 2.27%.

There Is Always A Risk

But flip loans come with risks. If a renovated property doesn’t sell for a higher price or the borrower can’t refinance, the lender may wind up owning a house. That can happen if the housing market sours mid-flip, if remodelers misjudge their costs or the tastes of potential buyers, or if appraisals value properties too richly at the onset.


Stay Tuned, Disciplined & Patient! {TJM}

The Investor & Character Equation (ICE) | S + R = O


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