Optimizing Fix and Flip Programs for Growth and Profit

Originally published in Private Lender Magazine by AAPL

To set your company up for success in fix-and-flip lending, the right mix of standardization, people, and technology is key for a profitable program. In this article, we will explore the best practices to deliver better efficiencies, transparency, and an outstanding customer experience.

Process Standardizations Drives Better Experiences

In order for companies like yours to succeed and grow, consider how company-wide standardizations can provide benefits in multiple areas, for both borrowers and internal teams. Temple View Capital, a leading fix-and-flip lender, has focused on standardizing processes which have made all the difference for their nationwide program.

“To do fix-and-flip nationally, we have found it is important that we have processes that are standardized and easy for our time-strapped borrowers to go through. Our borrowers are busy getting their project finished so they can sell it, make their money, and move on to their next deal. We won’t be able to keep borrowers if we can’t offer consistencies,” says Eugene Amegashitsi, VP of Loan and Portfolio Administration at Temple View Capital.

For example, Temple View has created a standard process for each borrower that sets them up for success. “We have created tiers based on borrower experience, so when a new borrower comes in, we know which tier to place them in, and they are on the right path for them from the very start of our business relationship together,” says Amegashitsi. “As the borrower’s experience grows, we are able to give them more flexibility and better terms. It may start off as a business transaction, but depending on how the borrower wants to grow, and how business goes overall, it can actually become a very beneficial symbiotic relationship, which ultimately is what breeds success for everyone.”

Communicate Often and Early

To optimize your programs even more, consider what improvements you can make in regards to your customer’s experience and communication, transparency, and the dependability the borrower has in you. “The easier we can make it to communicate and be able to get access to information, the better and easier the portfolio will be to manage and keep it in good standing,” says Amegashitsi.

“We have taken a huge step in communication, especially post-closing. Because what happens after the loan closes in fix-and-flip? The borrower typically runs into problems. They will be getting into properties where they don’t know what’s going on behind the walls. We make it our goal to make sure that questions are answered quickly and with clarity. It’s our personal company goal to respond to inquiries within 24 hours. We use technology that keeps all communication and information in one place, and that is incredibly helpful in meeting our goal of a 24 hour response. That kind of turnaround helps our borrowers to keep moving on their projects.”

Additionally, this communication is successful due to great team members.  Having a team that understands and utilizes the tools they have enables them to quickly and clearly respond to people’s needs. Says Amegashitsi, “We use a platform that has allowed us to keep a record of communication and continue to follow up. Staying on top of any potential issues that could become problems, and quickly managing complaints has been a huge huge part of success with our customer service, and that’s a big deal.” Amegashitsi has found that for Temple View, being able to use technology to communicate, execute documents, and keep all the communication and documentations in one place, helps to keep others and themselves accountable. “Without communication, there is a lot of frustration,” says Amegashitsi. “When you are talking about people who make a living doing these construction projects, being frustrated because they can’t get answers or money quickly can be a big issue.”

Technology is Key to Optimize Efficiencies

You can create more efficiencies in your day to day processes with fix-and-flip lending, in part by using technology. Says Amegashitsi, “We have used technology to improve, more than anything, the process of requesting draws and managing construction projects.  Before we started using construction loan management software, I had no idea how much time it took from a borrower requesting a draw, to when the inspection was ordered, to when the inspector got out to the site, to when a draw was processed. We have a very clear understanding of that timeframe now, and using technology has sped up that process drastically.”

If you’re feeling any pain around managing your projects, you will likely want to invest in technology. Not only is it easier to manage the loans, but it offers a better customer experience and it helps you to make smarter decisions about your pipeline. Amegashitsi says, “With technology, at any given point I can pull a report of what’s happening in my portfolio and get different understandings of what’s occurring and do comparative analysis.” You may want to better understand how you were doing a year ago compared to now, or since Covid.  Lately, Amegashitsi has been leveraging easy reporting tools to analyze draw request volumes, numbers, and time frames compared to 2020 and to see how Covid has impacted them.

Another thing you will want visibility into is your portfolio pipeline health, and how quickly projects are moving.  “I review percentages of project completion, individually and as a whole. I want to see how far and fast projects are moving. I generally check to see the percentage of projects that are 40-70 percent complete so I can see how the portfolio is flowing. For our company, and each company will have to determine these metrics for themselves, we have a certain standard for what we call a healthy pipeline, so as projects progress, we need to know what is replacing it. I can look at that and go to the sales team and tell them we need more loans. It gives us a great idea of the flow of business and lets us know where we need to push.”

In addition to pipeline health, you will want to create a cadence for when to look at the health of each project, specifically how many days has passed since the last draw. Amegashitsi says, “I need to understand how many people are within a normal time frame, which is 30-60 days for us, and who is beyond 180 days. Because if you haven’t taken a draw in 6 months, there is an issue we need to understand and deal with.” It is setting checkpoints like these that will help you  understand if you need to touch base with that borrower. There could be a small problem, which if you take care of now, will stop from becoming a bigger issue that will be more costly to resolve down the line.

Navigating the Market for 2021

Everyone in this market is considering how to work with the slow down in overall originations in fix-and-flip. Until the market opens back up in regards to foreclosures and evictions, the available properties for your borrowers to do their best business is not as robust as it once was. “We are having to compete with every day homebuyers who are driving up prices, and at some point it just becomes a losing proposition. So we have to be more diligent in our appraisals and our assessments of where values are, to make sure we are not lending based on values that are out of touch with the actual market,” says Amegashitsi.

With your financial capabilities, technology, teams, and standardizations, you’re able to attract best in class borrowers that return to you time and time again.

Originally published in Private Lender Magazine by AAPL

Read the original article from AAPL

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