There are numerous hard money lenders in this country and their services are highly appreciated. One of the reasons for that is that there are still a lot of distressed and foreclosed properties for which traditional lenders are reluctant to provide financing. Because of the fact that there is a demand for hard money, the US market is particularly interesting for foreign investors as well. A recent report, the EY 2018 UK Bridging Market Study showed that our market could be particularly interesting for investors from the United Kingdom.
If they were to consider international expansion, the US market appeals to many bridging lenders, as they can offer a similar product proposition and there is capacity to grow quickly.
One of the reasons why this country is so interesting for foreign bridge lenders is because the regulatory environment is quite easy. Each state has its own Department of Real Estate, which mandates only that there has to be at least one person with a valid real estate broker license. The exact requirements for that license also vary, with the requirements in Georgia being wholly different from those in Arkansas, for instance.
Why this Country Is So Appealing to UK Lenders
One of the main reasons why UK hard money lenders are so interested in this country is because of the size of the market itself. The UK market, while sizable, is quite limited, particularly since the Brexit vote.
Mat Oakley, head of European commercial research at Savills, says that deals were now taking longer to sign and investors were seeking clarity over Britain’s future status.
The US market, on the other hand, is both incredibly large and highly secure. Furthermore, compared to other countries, including England and Wales, the US is a lot more creditor-friendly. The result is that, for hard money lenders at least, the market is incredibly attractive. An added element is that many hard money lenders in the UK are growing very rapidly, which means international expansion will soon be an absolute requirement.
The Great Recession was terrible and its social, political, and economic impact will long be felt. However, out of the doom and gloom, a number of positive developments have also been noted.
The Great Recession caused many businesses to close their doors or file for bankruptcy protection, but the rapid rise in unemployment also drove an increase in entrepreneurship. For many people across the U.S., the potential opportunities from opening a new business outweighed the alternatives, despite slumping demand and tight credit.
Of particular interest is the fact that one of the areas in which entrepreneurship was seen more than in others was in construction and real estate. The opportunities to make a huge profit from the property market in the US, particularly with house prices rising again, are significant. So much so, in fact, that it would be financial suicide for any investor not to consider it. If partnered correctly, the environment is near-perfect for lenders from the UK.
Problems Facing UK Lenders in This Country
While it is undeniable that the opportunity is there and that it promises lucrative returns and particularly due to the fact that the two countries use the same language and that there are few legal barriers in place, there are some obstacles to be aware of as well. The UK market is shrinking rapidly and this has made competition much tighter. The result is that many look at US and presume that, due to the size, there is room for more lenders. However, the reality is that, while the country may be large, there are already many hard money lenders in the US. Indeed, within this country, it can be difficult for a prospective new lender to determine market share.
Do you know your organization’s local, regional and national market share? Accurate volume data about the private lending market can be hard to come by. Yet it’s critical to know the size of your market if you want to raise capital, measure success or grow your business.
While there is certainly a demand for private lenders in this country, there certainly isn’t a shortage in supply. Meanwhile, the infrastructure, regulatory framework, and legal system is not as stringent as what it is in the UK, meaning that lenders may feel somewhat unprotected. Indeed, many private lenders from this country were looking at investing in the UK before the Brexit vote happened.
If UK lenders want to move into this country, they will require very significant resources. Naturally, a capital resource will be essential in order to provide the loans in the first place. But they will also have to conduct significant research and have the funds available to build a recognizable brand that outshines that of the lenders that are already here. Hence, it seems that most financial experts would now suggest that UK hard money lenders should not set themselves up as separate entities on this market, but rather that they partner with a firm that is already here.
In order to complete an international expansion, and certainly one as far in distance as between the UK and this country, will require significant due diligence and a lot of research. Additionally, it means the lenders must start to build a local professional network, which takes time. For many existing private lenders, this is too big of a hurdle to overcome.
Another potential issue is the fragmentation of the market. Each state has different rules in relation to the recovery of hard money loans. For instance, it is very easy to achieve foreclosure in California, but much more difficult in New Jersey, Florida, and New York. This disparity is something that foreign lenders find hard to work with.
Texas processes foreclosures fastest, with an average of 90 days. At the other end is New York, with an average of 1,019 days. Experts say there are pros and cons to getting through them both too fast and too slow. The national average is 348 days to complete a foreclosure.
At the same time, the market for financial services in this country is one of the most sophisticated in the world. This means that those looking for bridging opportunities often already have somewhere to go. It would be nearly impossible for a foreign investor to be able to compete with this.
Nevertheless, throughout its history, this country has been the land of opportunity. From the gold rush to oil to real estate, it is where people can obtain untold riches if they can conquer the market. That is a dangling carrot that some investors simply find too hard to resist.[/column] [column width=”1/1″ last=”true” title=”” title_type=”single” animation=”none” implicit=”true”]