Connecticut Rehab Projects: Insights from a Local Lender - RCN Capital

Speaker: Mitchell Zagrodnik, Partnerships Coordinator, RCN Capital

Mitchell Zagrodnik: So here at RCN capital in our home state of Connecticut, a lot of the trends we're seeing with rehab projects currently are usually going to be around light to moderate rehab on these properties. So we're talking rehab budgets in the vicinity of, you know, $25,000 to about $50,000 getting put into these properties before they get listed for resale. A lot of this is because the experienced investors in this area, they know the market, they don't want to put too much rehab into these properties and get those price ranges after a pair too high to where it's outside of where the borrower's pockets are extended to, right. So, you know, they want to put minimum to medium amounts of rehab into this. So that when they're listed for resale, they hit their price range that they're aiming for to where the borrowers are still reaching a significant profit on these as well. The types of rehab projects we're doing here in Connecticut, you know, we're not really seeing add-ons out here adding square footage, not necessarily something we've been doing a lot. It's really just gonna be single family 1 to 4 units. That's been our bread and butter for the last couple of years. And like I said, you know, $25,000 to $50,000 worth of rehab, average loan amounts in these areas are around, you know, $300,000. And, yeah, that's what we're seeing right now.

Mitchell Zagrodnik: As far as some of the challenges that our real estate investor clients have been facing lately in the state of Connecticut. To be honest, there hasn't been many hurdles to jump through. I mean, obviously it's been a higher rate environment the last year, year and a half and you know, with RCN's loans being interest only payments with no prepayment penalty, a lot of times these deals don't take, you know, 12 month terms, right? They can be done in, you know, three or four months if you have someone who's experienced. So, you know, the higher rates they're getting these projects done and sold quickly. You know, it's not as much of a bother to invest your clients. An instance I I've seen personally with the deal is, you know, it's been hard to find, you know, properties get properties under contract, it's competitive, you know, trying to get a property to fix and flip. One specific deal comes to mind and with that specific investor we were looking for, you know, a property for a little while trying different ones and the return on investment would always come back a little bit low based on the numbers. So that was a challenge that came up. But other than that, I feel like investors here have adjusted, um especially experienced ones. They're looking for, you know, specific property ranges typically between, you know, $250,000 to $350,000 dollar properties on that. And then just like I've mentioned before, $25,000 to $50,000 rehab budgets and putting a good amount of rehab into this to where they can actually get a good amount of return on the purchase afterwards and, and stick to that fix and flip mindset.

Mitchell Zagrodnik: As far as a common investment strategy for our clients, whether it's fix and flip or, or fix to rent even. I'd say it's pretty, pretty balanced. You see some that do both a majority of time, I would say that they're looking to flip the property. Certain circumstances though borrower might decide, hey, I have a pretty good property on my hands here and they might change that strategy, right? Maybe initially go into the deal looking to flip it and then kind of change their mind going through once they realize they have a good, you know, possible cash flowing investment property, they decide they want to hold and rent, right? And, and with our program, we have that flexibility at RCN capital. So it's something we see frequently. But the areas that we're seeing these investors, you know, target in Connecticut, mainly, you know, Norwalk, New Haven, West Haven, actually, we do some pretty good deals there and then New Britain as well. If you're not familiar with Connecticut, you know, these are the bigger cities, right? College towns even, you know, a lot of commercial areas. So a lot of opportunity there and our experienced investors, they notice that and, and that's why they're trying to pounce on these properties and, you know, make some profit.

Mitchell Zagrodnik: Yeah, RCN capital, we do all kinds of rehab projects, you know, cosmetic light, moderate heavy, that's kind of how we classify them and, and it usually depends on the, you know, amount the rehab budget is, right. And the scale of the project that the borrower is going to do. But as I've mentioned previously, the majority of our deals I would say are in that light to moderate range, you know, $75,000 you know, sometimes more depending on the property values, you know, it could go up to about $100,000. But again, investors are being very conscious in this area, you know, with what they are after repair values are going to be trying to stick to, you know, where the buyer market is, right? But, you know, our bread and butter is really going to be that, that light to moderate space. cosmetic stuff. There's a little bit here and there some heavy rehab, I will say. But we're very strict on experience when it comes to that, right? You know, a project that's got a $50,000 rehab, you know, compared to one that has $200,000, right is gonna look a little bit different. We're gonna be looking at different things. Trying to gauge the borrower's experience a little bit more. Especially we would like to see them, you know, have at least some experience, at least one, you know, doing a similar type of scope of project before we go ahead and move forward with the deal. But yeah, that's based on how our guidelines are structured. And, you know, we just want to make sure that the borrowers, you know, understand the type of project that they're getting into and, you know, understand the scale of it. Right. So we gauge their experience a little bit more on that.

Mitchell Zagrodnik: RCNS rehab loan program is pretty straightforward. We can do up to 85% of the purchase price and we'll lend 100% of the renovation costs as well, not to exceed 70% of the ARV or the after repair value. Now, it's gonna qualify a borrower for that 85%. Is we're gonna be looking mainly at experience, right? And it's very important to stress that experience has to be rehab specific experience. A deal where a borrower has is coming in and has five rental properties, but no rehab experience, those terms are gonna look a lot different than somebody coming in that has done three previous rehab projects, right? And those three projects within the last three years is really what we're looking for to consider a borrower, an experienced investor, right? So if it's their first flip, that's fine for us, we're more than happy to help out and get someone their first flip deal done and we love doing that. We work with first time investors all the time. But those terms are gonna look a little bit different, you know, we're gonna want to be a little bit more conservative on our end based on our guidelines. And we'd want to make sure that the borrower, you know, at least has some experience or has someone on the property that has some experience depending on the type of rehab that's being done. Right. We allow the borrower to do those projects themselves, but depending on the work, right, if it's gonna be something with HVAC Pipes, things like that, you know, we're gonna want to make sure there's somebody there that knows what they're doing, how the loan is structured though. It's a 12 month term, there's no prepayment penalty on this and these are interest only payments as well and we hold the rehab budget as well, as sort of a draw reimbursement style format, right? So we want to see the work be completed. And then we'll send an inspector out, you know, that's third party, they'll check the property, make sure the work's been done. And based on that, you know, they'll confirm it, we'll reimburse those funds back to the borrower. And they can continue on with the project, right? But there's a lot of flexibility with this program as well. In case if they want to fix and re or rehab to sell or if they want to rehab to rent, they can decide, you know, hey, I wanna hold this property long term. Keep it as a cash flowing rental property. And you know, we can make that work as well based on this program. So pretty straightforward and yeah, those are some of the highlights of our rehab program.