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South Carolina lender pitching short-term loans to Tampa Bay house flippers

Benjamin Cordoba, 32, bought and fixed up this Seminole Heights house he is now selling with a loan from Lima One Capital. Lima One loans money specifically to house flippers, like Cordoba.
Benjamin Cordoba, 32, bought and fixed up this Seminole Heights house he is now selling with a loan from Lima One Capital. Lima One loans money specifically to house flippers, like Cordoba.
Published Dec. 12, 2015

As with any profitable investment, the key to successful house flipping is: Buy low, sell high.

But with Tampa Bay home prices steadily rising, flippers are finding it ever harder to get good deals, especially when they're short of cash.

"I have people say, 'Gosh, I'd like to buy another property but I'm tapped out,' " said Kevin Cottrill, a St. Petersburg agent who works with real estate investors.

That's where a South Carolina company hopes to enter the picture.

Lima One Capital, an alternative lender, offers 13-month "FixNFlip'' loans to buy and rehab houses for resale. The company says it can approve loan applications and get the money out much faster than traditional lenders, enabling flippers short on funds to better compete with cash buyers for the best home sale price.

"Tampa Bay is a very profitable investor market,'' said John Warren, an Iraq war veteran who founded the company in 2009. "If all the clients in the Tampa Bay area leveraged their capital, they'd skyrocket their returns.''

Due to the foreclosure crisis, which pushed thousands of homes onto the market, the Tampa Bay area became, and remains, one of the nation's hottest areas for flipping.

For the three months ended in September, RealtyTrac found that flippers in Tampa's 33603 ZIP Code — which includes part of trendy Seminole Heights — had the second-highest average gross return on investment (130 percent) among the top 20 U.S. ZIPs with at least 10 completed flips.

Also in the top 20: St. Petersburg's Historic Kenwood area, which showed a gross return of 93 percent; and northwest Clearwater, with an average 87 percent return on investment.

In the past year, though, Tampa Bay home prices have jumped 7 percent. That's made it harder for flippers who aren't independently wealthy to buy and rehab houses. And banks' willingness and ability to make loans for investment properties have been sharply curtailed since the real estate crash.

Warren, a former infantry officer in the Marines, had done a few flips himself before serving two tours in Iraq.

"When I came out, I was looking for different opportunities, and with all the new regulations like Dodd-Frank I noticed that all the banks had been regulated out of the industry in terms of lending for non-owner-occupied assets,'' said Warren, 39, who has a master's degree in business administration. "I saw tremendous opportunity with all of the real estate investors out there.''

With a $1 million investment from the owner of a bagel company — "he thought residential real estate was a pretty hot market'' — Warren started Lima One Capital and began loaning money to flippers. He has continued raising money: He is vague about where he gets it, saying only that "all of our capital is institutions, very large institutions.''

Lima One was lending in Georgia, Ohio and the Carolinas when clients began asking when it planned to move into Florida, a flipping hotbed. After raising more capital and getting licensed in Florida as a mortgage originator, the company opened offices in Orlando and Miami last year and began lending statewide.

Lima One requires applicants to have a minimum credit score of 630 and generally enough money of their own to cover at least 20 percent of the purchase price and 20 percent of any rehab costs. Interest rates range from 10 percent for experienced investors to 12 percent for newbie or "fresh'' flippers, as Warren calls them. Loan origination points, which vary from 2 to 3.5 points, are rolled into the loan amount.

"There are no junk fees, no hidden costs, we close in five to seven days,'' Warren said. "There's no maximum — we've done $1.5 million to $2 million loans, also small loans for $30,0000 where the borrower already bought the property and just needs construction funds.''

So far, Warren said, the average Florida loan has been for roughly $160,000, covering both purchase and rehab. The average loan term is nine months and the average net return on investment has been a whopping 123 percent, Warren said.

Some Tampa Bay Realtors who work with investors doubt that most flippers who borrow could do anywhere near that well.

"I don't have one investor that's buying and selling that doesn't have cash,'' said broker Scott Samuels. "Every single one has had cash. By the time (Lima One borrowers) pay the fees they have to pay this company and the amount of interest, it gets real difficult. Margins are pretty slim in this flipping world and with all the competition I don't see how they're making money.''

Cottrill, who works with Samuels, is skeptical, too. However, he calls Warren "smart to come up with that idea'' of offering alternatives to banks and "hard-money'' lenders who charge even higher interest rates than Lima.

Still, Cottrill warns, anybody borrowing to do a flip needs to proceed cautiously.

"There's no shortage of people willing to pay too much for a house,'' he said.

Warren said his company works closely with first-time flippers, introducing them to Realtors, contractors and "wholesalers'' that buy homes cheap and sell them at low markups to other investors.

"We walk them through the process,'' he said.

Among those first-timers is Benjamin Cordoba of Tampa. Cordoba, who has a bouncy house business, owns a couple of rental properties but thought he could get a "quicker cash flow'' by flipping a house.

With a $75,000 loan from Lima One Capital, which he heard about from another investor, Cordoba bought a three-bedroom, two-bath house in Seminole Heights in July for $53,000. He then spent $40,000 or so on extensive renovations, including a new roof, new kitchen, paint and drywall.

Listed in late August, the house is currently priced at $134,890 but has no offers. But Cordoba, who pays Lima One $750 a month in interest, is unfazed.

"I'm going to make good money off it,'' he said, "but not as much as I envisioned because it's been on the market a little longer than I expected and I had to do more rehab work.''

As for his dealings with Lima One, "everything has been great,'' Cordoba said. "I recommended them to another investor so now a lot of investors are using them.''

Despite the work involved, Cordoba got the house at a good price. Such deals are becoming much tougher to find.

"If you go back five years, right after the crash when there were tons of foreclosures, most of our clients were making most of their profit on actual acquisitions,'' Warren said. "Banks were giving it away, and they were scooping up and getting properties at very cheap rates for what the true value was.''

With foreclosures drying up, Warren predicts that most of his clients will start buying from wholesalers or use Realtors to help find properties the traditional way through the Multiple Listing Service. As in Cordoba's case, much of the loan money will be spent on repairs and upgrades so the flipper can get a good price on resale.

"Profitability is not the problem, the amount of inventory is,'' Warren said. "It's just hard to find inventory as the market comes back because everyone — investor and homeowner — is trying to buy properties, so it's much harder to find the flips. On the positive side, a lot of the property is sold before they even have finished the rehab.''

Contact Susan Taylor Martin at smartin@tampabay.com or (727) 893-8642. Follow @susanskate.

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