Please help me find stats and hard data regarding defaults in hard money (asset based) lending.
Hello! Thanks for your question asking for statistics and hard data regarding defaults in hard money.
In short, the average default rate in the hard money lending industry in 2008-09 was less than 1%; by 2013, this appears to have increased to around 2%. The industry itself is growing; investors are making an average profit of about $61,000 on each home flip.
Please read on for a deep dive of my findings along with how I came to this conclusion.
While conducting this research, I have assumed hard money loans to be loans for real estate entrepreneurs such as commercial, multi family, flipping etc. and not personal loans.
While I found a variety of news reports from publications such as Bloomberg, Forbes, Wall Street Journal and Morningstar, there was very little information on default rates in this industry. Next, I looked for databases of the top hard money lenders and then looked for default rate data for some of these players. I looked for global data as well and while the industry does exist in UK and Europe, I was unable to find any credible data.
STATISTICS ON HARD MONEY LENDING
- According to RealtyTrac, which tracks real estate data and analytics, the average return on investment for house flippers grew from about 20 % in 2011 to 35 % to 2015. In some parts of the country, 8-10 % of all single family home sales are fix and flips. The same article also states that many flippers depend upon fix and flip loans to fund renovations and investing in such loans can potential yield annual returns of 12-14% or higher
- Investors are making an average profit of about $61,000 on each flip, up from about $19,000 at the bottom of the market in 2009, according to housing-research firm ATTOM Data Solutions, which is the parent company of real-estate website RealtyTrac. The market for house-flipping loans in the U.S. is expected to reach about $48 billion in total sales volume this year, the highest since 2006, according to ATTOM.
- The average gross profit for completed flips in the first quarter was $72,450, up from $61,684 a year earlier and the highest in records dating to 2011, according to a report from RealtyTrac
- According to RealtyTrac data, flippers are averaging a return on investment (ROI) of 41% for homes priced $750,000 to $1 million, and a 35% ROI for homes priced in the $1 to $2 million range. In comparison, flipping a home priced between $200,000 to $300,000 generated a 22% return, the data shows. Of buyers who resold homes at prices ranging from $750,000 to $5 million, 51% made their initial purchase with cash, suggesting that nearly half are using some kind of financing. Data from Inside Mortgage Finance indicates that less than 2% of overall home loans are backed by hard money
- Hard money lending marketplace PeerStreet had not faced a single default despite completing 43 hard money loans. Another player Broadmark Capital's first fund had experienced only 6 defaults (a 1.8% default rate) and their second fund had experienced only a single default (a 1.7% default rate) till 2015. Another investor who sources his hard money himself stated that he had experienced 0 defaults and this was consistent with his experience in the previous years
- In Sherman Bridge Lending's interview, the hard money lender states that their default is 0.2%, one-tenth of the industry standard, indicating that the average default rate for the industry is around 2%, consistent also with the data uncovered earlier
- An average hard money lender suffered a default rate of less than 1% in 2008-09, according to a Seeking Alpha blog post
To wrap it up, hard money lending is a growing industry that is offering good returns to investors. I hope this information is useful to you. Thanks for using Wonder!