Kiavi, a one-stop lender for real estate investors, is pulling back its lending parameters. This move occurs as the fix-and-flip market continues to experience dramatic shrinkage. Kiavi Chief Executive Arvind Mohan said, for example, that his firm has become more choosy about the clients it works with. This move is in direct response to today’s economic uncertainty and rapidly evolving market landscape.
During that period, the fix-and-flip sector has started to cool. A new Investor Activity index published by Kiavi and John Burns Research and Consulting shows activity fell just below Q1 2023 levels in Q2 and fell more sharply from year-ago levels. This index, which surveys roughly 400 house flippers, offers an early look at current and anticipated sales as well as the competitive environment in the market.
Mohan noted that in this environment, it’s especially critical to be good stewards of capital. He was particularly concerned that gaps in transactions could significantly lock up capital.
“If it takes Kiavi an extra month to complete a transaction, that’s capital that’s tied up in that property that can’t necessarily be freed up for the next investment.” – Arvind Mohan
As they were struggling to make sense of these new realities, Mohan noticed a change in the attitudes of flippers. Consumers are more openly mindful with their purchase intent. Market conditions have shifted to the point where they are buying fewer properties than a year ago. He pointed out a change in their buying patterns. In the past, they purchased “four out of six” chances, while today they’re much more likely to get “two or three out of six.”
Even in the face of investor hesitancy, Mohan shared that ROI metrics are holding steady. He even mentioned that flippers are still getting a 30-31% return.
“From an ROI perspective, we’re not seeing much change there, right? People are still getting that kind of 30% to 31%.” – Arvind Mohan
The mood on balance in the markets continues to be gloomy. This dampening has been amplified by recent economic uncertainty and high mortgage rates, as noted by Alex Thomas of John Burns Research and Consulting. Further cutting into flips’ demand is a rise in resale inventory.
“Sentiment remains muted, as economic uncertainty, elevated mortgage rates and rising resale inventory weigh on demand for flipped homes.” – Alex Thomas
As Kiavi continues to navigate these transformations, Mohan shared his thoughts on the changing landscape of real estate investing. He said that many of the professionals are investors are stepping back from the market and are being more conservative with their investments.
“We’re definitely seeing the more professional cohorts take a step back, be more conservative, be more choosy, right?” – Arvind Mohan
In light of these market conditions, Kiavi has pivoted its lending focus. Mohan elaborated that the company has “gotten tighter in our credit box and a little bit more choosier on what types of customers we want to work with in this environment.” He conceded that the current volatility could be here to stay, causing the company to continue adopting a cautionary stance.
“I’ll say definitely, over the last 12 months, we have gotten tighter in our credit box and a little bit more choosier on what types of customers we want to work with in this environment. Things could remain relatively volatile.” – Arvind Mohan