Introduction
California remains a key market for fix and flip investors, driven by its strong economic standing and dynamic real estate trends. In a recent conversation, Rocky Butani, CEO of Private Lender Link, sat down with Todd Piggott, CEO of ZINC Financial, to discuss the latest developments in California’s hard money lending scene. ZINC Financial, a leading hard money lender with a significant footprint in the state, provides insights into the current trends, opportunities, and challenges for real estate investors in 2024.
California: A Prime Market for Fix & Flip Investments
“California right now is at the top,” states Todd Piggott. With two-thirds of ZINC Financial’s lending focused in California, Todd highlights why the Golden State is such a significant market for their business. “Mortgages are performing in this state at an extremely high level compared with the rest of the country,” he says. He attributes this to California’s rapid real estate absorption rates and a lack of defaults, noting that “mortgage velocity is at an all-time high, making it a very safe place for us to put our capital as far as liens.”
Moreover, Todd points out that almost all counties in California have seen sales prices above the list price. “We’re still in a very, very competitive market,” he explains. “Prices are being accepted, with the exception of two counties, above asking.”
Key Trends: Larger Rehabs and Value-Add Strategies
In 2024, ZINC Financial has noticed a shift towards larger deals and more comprehensive renovations. “What I’m seeing now is more larger deals with more larger rehabs,” Todd shares. This “heavy value-add” approach involves creating substantial value through significant property improvements, especially in high-demand areas like Laguna Beach and San Diego. “Today, you have to create value in that property as opposed to just doing a paint and carpet and then selling it to earn money,” Todd advises.
The Rise of ADUs: A Growing Investment Opportunity
Accessory Dwelling Units (ADUs) have become increasingly popular in California, and Todd Piggott is enthusiastic about their potential. “ADUs are extremely popular and beneficial, adding exceptional value,” he explains. A recent legislative change allows owners to separate an ADU from the primary property and sell it as an independent unit. Todd believes this is “creating even more value” and points out the demand driven by California’s demographic trends. “ADUs provide a real spot for single people, unmarried people, as well as older people,” Todd notes, highlighting their appeal to a diverse range of potential residents.
Challenges in the Market: Permit Delays and Inventory Shortages
Despite the opportunities, Todd acknowledges several challenges facing fix and flip investors in today’s market. One of the main hurdles is the slow permit process. “There appears to be a lag in the permit process,” he says, citing delays caused by remote work among government entities. “Easements used to be done in three weeks, and now they’re being done in about six months.”
Additionally, the scarcity of inventory poses a challenge, though Todd frames this as a positive sign of high demand. “Inventory is very difficult to find right now,” he admits, but adds, “When there’s no inventory, that just means demand is very, very high, and your exit strategy is very strong.”
Navigating the Complex California Rental Market
The rental market in California presents its own set of challenges due to high property prices and relatively low rental yields. “The rent ratio out here is very problematic,” Todd explains. While certain high-demand areas may offer profitable rental opportunities—such as Class A multifamily developments targeting young professionals—Todd cautions against expecting strong cash flow from single-family home rentals in most parts of California. “It would be very, very difficult to get that to cash flow,” he says.
Regional Market Insights: Opportunities Across California
Todd identifies the Central Valley as a particularly strong market for fix and flip investments. “The Valley is seeing exponential growth in the tens of thousands of homes being built,” he notes, driven by affordability and population growth. Southern California also continues to perform well, with properties often selling at or above list prices, despite challenges like homelessness and crime in certain areas.
Sacramento remains a promising market for ZINC Financial. “We’re very heavy in our lending up there,” Todd says, citing its balance between affordability and growth potential. However, he also warns that Sacramento is on the “outside skirt” of some of the problems affecting Northern California markets like Oakland and San Francisco.
ZINC Financial’s Loan Programs: Designed for Investors
ZINC Financial offers tailored loan programs for both experienced and beginner investors. “We’re very aggressive on everything that’s in Central California,” Todd explains, with leverage rates reaching up to 93% for experienced investors in that region. For beginners, ZINC offers slightly lower leverage to minimize risk, with a focus on manageable projects. “We like our beginning strategy to be under $750,000 and under $150,000 in rehab,” Todd states, ensuring that new investors do not overextend themselves.
On the credit front, ZINC Financial remains flexible. “We will go below [a FICO score of 660], but it must be for a reason of utilization,” Todd clarifies, emphasizing that the company prefers to avoid subprime lending while still accommodating strong borrowers with lower scores due to high credit utilization.
Conclusion
Under Todd Piggott’s leadership, ZINC Financial continues to capitalize on its deep knowledge of the California market, offering strategic guidance and tailored loan programs to real estate investors. As Todd succinctly puts it, “It’s going to take longer than you think, cost more than you think, and be more of a hassle than you think.” However, for those who are well-prepared, California remains a vibrant landscape for fix and flip opportunities in 2024 and beyond.
By understanding the trends, navigating the challenges, and leveraging the right financial strategies, investors can continue to find success in California’s dynamic real estate market.
