Fix and flip investing, once the backbone of private lending in New York, is giving way to larger construction projects as investors seek higher returns in a challenging market. Ruben Izgelov, CEO and Founder of We Lend, reports that a growing share of his company's loan volume now goes toward construction work far beyond standard renovations, a trend he expects to continue through the rest of the year.
We Lend, a private direct lender based in New York that has funded loans across New York and New Jersey, was historically known for financing quick-turnaround fix-and-flip loans. However, Izgelov says that reputation is now outdated. The firm, backed by the entire capital stack and handling all underwriting and funding decisions in-house, now finances ground-up construction, condo conversions, and vertical and horizontal building extensions, in addition to traditional renovation work.
According to Izgelov, the standard fix and flip model—buying a property, investing $50,000 to $100,000 in cosmetic work, and reselling—no longer generates the returns it once did. Rising costs and tighter margins have pushed investors toward larger, more involved projects. “Our borrowers’ returns have been compressing,” Izgelov said. “The general fix and flip model doesn’t work as much as it used to, so investors have had to get creative, and that requires heavier, more substantial construction and rehab work.”
This shift is reflected in the numbers. Construction budgets on deals coming through We Lend have grown from the $100,000 to $200,000 range to between $1 million and $2 million, and in some cases, the construction budget now exceeds the purchase price of the property itself. Bigger projects come with more risk, and We Lend manages that by focusing narrowly on markets it knows well and requiring documentation most lenders skip. Before financing a conversion or extension, the firm requires an architect’s letter confirming the work can proceed as of right, without a rezoning or variance application. On larger jobs, general contractors must sign completion guarantees, ensuring their commitment to finishing the project.
“We want GCs committed to the project just as much as the borrower is, without having to personally guarantee the loan. They’re guaranteeing that the project gets completed,” Izgelov said. “That keeps the playing field level between the borrower and the GC, especially when the borrower hasn’t worked at this scale before.”
Two recent deals illustrate the range of projects. In one, a borrower bought an eight-unit bank-owned property after the previous lender declined to finance improvements. We Lend financed the conversion of that building into 16 fully leased units, and the borrower is now in discussions with several banks about a refinance that would return some original equity for the next project. In a separate deal in an affluent New Jersey suburb, a borrower was about 85 percent finished building a 22,000-square-foot spec home when a lot line sale required paying off an existing private loan. We Lend restructured and refinanced, providing the payoff and a small cash infusion to complete construction.
For investors moving from fix-and-flips to larger projects, Izgelov warns that underestimating timelines is a common mistake. A typical fix and flip loan runs six to eight months, but ground-up construction, major conversions, and extensions often take much longer. “Budget carefully for the interest that has to be paid over that term,” he said. “Built-in extension options with your lender help, or better yet, start with a term longer than 12 months. We offer 18-month terms, and we’ve done at least one loan at 24 months.” He also cautioned against building to a trend rather than demand, advising investors to ensure local demand supports a project’s size and caliber.
More information on how We Lend structures its loans is available on the company’s How It Works page.
