Fix-and-flip investing has long been the backbone of private lending in New York, but that business model is undergoing a significant shift. Ruben Izgelov, CEO and Founder of We Lend, a private direct lender based in New York, says a growing share of the company’s loan volume is now directed toward construction projects that go far beyond standard renovations, and he expects the trend to continue through the rest of the year.
We Lend, historically known for financing quick-turnaround fix-and-flip loans in New York and New Jersey, is now handling ground-up construction loans, condo conversions, and vertical and horizontal building extensions. 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.”
The shift is evident in the numbers. Izgelov noted that construction budgets on deals coming through We Lend have grown from the $100,000 to $200,000 range into the $1 million to $2 million range, and in some cases, the construction budget now exceeds the purchase price of the property itself.
Managing the increased risk of larger projects requires a disciplined approach. We Lend stays narrowly focused on markets it knows well and requires documentation that many lenders skip. Before financing a conversion or extension, the firm requires an architect’s letter confirming the work can proceed as of right, without needing a rezoning or variance. On larger jobs, general contractors must sign completion guarantees.
“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 We Lend now finances. In one, a borrower purchased an eight-unit building as a bank-owned property after the previous lender declined to finance improvements. We Lend financed the conversion of that building into 16 fully leased units. The borrower is now in discussions with several banks about a refinance that would return some of the 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 to a neighbor required paying off an existing private loan. We Lend restructured and refinanced that loan, providing the payoff along with a small cash infusion to complete the remaining construction.
Izgelov cautioned that the biggest miscalculation he sees from fix-and-flip investors moving into larger projects is timeline. A typical fix-and-flip loan runs six to eight months, but ground-up construction, major conversions, and extensions often take much longer. He advised borrowers to “budget carefully for the interest that has to be paid over that term. 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 warned against building to a trend rather than to demand. “If there’s demand for a project of that size or caliber, great. But don’t build a mega mansion in a neighborhood that can’t support it just because that’s the trend,” he said. More information on how We Lend structures its loans is available on the company’s How It Works page.
