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Cash-Out in Time of Corona

July 20, 2020

 

[2 MIN READ]

Investors seek to recapture equity as they look at increasing opportunities in the real estate market.

In recent months, after an unprecedented halt to the global economy, due to the COVID-19 pandemic, many opportunities have arisen in specific real estate segments that have been directly impacted. Commercial asset classes like retail, office, and hospitality markets have been the front-line of deterioration. The nature in which lock-downs and quarantines have affected how we perceive space and how virtual platforms have been easily adopted, create a new paradigm shifting the perception of real estate’s need and its inherent value.

Even though these asset classes have shown deterioration, the fact remains that real estate has undergone transformations through many upheavals and calamities before. This makes certain experienced investors look for the opportunities within these asset classes, as their values decrease to levels that make sense for long term plays.

The same investors are looking to tap into equity in their portfolio of attractive asset classes in order to have funds to take advantage of these new opportunities. Residential assets in South Florida, for example, have been performing well compared to the commercial ones, as buyers buoyed by low interest rates continue to purchase residences and demand is growing versus inventory, specifically in luxury condo and single family homes segments. The pandemic has increased the intrinsic value of residential property based on its location. As many now understand, through COVID-19, how important it is to find a home that they can enjoy, that is private, secure, and with the proper amenities to endure future quarantines and lock-downs. Due to these factors, we have experienced increased inquiries for cash out financing.

 

What's a Cash-Out?

The lending industry lingo for recapturing the equity in a property through a new loan is known as a cash out. Usually, the amount of equity is based on a simple formula: current market value minus any debt amount equals your equity in a property. Some lenders look at “Cash Outs” as a riskier loan because of the nature of the use of proceeds. In some cases, these uses are ambiguous and not well defined. A lender perceives a borrower tapping into their equity as a sign of certain financial strain or need, even though it might be a smart investment move based on the overall strategy like discussed above. If you add to that the uncertainty in the current market in reference to values, lenders become more uneasy as they see the valuations as fluid and potentially eroding equity in some segments.

Vaster Capital provides cash out loans on investment properties to investors in a quick and transparent manner. We are focused on residential assets held for investment and that have clear holding or exit strategies. Our abilities to fund large loan amounts allows us to assist small and medium size business operational needs or help investors that have identified opportunities in the market in order to acquire investment properties.


George Fraguio
GEORGE FRAGUIO
VP of Origination, Vaster Capital

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Image Credit: Viacheslav Lopatin/Shutterstock.com

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