New York Investors Shift from Fix-and-Flips to Larger Construction Loans as Margins Compress

Fix and flip investing built the private lending business in New York, but that business is shifting. Ruben Izgelov, CEO and Founder of We Lend, says a growing share of the company’s loan volume is going toward construction projects that go far beyond a standard renovation, and he expects that trend to continue through the rest of the year.

We Lend is a private direct lender and one of the more active private lenders for real estate investors based in New York that has funded loans across New York and New Jersey for years, historically known for financing quick turnaround fix-and-flip loans in New York. Izgelov says that reputation is now outdated. The firm is backed by the entire capital stack and makes every underwriting and funding decision in-house, which lets it take on ground-up construction loans, 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 and putting $50,000 to $100,000 into cosmetic work before reselling, does not generate the returns it used to. 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.” That shift shows up in the numbers. Izgelov said 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.

Bigger projects come with more risk, and Izgelov said We Lend manages that risk by staying narrowly focused on markets it knows well and by 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, the company also requires general contractors to 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.”

In one recent deal, a borrower bought an eight-unit building as a bank-owned property after the previous lender declined to finance improvements on it. 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 said 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. 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 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.