Highlighting a perfect example of lending that only works so long as the bull market thrives, large private equity firms are now financing home flippers. Per an article in the Wall Street Journal:
KKR is the latest example of Wall Street’s growing interest in the area. The private-equity house is boosting its commitment to Toorak Capital Partners LLC, a New Jersey concern that buys up loans made to home flippers and other residential-rehabilitation specialists from originators throughout the U.S. and the U.K. Toorak has been able to so far buy more than $1 billion of this debt.
KKR had previously invested $75 million in equity in Toorak. Now, the firm says it is increasing that to $250 million.
For so long as home prices keep rising, as they have for the last 7 years, this could prove to be a lucrative practice. But this carries real risk, and the downside will be exposed if the market turns.