The founder of South Windsor online exchange firm TicketNetwork is branching out, offering high-interest, short-term loans to people looking to make a quick buck in the real estate market.
“In housing, we’ve hit a bottom, but we are going to stay in this bottom for a long time,” said Don Vaccaro, chief executive of TicketNetwork.
After the success of TicketNetwork, which has grown to 403 employees and received an $8 million incentive from the state government to stay in Connecticut, Vaccaro founded Entertainment Financial LLC in 2010.
The first loans from the company were to TicketNetwork’s vendors, helping them finance the secondary market for sports and concert tickets.
In 2011, the company branched out, offering 8-24-month loans with 12-14 percent interest to individuals and businesses looking to make modest improvements to houses before quickly selling them at a profit. By the end of the year, Entertainment Financial completed 83 loans totaling $13.6 million.
“It is a niche that seems to be growing,” Vaccaro said. “We are getting pretty good at it.”
By the end of 2012, Vaccaro wants Entertainment Financial to write $50 million of loans including $30 million in loans outstanding to various projects. The division of the company making loans to home flippers is called Rehab Cash Now.
Although housed in the same TicketNetwork building in South Windsor — the former home of Gerber Scientific — Entertainment Financial is a completely separate company, Vaccaro said. Entertainment Financial doesn’t receive any revenue from TicketNetwork, although the two companies share some investors.
The company has four full-time employees and one part-time assistant, although Vaccaro expects to add people this year.
Rehab Cash Now found the niche loans to house flippers because traditional banks have become extremely cautious and don’t have a taste for such lending, Vaccaro said.
Russ Smith of Amity Construction received a $1.1 million loan from Entertainment Financial to help fund a 14-unit, single-family housing development in Guilford. This is Rehab Cash Now’s largest loan to date.
Smith said he used the money to finance approvals, architecture and infrastructure improvements.
“They were a tool that allowed us to move forward with the project,” Smith said. “The conventional market today is not allowing for any speculative development.”
The high-interest, short-term nature of the Entertainment Financial loans is outside the traditional lending market, Smith said. In order to take on a private loan like that, projects such as his need to be lucrative enough to afford the premium.
The high carrying costs of the loan are designed to motivate borrowers to flip their properties quickly, said Jeffrey Tesch, managing director of Entertainment Financial. The loans don’t carry any prepayment penalties, motivating the borrower further.
“We want to get it fixed up and sold as quickly as possible,” Tesch said.
Of the 83 Rehab Cash Now loans, 76 came in Connecticut, five were in Massachusetts, and one each in New York and New Hampshire. Vaccaro said he doesn’t want to expand the company beyond Connecticut, and only makes out-of-state loans on referral.
Allison Homberg, owner of Brookfield Insurance Agency, used a $50,000, 18-month loan from Entertainment Financial to refinance her commercial condominium.
Because of her credit rating, banks wouldn’t loan Homberg any money to pay off a high-interest loan for her office condominium, so she turned to Entertainment Financial.
“I was looking for them to lend money for a year and a half,” Homberg said. “It helped me out tremendously because that’s exactly what I was looking for.”
Vaccaro said the growth opportunities for Entertainment Financial exist because most of its applicants don’t have other loan options, and inventory is high in the residential real estate market right now.
Despite the opportunities in the market, Vaccaro doesn’t anticipate competition for Rehab Cash Now. Banks are still wary and other private lenders are staying away from quick real estate loans right now.
Vaccaro sees these types of loans as helping the Connecticut community. Properties owners make a profit flipping houses, the new occupants have an improved home, the surrounding residents don’t have the problems that come with dilapidated housing, and communities benefit from more valuable property and fewer vacancy problems.
“Everybody wins with the hard money loan,” Vaccaro said.