The master bedroom is a garish pink, a second bedroom deep purple. But to Jan Brzeski of Westwood lender Arixa Capital, the small house in the hills of Sherman Oaks is all green.

Charging nearly 10 percent interest, Arixa loaned money to wife-and-husband actors and house-flippers Amanda Pays and Corbin Bernsen to buy the property for about $730,000, and he also financed the $175,000 renovation. The couple plan to resell for about $1.3 million.

That’s much pricier than the properties Arixa was lending on when the firm started in 2010, but now that all the cheap foreclosures have been scooped up, its business has shifted toward more expensive homes and more elaborate renovations. And since banks are still reluctant to lend in these postbubble years, more flippers, even on the higher end, have to go to alternative lenders such as Arixa.

“The luxury market is becoming a much bigger piece of the market,” said Brzeski, managing director and chief investment officer at Arixa. “The days when our borrowers were making a great buy, doing paint and carpet, and then selling for a bunch of money, those days are gone.”

Other hard-money lenders – which typically are nonbanks that make asset-backed, short-term loans with steep interest rates – say they’re writing more loans for pricier properties. Over the past two years, institutional investors bought billions of dollars of foreclosed or otherwise distressed homes, often buying in bulk from banks. That’s left flippers and the financiers that back them with little choice but to move up-market.

Between 2009 and 2012, more than half of the loans made by West L.A. hard-money lender Lone Oak Fund were for flippers buying foreclosed homes. Today, such loans make up about 15 percent of Lone Oak’s business, while the number of loans for commercial properties and high-end homes has soared, said Johanna Traynor, a senior loan officer at the lender.

“Some of our borrowers used to purchase a few homes in the $200,000 range at a time,” she said. “But as the inventory from banks dwindled, they realized they had to go for higher-end homes.”

Big flip

When Brzeski raised Arixa’s first fund in 2010 from wealthy individual investors, he was lending almost exclusively on foreclosed homes. Arixa didn’t offer renovation financing then and loans topped out at $500,000. In early 2012, the firm got deeper into the foreclosure market, raising a second fund that purchased foreclosed homes, then renovated and rented them out. It still owns about 50 homes, with plans to buy a few dozen more.

But by the end of 2012, it was clear the foreclosure market was shrinking as big firms, such as New York private equity giant Blackstone Group, snatched up tens of thousands of homes.

“The big companies came in in 2012 and said they’d buy anything under $500,000,” Brzeski said. “They absorbed all that inventory.”

So late that year, Arixa and a local family office started another fund to make loans between $1 million and $10 million to flippers. In January, the lender started raising yet another fund that will make loans of up to $1.5 million. That one, Arixa Fund III, has raised $4 million so far with a target of $25 million, Brzeski said.

Today, he said more than half of Arixa’s $50 million in loans are for homes worth more than $1 million. In most cases, the business lends to flippers who plan major renovations, such as Bernsen and Pays do for their three-bedroom 1961 house.

Aside from the old pink and purple walls, the house had low ceilings, a claustrophobic kitchen and a fireplace with a very 1960s stone facade – Pays calls it a “Flintstones fireplace.” They’ve raised some of the ceilings, replaced small windows with sliding glass doors, attached a bathroom to the master bedroom and are building a 300-square-foot addition to the master suite.

Bernsen himself plans to build a deck in the backyard, which features a view of the canyon behind the house and the San Fernando Valley to the northwest.

The couple, both actors – he of “L.A. Law” and “Major League” fame; her main credit is “Max Headroom” – say they believe there are plenty of Hollywood types who will pay a premium for the house once it’s been updated.

“There’s a millionaire made every day in this business,” Bernsen said. “There’s always an actor, a writer, a producer who’s looking for their first million-dollar house.”

Hard money

Bernsen and Pays have renovated and sold homes before, but usually those have been their own residences, updated over the course of a few years before going on the market.

“We’ve always gotten into a house with an exit strategy,” Bernsen said. “We fix it up, live in it a while then sell it, make some money and move on. It allowed us to continue a lifestyle of travel and other things we enjoyed when work as an actor wasn’t there.”

Because their previous projects were their residences, not investment property, they could finance them with standard mortgage loans. They’d never borrowed from a hard-money lender before, but did so in this case because the process went faster and they didn’t need to put in as much of their own cash, Bernsen said; Arixia puts in 75 percent for both the purchase and the renovation. They bought in January and plan to have the house on the market in mid-May for a gross return of $300,000 to $400,000 in five months.

Arixa and other hard-money lenders might charge high interest rates – usually about 10 percent – plus fees, but they can approve a loan in days rather than weeks. That gives hard-money borrowers an edge over typical homebuyers, who have to wait longer for mortgage approval.

Flippers also work with hard-money lenders if they have poor credit or because they have no other steady source of income.

Scott Ryan, a West L.A. flipper, said he was able to get mortgage loans during the housing boom, when borrowers could get loans without verifiable income.

Now, hard money is his only option.

“It’s the last resort at this point,” Ryan said. “When the mortgage disaster happened, there were a lot of restrictive criteria from banks that pushed people like me out – people with unpredictable incomes. I’m not an attractive homebuyer to a traditional lender.”

Cut out of the mortgage market, Ryan for a time bought and renovated houses with his own money and with cash from a few of wealthy investors. But those were cheap foreclosed homes and minor renovation projects. But now, flips are pricier and need more extensive renovations to give him a good return. He’s looking to buy homes for about $1.5 million, spend $600,000 on renovations and sell for $3 million.

“I just don’t have enough resources, between myself and my investors, to finance the entire project myself,” he said.

What’s more, most banks wouldn’t offer to finance the renovations as Arixa does. Even some hard-money lenders, including Lone Oak, don’t do that. Arixa will lend up to 75 percent of the cost of both the purchase price and the renovation costs.

That’s a risky proposition. If work is done shoddily or if renovations don’t add enough to the value of a property, the flipper could finish by losing money and potentially default on the loan. If Arixa has to foreclose on a borrower, it could inherit a half-finished project.

But offering renovation financing is one way Arixa competes with other hard-money lenders. Brzeski said he feels comfortable making renovation loans because the company’s other managing director, Greg Hebner, has a background in flipping and developing properties, helping the firm manage the risk of renovation lending.

“I underwrite deals as a lender; he underwrites it as a developer,” Brzeski said. “If we had to take a project back, heaven forbid, he knows exactly what we’re getting into.”

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