All Forum Posts by: Doug Smith

Wow, Stephen! What an interesting post. Thanks so much for sharing. I had not thought of that, but it makes sense. I wish you well in solving the issue. 

Hi Shawn, When I left banking during the last major crash and started this company, we primarily were a commercial bridge lender, but we also were a real estate investor. The forelcosure auctions in my home State of Florida are all online. They are also filled with newbies that just paid $10K for a course and the Days Inn from someone that doesn't, themselves, really know real estate...otherwise they wouldn't be teaching it, they would be doing it. When we did it, we did score some great deals, but what we found was that we were visiting so many properties to understand our "strike price" (the maximimum we would pay for the property when taking into account rehab costs, hold times, interest on any debt, closing costs, real estate commissions, a contingency reserve for "unexpecteds", etc) that the math started to not make as much sense. We found that we were often outbid by novice investors or that the bank set a reserve price so high we couldn't make the numbers work. On most deals we bid on, the bidding would start way, way above our strike price. "How in God's name do they plan on making a profit" would come out of my mouth all the time. Personally, we saw some great deals, but there were others with different modeling that we have that had us winning very, very few bids. We found ourselves wasting an obscene amount of time doing our due diligence where we doubt that the vast majority of bidders actually understood the costs involved in the rehabs. I know that's not what you asked, but that's been my experience. Good luck with your investing business. If I can answer any questions please let me know. 

That is an amazing deal for hard, private, or bridge funding. Of course, I would need to know a lot more to tell you truthfully, but on average, that would be a pretty great deal. 

 Kiavi does a good job with a lot of things, but they tend to be a bit more "vanilla" and stick to their guidelines/checklists. We've not brokered anything through them in a very long time...not to say we wouldn't, but we formed closer capital partner relationships over time. By your description of the situation, I thought that might be in. 

I know exactly what is happening with the push-back you're getting. Basically, the money used in this type of financing comes from "Wall Street". I remember when Lending Home, now Kiavi started, there really wasn't anyone other than banks and private individuals that would finance a new build...and those were hard to find. The people that run these companies usually come from an "investment banking", real estate, or construction background. Many don't come from traditional lending sources. The institutional firms that do this type of lending (we deal with them every day) have to "securitize" the loans...meaning have their hedge fund/Wall Street backer bless the deal. These people often don't understand lending and have a checklist of boxes to check. Having an experienced GC build their first deal or two of their own is, for reasons that sometimes don't make sense, get push-back. We do them, but like you we often get push-back from the capital-provider funds. It's stupid, but we have to navigate it. I'm glad you shared this.

It will be hard with a more institutional lender like us to get down below $100K on a loan amount. Our cost to do business vs the revenue a small loan generates would put us in the red. You're likely best to fund that wish someone local...perhaps someone you know...that is looking to put $40K-$50K to work. I would stick with individuals at those lower price points. 

I think that's entirely up to you and your math. I am sure you're aware of the FEMA 50% Rule for renovations of properties in certain Flood Zone's, so I won't insult your intelligence by going into it. I've learned over the years that real estate investment is simply a math problem. Either the numbers work or they don't. I was at a CCIM luncheon recently and some of my lender buddies and I were discussing that many of their banks are getting out of multi-family because of rising costs to manage the properties...including taxes and insurance. I think the same would apply here. I live in Tampa, FL and we just got hit hard with Hurricane's Helene and Milton...Hurricane Sara is lurking out there. Insurance rates stand to rise dramatically, so the question is "will the insurance rates go up enough see rentals go into negative cash-flow situations?" It's certainly something you should consider, but at the end of the day, it's a just a math problem.

We do them, but they aren't cheap and your LTV will be lower that a HELOC on a primary residence. Banks aren't really in the business of lending to real estate investors anyway...they focus primarily on "operating entities", but they can be done. They will, however, be above the rates your posting. There's a significant risk premium for investor 2nds.

I had good friends/business contacts that worked there...all have fled to greener pastures. We've grabbed drinks a few times and it's sad. Lenders are really dependent upon larger funds to fund them. When one fund gets in trouble, it trickles down. It's really too bad. A rising tide raises all ships. As a lender, I hate seeing it.