September 5, 2025 • 42 mins
🎙 Welcome back to Real(ty) Talk Podcast! This week, Paul “Fix It All” and Suzanne, the queen of the closing table, sit down with special guest Stephen Couig — the King of Lending and CEO of Center Street Lending.
We dive into:
The origin story behind Center Street Lending (and how it got its name).
How the fix-and-flip industry has evolved since the 2008 crash.
What a typical private loan looks like for investors.
Common pitfalls new flippers face (and how to avoid them).
The surprising trends shaping real estate in 2025.
Plus, our fun segment Homes Gone Wild returns with a jaw-dropping attic discovery you won’t want to miss. 🐍
Whether you’re an agent, investor, or just curious about the world of lending and flipping, this episode is packed with insights, laughs, and stories from the frontlines of real estate.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Yeah. I mean, us as a lender, we
really want the people to be, wewant our borrowers to be
successful. You know, millennials and
younger are the laziest population of the US has.
Ever. I wouldn't, I probably would not
be in that location. That probably isn't where
Suzanne is going to live, so. All right, welcome back to your
(00:25):
favorite podcast on the planet Real to Talk podcast.
We have a very exciting episode ahead of ourselves today.
I will do some quick announcements first, So we've
got to my left, the queen of theclosing table, Suzanne, the
founder of Innovate Realty. To my right, we are very excited
today to have Mr. Steven Kuwik. We call you the King of lending,
(00:49):
the King of Lending founder, CEOof Center St.
Lending and I am your host for the day moderator with the most
My new nickname on the podcast is Paul Fix It All.
Yes. I don't know if I like it.
I yeah, I like it. I like it.
I think it's, I think. It to you.
That would be neat. We went like 20 episodes without
(01:12):
him having a nickname so felt like it was time and that one
feels right. The only reason I struggle with
it, which I've mentioned before on previous episodes, is I read
at least twice a week this PeppaPig book to my daughters and
there's like a full chapter 5 minutes long of daddy Pig can
fix it. And I told the girls that that
(01:33):
was my new nickname at the office and they thought it was
super funny, so they asked to read the book more now.
Which is, I mean, I would also call that a win.
Great. Very wholesome.
I'm ready for that book to go away.
Or challenge him on what he can fix.
Yeah. Yeah, someday.
No, that sounds yes. I think we've already done that.
(01:55):
You know, we challenge you on things you can fix almost every
day, so. Yeah, yeah.
Yeah. Let's dive right in.
So we've got a little bit of a different episode today.
It's going to be more of an interview.
So typically we jump right into market updates, what's happening
at innovate, at Buy buy house, the broader, you know, market as
(02:17):
a, as a whole in the US And thenwe, we do focus a lot in
Southern California. I think most of our listeners at
the moment are, you know, California agents and buyers or,
or sellers. We do get some interesting
feedback from listeners all overthe, the US.
So, but this will be a fun episode just to to get some
color on, you know, the, the business that you founded.
(02:39):
And and so we've got just a couple basic questions.
And I would say for any of our listeners that haven't listened
to our first few episodes, so that they have a good
understanding, maybe go back andtake a listen because we did
dive in pretty deep on, you know, that side of the business
as well, so. Yeah, we talked about background
and everything, so we're going to skip over some of that and
(03:01):
dive straight in. So Center St.
Lending was founded in 2009. Correct.
Yeah, we did the first loan in January 21st, 2010.
Wow. OK, so.
Early days. Yes.
So share with us kind of the origin story and, and the name
and, and how you came to think, OK, I'm going to, I'm going to
(03:23):
go into this industry and I'm going to name it Center St.
Lending. Yeah, so the name, there's no
rhyme or reason for it other than it seemed like a pretty
good name that you can attach tolots of different things.
And there's a Center St. everywhere.
So, you know, I spent probably six months looking at thinking
about different names and a lot of them were already taken as
(03:46):
far as URLs. And so, you know, came across,
you know, it's like, oh, Center St. that's that'd be pretty
good. And it was available.
And so we so. Here we are.
So 15 years later, yeah. Six months, that's pretty good.
I mean we have made name decisions in like a week over
(04:08):
here. So you know what, I, I haven't
talked about this on the podcast, but I'm fairly certain
a bunch of tech CE OS name theircompanies out of Doctor Seuss
books because Zillow is a weird random name in the real estate
industry. And it's in the Doctor Seuss
book that was published in like the 50s.
So they must have seen that wordand said, oh, it's kind of a
(04:28):
funny, silly word. And then they named it that way.
Yeah. There's two other examples.
There's a story behind why they named it Zillow, but it could
all be false. Yeah, it was a late night of
drinking. He went home and read his
daughter a book and Zillow was in the book.
And that's that's the word. I'm convinced.
Yeah, OK. That is great.
(04:49):
I do have, I want to come back to the the naming, but I think
it's this next question is worthgetting out first.
So how is Center St. lending evolved over the years?
I mean, it's been a long time you've gone through kind of
market turbulent, you know? So, yeah, I mean, there's been
lots of changes in the marketplace.
So when we first started, prettymuch most of the transactions
(05:12):
that we were financing were foreclosure sales.
And so in different states have different rules.
Some you need to have good fundsthat day, some you can do good
funds following the actual auctions.
And so, you know, it was a pretty involved process with the
(05:33):
people that were doing the bidding.
So, you know, really the opportunities originally, you
know, call it in 2000, 10, a lotof them were at the properties
that were being foreclosed on that pivoted relatively quickly
to short sales and you know, banks, you know, trying to find
(05:55):
other avenues to go move the, you know, product that they had.
And you know, probably by 2011 or so, most of the transactions
were purchased conventional purchase transactions from a
bank or a short sale. So back then, you know, post
2008, 2009, there were, I, I wasn't in the industry, but I, I
(06:16):
kind of was tangentially around it and there were like lending
shops that would set up folding tables at the courthouse steps
to like verify funds and do stuff.
So was that part of the businessmodel?
Yeah, we had. We had a couple of people that
would bring cashier's checks forspecific borrowers.
We had one wholesaler that was buying properties and then
(06:39):
reselling them. So, you know, we actually
started meal with them at the foreclosure sales and then
expanded to some other people. So, and then in, in, in post
2009, you also had to have because when you know in the
lending business you're giving someone capital, which is kind
of an easy thing to do, right. But you what's hard to do is get
it back and so. Still hard.
(07:03):
Yeah. Did you have a lot of confidence
coming out of the correction that you know you were starting
to lend at the right time and that you'd have some runway or
were you worried about any additional market issues or?
Yeah. The discounts given the amount
of volume that people were having to move and the fact that
lots of people that had financial difficulties and
hadn't gotten back on their feet, you know, there was, you
(07:26):
know, there was a lot of productto be sold and to be financed.
So yeah. Yeah.
And we'll, we'll dig into the kind of structure of a loan, you
know, on this next, this next question.
But that also probably helps a lot too because of your basis.
Yeah. The basis back then in, you
(07:47):
know, call it 2010 eleven, you were actually able to go buy
houses that lessen the sticks and bricks cost to build the
houses. Yeah.
So as far as our basis in the loans, you felt pretty safe.
You just, you know, you were going to get your money out.
You just didn't know if it was going to be 6 months or six
years. It's.
Kind of kind of similar to today's market.
I mean with it's just a little different, right?
(08:08):
But values are on the opposite end of the spectrum.
But you know the the cost to go and replace are higher in some
markets than what your basis would be.
Yeah. I mean, real estate at the end
of the day is a local business driven by supply and demand.
And you know, ultimately there'sobviously depending upon the
markets, a greater influence of the cost of financing.
(08:30):
And California, a lot of people are all cash.
So you know, that's a little bitless important.
It's really more primarily location and condition of the
property. In other markets where people
are getting more to entry level buyers are kind of first time
move up, you know the cost of financing for those and buyers
(08:51):
is you know is obviously more important.
Yeah, so evolution, this is going backwards here.
You know, Center St. lending, I,I, we hear the terminology
around the offices CSL, right? It, it is very similar to YSL,
which is a luxury brand. I have a concept that I've been
(09:12):
thinking about. I've, I've read a lot about how
younger generations value their income less than they value the
brand of where they work. I think we have to create like a
cursive CSL shirt. That'd be.
Great. And top producers.
Top producers get an opportunityto win that, but it's like a
luxury swag item. Nice.
(09:33):
Yeah. If that happens, I get, I get
credit for that one. Yeah, OK.
Our borrowers tend to care abouttheir pricing.
Yes, that's right. Yeah, the interest rate, yeah.
They don't want the shirt. Well, that's a good segue.
So walk us through what a typical loan looks like.
Because in in fairness, a lot ofour listeners are agents that,
you know, maybe have representeda fix and flip investor or are
(09:55):
agents that want to go and do it.
Or maybe listeners that you know, like what buy buy house is
up to and want to go and break into the fix and flip world.
What is a typical loan today look like for somebody that
wants to buy a house, fix it up and sell it?
Yeah, I mean it, it really depends on the market.
So a, you know, a deal in Florida, those tend to be lower
(10:16):
price points versus California. You know, Texas is similar to
Florida. Those are our three biggest
markets. We do land in 40 states.
So you see all kinds of projects.
So our, you know, our product offering also includes ground
up. So we do about a third of our
loans are ground up construction, which may be
(10:37):
somebody starting from a piece of dirt or somebody buying an
existing property, scraping it and building either either
multiple units or you know, a larger SFR.
So, you know, it's a little bit hard to to, you know, to.
Yeah, let's talk fix. Yeah, like it's a.
It starts with an application. Sure.
(10:57):
The terms kind of, yeah, the loan process.
So you know, the things that we look for from an underwriting
standpoint are first and foremost is the project and the
viability of the project. So we look at what we think the
costs are going to be to go and rehab it and and those things
tend to be somewhat standardizedon a per foot basis for what
(11:20):
you're doing. So we we look at that and if
it's a good project, then you know, we continue to dig in.
So you know, majority of our businesses repeat borrowers.
We obviously do like to do business with people that have
done it before because there is a pretty steep learning curve on
your first, you know, call it one or two or three deals and
(11:42):
you know, things don't always goaccording to plan.
So we do look at experience. We do look at FICO pretty
heavily as well. So, you know, people with low
credit scores tend not to pay ontime, and that's a bad thing if
you're a lender. Yeah.
Yeah. So you know that that certainly
is a factor. And then, you know, the last,
(12:04):
you know, last leg on the stool is really liquidity.
And does the borrower have enough cash, their own cash or
you know, with partners to be able to go complete the project
and to have some reserves to take care of things that you
know, if the project takes an extra 6 months to go and sell,
do they have the liquidity to goand continue to make the
(12:25):
payments? So if I'm, if I'm a listener and
I want to go and do my first or fifth, you know, fix and flip
transaction and I'm going to Center St., what is a timeline
typically look like from when I submit my application to when I
could actually purchase a property, whether it's on market
or off market? Yeah.
I mean, we can move pretty quickly.
So, you know, typically we're waiting for title to get us
(12:49):
information. And then one of the other things
we require is a borrower to haveinsurance.
That tends to be something wherethe borrower has to provide
that, so they're dealing with a third party.
So sometimes those get delayed. But, you know, in general, our
average time to fund is, you know, some, you know, somewhere
less than 30 days. But we can, you know, we can do
(13:11):
a loan in seven days. I mean, we've done them in 24
hours for repeat borrowers if they have everything there.
So it's it, you know, it's really.
Yeah, exactly. So it's, it's really not, you
know, how long does it take us? It's really how long does it
take the borrower and for us to be able to get the information
from third parties. And so it's typically the
(13:34):
borrower is going to be closing in 30 days anyways, So that's
fine. You know, we can pretty much
meet any closing deadline. It's really just a matter of
getting the third parties to, you know, get the information as
quickly as possible. So yeah, in general, if
somebody's got a property, either repeat, I mean, it's, you
know, it could be 5 days. So, and then on the, on the
(13:56):
terms like let's say it is somebody's first fix and flip
investment. I think you know, a lot of our
listeners here because they, they transact on traditional
deals. They think 30 days is fast
because they're looking at debt to income.
And, and if it's a rental property, an investment
property, they might be getting,you know, 60 or 70% leverage.
(14:17):
So it sounds like it could be asfast as, you know, 10 to 14 days
if everything's buttoned up, maybe 20 days if there's some
strain with these third party relationships.
But what is leverage and pricinglook like versus 30 year fixed
mortgage? Because I, I think that is a
misconception. We talk to agents all the time.
They, they look at the volume we're doing and they still don't
understand the private lending industry.
(14:38):
They say, well, how do you go sofast on a loan if you are still
using a loan? Like doesn't it take Bank of
America 30 days to underwrite you?
And it's like, well, no, we're not going to Bank of America,
right. But what, what is that?
Just broadly, I know, you know, not our listeners.
You can't hold him to a number that he says.
Or can you? We'll see.
(14:59):
Yeah, I mean, I, you know, so I guess to one part of your, your,
your comment, you know, we're essentially like a bank in that,
but we're not a bank. So we have large Capital
Partners, we've got our own capital as well.
And so, you know, really in starting the business back in
2010, it was there was no institutions that were focused
(15:22):
on this space and it really, youknow, there weren't a whole lot
until probably 2014 fifteen either.
So from, you know, that standpoint, the industry has
matured where you have companieslike us that are doing, you
know, multiple billions of dollars of new loans, you know,
each and every year. So the reason why it's so fast
(15:45):
is we only provide business loans.
We don't do consumer loans. So from a federal standpoint,
we're not subject to T lawyer RESPA.
And so those are the things thatadd a lot of time to actually
closing loans. And you know, there are
different states that require you to be licensed, but you're
still not subject to T lawyer RESPA.
(16:05):
So you can still move, you know,as quickly as you need to as you
need to move. Cool.
So in your view, we'll do one more question and then we're
going to break for a segment. In your view, what are the
biggest trends that you see shaping the fix and flip
industry, Not necessarily the lending industry, but just fix
and flip as a whole in the US? You know, I've heard since 2010
(16:29):
that there's no good deals out there.
And so, you know, roughly, you know, in the country, there's
probably, you know, call it 2 to300,000 properties are getting
flipped every year. the US housing stock is getting older.
So the average age is 40 years now.
And you know, I think it's a great industry because typically
(16:51):
people are buying either, you know, functionally or
conditionally obsolete houses and they're making them like new
houses in infill locations. You know, the one trend versus,
you know, early days, you know, that was a lot of the, you know,
sort of late vintage houses thathad just been sold.
Those were the first ones to getforeclosed on.
(17:12):
And there it was, you know, the the repairs were paint and
carpet, right? So those were the houses back on
the market in 15 days or 30 days.
Now people are changing up kitchens, bathrooms, you know,
fixing roofs if need be, doing landscaping and, you know, kind
of everything in between, right?So before 2008, 2009, there's
(17:36):
this like glut of new inventory,people stepped up, paid a lot of
money, then the market corrects.So there are three to five year
old houses getting short sold, foreclosed on.
Those are paint, carpet, quick turns.
That's no longer really there. Correct.
Yeah, I mean for new, for new sales, new homes being produced
(18:00):
back in call it 2005 and six, itwas probably about 1.4 million
units a year for several years. And you know, today builders are
building about 650,000 new units.
So, yeah, you got 15 years laterwe have a bigger population and
we're building half as many homes, which is part of the
(18:22):
reason why prices are are up. And it's, you know, it's really
what creates opportunities for people to be able to go buy
stuff that isn't really desirable for an end consumer.
Now they can go buy it, fix it up, make it nice.
And, you know, it's attractive because it's a great location
versus a new home. Construction tends to be on the
(18:44):
outskirts where there's land available.
Yeah, I mean, that's the whole thesis of buy buy house too.
I mean, you've got boomers exiting workforce.
Those are the houses that are 40years old.
Structurally, a lot of times they're maintained properly, but
cosmetically they're just not what's going to sell for top
dollar today. And, you know, millennials and
(19:05):
younger are the laziest population that the US has ever
seen. So they're not really interested
in buying that old, you know, kind of poopy house and then
slowly fixing it up in those great locations.
But they're also not interested in buying that new track home an
hour and a half away from their job.
So that's why, you know, at least from our, you know,
perspective, you see lower, you know, home ownership rates, you
(19:29):
know, with younger generations, but the vast majority of the
projects that we take off or youknow, to market once we're done
renovating our trading to young families.
Yeah, and I think, I think that's the misconception and you
touched on it a little bit. A lot of times, you know, when
someone, I I think the in the past it was more of just a
cosmetic, you know, quick, quickturn where now, I mean, there's
(19:54):
a lot of work that goes into allof these transactions, all of
these projects. It's sometimes months, sometimes
years. Not yeah, we don't want them.
Hopefully not years. But also you're providing a
product that that is actually functional as well.
It's not just cosmetic like there are sometimes where you
have to dig in a little deeper. So and that is really what we're
(20:17):
seeing from the consumer. I mean, we get these repair
requests that, I mean, they wanta perfect home.
So. Yeah, you know what?
What's being provided is a little different than what it
was in the past. Yeah.
And what people, what, what people think when they think,
oh, he just came in and, you know, painted the walls and made
it look good. Lipstick on a pig.
We always hear that. But actually it's that's not the
(20:39):
case. That's not what's moving.
So. Yes, OK.
Let's break and do our segment. So this is a fun segment.
It's newer, what it's called Home's Gone Wild, and one of our
listeners will submit a story. I have not seen the story.
They like me to read it because I guess my reactions are kind of
(21:00):
funny. But we're going to read it quick
and we'll have a little commentary around it.
So this week on Home's Gone WildI was doing a showing on a
particular house. This was the second time that I
had brought my buyers there. It was beautiful, nice updates,
big fireplace in the living room, nice winding deck, Outback
(21:22):
backyard, slope down the river. Just a magical house.
OK so this is like a Mountain House OK?
On the second visit my buyers decided to bring a contractor
with them. They were thinking it would be a
better idea to get a second opinion on remodeling and the
price before they actually bought the house.
That is a really good idea. Yeah, we're just talking about
that. The contractor decided to check
(21:42):
the entire house from top to bottom.
He went into the basement aroundthe crawl space, checked out the
garage and the wiring, the flooring and everything else.
He had to go to his truck to geta ladder so that he'd get into
the attic access off the 2nd floor.
When he returned with a ladder, he climbed into the attic and
after about two seconds, he squealed and then started
laughing. My buyers were young.
(22:02):
A young couple asked him what was so funny.
He said there's something up there that you should probably
see. And then he dropped a snakeskin
through the hole for us to see. It was a four foot long, and
according to the contractor, there were about 40 more just
like that in the attic. The most difficult thing to
(22:23):
figure out was where was the snake that had made them?
He couldn't find it anywhere. Yeah, I stood there and laughed
with him and the buyer's husband.
As such things have never bothered me.
His wife literally ran screamingfrom the house.
She did this weird little dance out in the front yard like she
was covered in spider webs and decided that at that moment that
(22:45):
she would never own that. Yeah, no.
Matter what, yeah. I don't think I would own that
house. I don't know that one.
It it would haunt me in my in mysleep for sure.
I mean, yeah, I know. To me, I'm like.
You love it, but I don't really like.
Snakes, But to me it's like, OK,you're buying a we're making
assumptions. So this is our, this is my big.
(23:06):
Snake could come back. It could come back.
That's its home it. Probably will because you're
buying a house by the. River in the yes in the
mountains. I wouldn't, I probably would not
be in that location. That probably isn't where
Suzanne is going to live, so. What I like about Homes Gone
Wild is we get really interesting things like this.
What I hate about it is like. We need more.
We need more. Where did these people buy?
Did they decide to not buy near a river?
(23:27):
Like what what? What ended up happening with
this one? Yeah, I guess if you're looking,
if that is your market and that's where you're looking, you
have to know what's going to come along with that.
Unless, I don't know, they're probably watching TV and movies
of like, I mean, they said magical.
There's it's a magical house. Like, yeah, you know, maybe
didn't think that one through. OK.
(23:47):
All right, back into it. We have a few more questions and
then we're going to break. So what common pitfalls do you
see a fix and flip investor make?
Like what are the challenges that you see most often when
somebody has a problem on A? Yeah, yeah.
I mean, I think, I think everybody, it's relatively easy
(24:08):
to figure out what something should sell for once you go and
fix it up. And obviously you know what your
purchase price is. So I, I think the, the biggest
pitfalls that we see are people under estimating either the time
or you know, or the cost to go and improve the property.
So you know, generally, again, it's depending on market and the
(24:29):
level of upgrade you're going tobe doing, but people typically
are spending somewhere from $50 a foot in sort of lower price
markets to $150.00 a foot for basic but extensive rehabs in
California. So you know, when people, when
we're looking at deals, we actually have people review the
(24:51):
budgets and we look at the appraisal as well to see the
condition of the house. And, you know, you can use those
rules of thumb to make sure that, you know, on a global
basis, you kind of have enough dollars to go and fix up what
needs to be fixed up. And, you know, unfortunately, if
(25:12):
you're doing a rehab and and sometimes ground up construction
is easier because you're just starting with a piece of dirt.
Yeah. So you, you know what you're
building. There's no surprises.
Correct. And you know if you're buying an
existing property, sometimes youthink you can take out a wall
and you find out it's a load bearing wall and you can't take
that out. So then you're putting in beams
(25:34):
to provide the space and so things can add up pretty
quickly. You know, the other thing is I
don't people, I don't think spend enough time vetting the
contractors that they're using or the GC.
So if you have AGC that's not doing their job, they're costing
you more absolute dollars and they're costing you a lot of
(25:56):
time. And you know, this business is,
it's just like the home buildingbusiness where margins are
single digits on revenue. They're really attractive on
return on equity because you getleverage with it, But you know,
you have a relatively skinny margin.
So you have to get the project done, you know, on budget, on
time and get it sold on time to be hitting your, you know,
(26:20):
hitting your numbers, right. Especially in a market like this
where prices aren't really increasing, you know, maybe kind
of flat, even maybe down a little bit.
You know you don't have the luxury of home price
appreciation over your hold time, which you know generally
will increase the house price by, you know, 1 or 2% / 6 months
(26:42):
and you know 4 or 5 / / a year. Yeah.
I mean that that one's really important to I think double
click on because, you know, you brought up some different points
the, the profile of a borrower that's getting, you know,
underwriting a deal and thinking, OK, single digit
returns like eight, 910%, maybe maybe they're maybe they're
(27:03):
looking at a 10% deal. When we say return on revenue,
we're thinking, OK, if if you'reselling a $1 million house and
you get a 10% deal, you're goingto make $100,000 after
everything's said and done. If you hire the wrong contractor
or in that beam situation, let'ssay you, you plan to open a
kitchen, you think it's not loadbearing, your inspectors likely
(27:24):
not going to be able to tell unless they really shake the
house down. And most inspectors won't give
you that opinion. So they're going to have you
bring in like a, an architect oran engineer to tell you for sure
if it's load bearing. But if you make that mistake, I
mean, that could cost you 3 months if if not more, depending
on the city that you're in, in Southern California, because
that's going to require, you know, a set of plans you got to
(27:45):
go to the city and get the permit.
That might even require doing concrete work underneath the
house to secure the beam that you're putting in.
So it's not necessarily just thecost, it's really the time.
And if you let's say that I was a repeat borrower, is it safe to
say I could get like 80% leverage on my purchase in a fix
and flip world? Yeah.
So in general, repeat borrowers now are getting and it depends.
(28:10):
There's repeat for one and there's repeat for, you know,
people have done 10 like projects.
So generally we look at the history over the last three
years for what the customer has done, you know, for our better
customers when we're giving you know, 90% of the purchase and
100% of the rehab and you know, if they're super good, like even
a little bit more than that on the purchase.
(28:33):
So you know, if you're, you know, if this is your first
deal, we're probably going to beat like 85% total cost.
So we would hold back the amountfor the rehab and then you would
get the difference upfront. So generally that's going to be
like 82 or 83% upfront and then 100% of your rehab dollars.
So, but, but just to kind of create the picture for our
(28:55):
listeners, if you're thinking ofdoing your first fix and flip
transaction, and let's just use that example of the home is
going to be worth $1,000,000. Once you fix it up, let's assume
that your rehab is going to be $150,000.
So you're, you're going to have transaction costs on both sides
of the deal. So if you're trying to net a 10%
deal where you make 100K, you'reprobably buying somewhere in the
(29:17):
mid to high sixes in that, in that environment.
And so you know, you're, you're coming down with let's say 20%
of that $600,000 purchase price,you know, roughly maybe a little
higher depending on the person. But my, my point in, in bringing
that up is you might, you might bring $120,000 down to get into
the transaction. You know, you're going to carry
(29:39):
your interest payments. But if that six month deal takes
nine months or 12 months, then your return on equity, unless
you get lucky in the market goesbananas, is just dwindling every
month, right? So you still may be profitable
and you still might make money on that single transaction.
But if you were to think about this as a model where you want
(29:59):
to go and do this at scale, it'salmost more important to finish
the project on that six month window, even if your total
margin is lower because you put the capital back to work and go
into another deal. I don't know that most fix and
flip investors think that way. I mean, I, I talked to a lot and
they're, you know, they look at,well, I made 50 grand on the
deal. It was great.
It's like, well, you would have been better off making 40 in six
(30:22):
months than 50 in in nine monthsand then going into another
transaction. So, you know, and what I would
say for our listeners is go back, I think 2 episodes, we
walked through, you know, kind of common pitfalls when
somebody's looking at buying a house, the things that they
could be doing to eliminate someof those challenges.
Things like hiring grade inspectors for termite work, for
(30:42):
sewer work, for, you know, roofs, obviously a full home
inspection sometimes if it's hillside soils inspections, all
those little things ahead of thepurchase will save you a massive
headache, you know, once you're in it so.
Well, and I think it's a unique perspective because we have, you
know, buy, buy house, but we also have Center St. lending
where, you know, there's so muchinsight, you see so many deals,
(31:05):
you know, And so even to your borrowers, I think that provides
so much value to them. As you were saying, you're kind
of reviewing their budget and making sure that it's, you know,
in line with what the actuality is, where not everyone has that
expertise. You know, you see so many
transactions and you have so much data that you can really
pass that on to your borrowers as a value as well.
(31:28):
Yeah. I mean us as a lender, we really
want the people to be, we want our borrowers to be successful.
And, and so, you know, if somebody hasn't done a lot of
properties, we'll look at it more closely and make sure that
again, we think it's a viable project.
And, you know, if somebody's got10 properties under their belt,
(31:51):
then we're, you know, we're treating them as they know what
they're doing. And so our review is much less
on that. But, you know, the worst thing
that can happen is you get, you know, it's easy for us to go
give a loan, but if the person'snot going to be successful, we
don't really want to be involvedwith it because it's, you know,
it's, you know, just bad business.
And it will try and talk people out of deals that they're doing
(32:14):
if we think they're paying too much.
And you know, often times they'll go get price reductions.
And it turns out no good deal, right?
So, OK, we're short on time. I've got just a couple more
basic questions. So, you know, the economic cycle
that we're in the moment, how dohow does inflation and interest
(32:34):
rates affect the world of lending today?
Yeah. I mean, inflation for asset
values tends to be a positive, right.
So if things are going up, then you can go and sell them for
more. And you know, it's sort of mask
any mistakes that you may have had over the life of your
project. And interest rates, higher rates
mean, you know, it's more expensive for people to buy
(32:56):
houses if they're using financing, which most people do.
And so that obviously makes the potential pool of buyers less or
you know, being able to payless because their monthly payments
are higher. And so, you know, AAI personally
prefer markets where prices are steady and they're going up by a
(33:20):
moderate amount, you know, whichis normal.
Typically if you look, you know,over the history, home prices,
and I haven't looked at this recently, but home prices
historically went up by about 1%more than inflation, you know,
over the, you know, over the course, you know, the last 40 or
50 years. So, but, you know, if things are
(33:44):
going up dramatically, then sellers want more and, you know,
that tends to, you know, just tends to put in a lot more
uncertainty into your projects. And so, you know, we prefer sort
of flat, you know, modest growthmarkets and, you know, let
people actually function withoutthese external factors that they
have no control over, you know, really affecting the success of
(34:06):
their project. Volatility bad, Speed good yes,
OK, so thinking back from the day you started the business
until today, can you share with us a success story, obviously no
names of a borrower that you were just like super pumped to
be involved with like think of aborrower that you know a.
Happy ending, yeah. Just a great.
(34:28):
Story a success story. Yeah.
I mean, listen, the vast majority of our borrowers are
successful. They're doing this for a living.
And so, you know, they're doing it over and over again.
Yeah, we've done I think 9000 loans at this point in time.
So, you know, I can't pick 11 success story, but you know, it
(34:50):
is great to see, you know, new construction is very exciting
because you're seeing a new house being built and we'll do
multi $1,000,000 loan. So, yeah, you can see some
pretty nice houses being built and it's, you know, it's great
to go and see that. But it's, you know, it's it's
equally rewarding to see somebody that took, you know,
(35:14):
there's nothing better than looking at appraisal pictures.
And there's pink bathtubs and like, green sinks and, you know,
stuff that's just really old andugly and it gets turned into
like a really cool new house in a great location.
And, you know, that's, to me, that's actually more satisfying
to to watch those success stories.
(35:36):
And yeah, you listen to people deliver a good product.
You know, if they've stayed on budget relatively and stayed on
timelines relatively, they're going to make money doing it.
Yeah, I thought you were for sure going to say bye.
Bye, House. I don't know, I just.
We've had our we love. We love all of our borrowers
equally. Yeah.
(35:56):
Except the ones that don't pay us off.
Yeah, yeah. Yeah, we've never done that.
We've always been on time. Yeah.
The only thing I would say aboutpink bathrooms is that if you're
a agent in Palm Springs, we havenothing against colorful
bathrooms and mid century deals.Yeah, there's.
No carpet in there. That's where we got to draw the
line. Yeah, carpet in bathrooms is.
That's pretty gross. That's a rough one.
(36:17):
Yeah. Rough one to see.
OK. Last question, looking ahead
5/10/20 years, what what does Center St. look like?
What what do you think changes or is it more of the same stuff?
Do you see anything you know, exciting or any risks or any
challenges? What do you think of the future
for Center St. Yeah.
(36:37):
I mean, it's really, you know, our future is the opportunities
that the housing market will go and create, right.
So our goal is to provide attractive loans from a
structure standpoint and a pricing standpoint to our
borrowers and to, you know, be able to offer a loan for every
(36:58):
good property that we see and you know, good borrower that we
see. So our industry has tended to
focus on one to four unit properties.
Those are the most liquid in themarketplace, but we'll probably
continue as we continue to grow,we'll probably start doing
larger projects, you know which will be you know, multi family
(37:22):
properties either for rent or for sale.
So you know, we've done, you know, we've done loans as high
as $40 million, but our average loans $1,000,000, you know it's
$1,000,000. So you know, we'll probably end
up doing more larger loans wherethere's multiple units involved
as somebody's buying an infill property and it's got excess
(37:47):
acreage on it and they're going to go subdivide the land and go
build multiple properties. We really like those investments
because again, you're deliveringnow a new product in an infill
location. So, you know, we'll, we'll focus
on those and, you know, we'll continue to focus on, you know,
providing loans, you know, across the country to good
(38:10):
borrowers also. So, you know, if it's a $200,000
loan and you know, pick any state, you know, Des Moines.
Iowa. That, that, that's fine.
I don't know if we've done loans, but sure, you know, up
to, you know, a 20 or $30 million loan for, you know,
somebody building out a, a smallsubdivision.
Awesome. So lots of optimism in the
(38:32):
market and the business as a whole.
There's more people, you know, being created, although I'm not
sure this year with everybody leaving.
But you know, there's more that,you know, the US population is
growing and and, you know, the supply of housing is, is, you
know, grossly below what is needed.
(38:55):
I don't see that changing just given the rules and regulations
in most states to actually go put out new product.
So, you know, I, I think there'sa good foundation for house
prices on a long term basis, which is, you know, which is
healthy. Would be nice if affordability
was a little bit better. So that can happen in a couple
(39:17):
of ways. You know, rates can come down,
which, you know, long rates are probably not going to come down
until the budget deficit gets, you know, basically figured out.
But, you know, as incomes continue to grow, you know,
people can afford more. So, you know, over time, you
(39:37):
know, the markets tend to kind of self correct themselves.
Yeah, yeah, very good. Well, we get a lot of different
types of listeners. So you know, what I would say is
if you're on a college campus listening to this or if you're
new in the real estate industry as an agent, you know, and
interested in checking other things out, go check out Center
St. Lending online.
(39:59):
They're hiring. There's always opportunity
there. Obviously innovators always
bring a new agents on. We've got some exciting new news
in the future related to growth so.
Yeah. For agents that are out there,
the one thing you know, that's amisconception is we can actually
pay broker fees because we're doing business loans and so
(40:21):
unconventional loans, you know, you're not able to go and do
that. So if somebody has a good, a
good borrower with a good property, you know, they can
actually get paid. You know, there's markets where
you need to be licensed and so they we need to be licensed in,
in those states, but you know, it's a select number of States
and markets where there's no licensing required then you
(40:43):
know, we can, you know, we can pay them as well.
Yeah, I think that's that's something that we remind our
agents of, but probably not enough because it is it, it's
just so rare that agents wouldn't even think that they
can get paid off of these types of loans, so or loans in
general. So it's a huge, that's a huge
point. All agents work with investors.
(41:05):
So whether, you know, what we come across a lot is an agent
that is wanting to get into the business themselves.
They've been working with investors, they see what they
think their investors job is super easy and they want to
start making money. So whether that's the case,
whether they want to go that route or those investors that
they're working with, they want to bring them to Center St.
lending, you know, regardless they they can get involved.
(41:28):
So I think that's really huge, and more agents need to know
that that's a possibility. Yes, All right.
Very exciting. Anything else that either of you
want to add before we close thisbaby out?
You know, I learned a lot. Thank you.
Yeah. All right, if you haven't done
it, please hit the subscribe button.
Check us out on all the platforms.
(41:49):
We appreciate our listeners. It gives us the opportunity to
go and do this. That is another Realty talk
podcast in the books. We will see you next week.
I.
Yeah. I mean, us as a lender, we
really want the people to be, wewant our borrowers to be
successful. You know, millennials and
younger are the laziest population of the US has.
Ever. I wouldn't, I probably would not
be in that location. That probably isn't where
Suzanne is going to live, so. All right, welcome back to your
(00:25):
favorite podcast on the planet Real to Talk podcast.
We have a very exciting episode ahead of ourselves today.
I will do some quick announcements first, So we've
got to my left, the queen of theclosing table, Suzanne, the
founder of Innovate Realty. To my right, we are very excited
today to have Mr. Steven Kuwik. We call you the King of lending,
(00:49):
the King of Lending founder, CEOof Center St.
Lending and I am your host for the day moderator with the most
My new nickname on the podcast is Paul Fix It All.
Yes. I don't know if I like it.
I yeah, I like it. I like it.
I think it's, I think. It to you.
That would be neat. We went like 20 episodes without
(01:12):
him having a nickname so felt like it was time and that one
feels right. The only reason I struggle with
it, which I've mentioned before on previous episodes, is I read
at least twice a week this PeppaPig book to my daughters and
there's like a full chapter 5 minutes long of daddy Pig can
fix it. And I told the girls that that
(01:33):
was my new nickname at the office and they thought it was
super funny, so they asked to read the book more now.
Which is, I mean, I would also call that a win.
Great. Very wholesome.
I'm ready for that book to go away.
Or challenge him on what he can fix.
Yeah. Yeah, someday.
No, that sounds yes. I think we've already done that.
(01:55):
You know, we challenge you on things you can fix almost every
day, so. Yeah, yeah.
Yeah. Let's dive right in.
So we've got a little bit of a different episode today.
It's going to be more of an interview.
So typically we jump right into market updates, what's happening
at innovate, at Buy buy house, the broader, you know, market as
(02:17):
a, as a whole in the US And thenwe, we do focus a lot in
Southern California. I think most of our listeners at
the moment are, you know, California agents and buyers or,
or sellers. We do get some interesting
feedback from listeners all overthe, the US.
So, but this will be a fun episode just to to get some
color on, you know, the, the business that you founded.
(02:39):
And and so we've got just a couple basic questions.
And I would say for any of our listeners that haven't listened
to our first few episodes, so that they have a good
understanding, maybe go back andtake a listen because we did
dive in pretty deep on, you know, that side of the business
as well, so. Yeah, we talked about background
and everything, so we're going to skip over some of that and
(03:01):
dive straight in. So Center St.
Lending was founded in 2009. Correct.
Yeah, we did the first loan in January 21st, 2010.
Wow. OK, so.
Early days. Yes.
So share with us kind of the origin story and, and the name
and, and how you came to think, OK, I'm going to, I'm going to
(03:23):
go into this industry and I'm going to name it Center St.
Lending. Yeah, so the name, there's no
rhyme or reason for it other than it seemed like a pretty
good name that you can attach tolots of different things.
And there's a Center St. everywhere.
So, you know, I spent probably six months looking at thinking
about different names and a lot of them were already taken as
(03:46):
far as URLs. And so, you know, came across,
you know, it's like, oh, Center St. that's that'd be pretty
good. And it was available.
And so we so. Here we are.
So 15 years later, yeah. Six months, that's pretty good.
I mean we have made name decisions in like a week over
(04:08):
here. So you know what, I, I haven't
talked about this on the podcast, but I'm fairly certain
a bunch of tech CE OS name theircompanies out of Doctor Seuss
books because Zillow is a weird random name in the real estate
industry. And it's in the Doctor Seuss
book that was published in like the 50s.
So they must have seen that wordand said, oh, it's kind of a
(04:28):
funny, silly word. And then they named it that way.
Yeah. There's two other examples.
There's a story behind why they named it Zillow, but it could
all be false. Yeah, it was a late night of
drinking. He went home and read his
daughter a book and Zillow was in the book.
And that's that's the word. I'm convinced.
Yeah, OK. That is great.
(04:49):
I do have, I want to come back to the the naming, but I think
it's this next question is worthgetting out first.
So how is Center St. lending evolved over the years?
I mean, it's been a long time you've gone through kind of
market turbulent, you know? So, yeah, I mean, there's been
lots of changes in the marketplace.
So when we first started, prettymuch most of the transactions
(05:12):
that we were financing were foreclosure sales.
And so in different states have different rules.
Some you need to have good fundsthat day, some you can do good
funds following the actual auctions.
And so, you know, it was a pretty involved process with the
(05:33):
people that were doing the bidding.
So, you know, really the opportunities originally, you
know, call it in 2000, 10, a lotof them were at the properties
that were being foreclosed on that pivoted relatively quickly
to short sales and you know, banks, you know, trying to find
(05:55):
other avenues to go move the, you know, product that they had.
And you know, probably by 2011 or so, most of the transactions
were purchased conventional purchase transactions from a
bank or a short sale. So back then, you know, post
2008, 2009, there were, I, I wasn't in the industry, but I, I
(06:16):
kind of was tangentially around it and there were like lending
shops that would set up folding tables at the courthouse steps
to like verify funds and do stuff.
So was that part of the businessmodel?
Yeah, we had. We had a couple of people that
would bring cashier's checks forspecific borrowers.
We had one wholesaler that was buying properties and then
(06:39):
reselling them. So, you know, we actually
started meal with them at the foreclosure sales and then
expanded to some other people. So, and then in, in, in post
2009, you also had to have because when you know in the
lending business you're giving someone capital, which is kind
of an easy thing to do, right. But you what's hard to do is get
it back and so. Still hard.
(07:03):
Yeah. Did you have a lot of confidence
coming out of the correction that you know you were starting
to lend at the right time and that you'd have some runway or
were you worried about any additional market issues or?
Yeah. The discounts given the amount
of volume that people were having to move and the fact that
lots of people that had financial difficulties and
hadn't gotten back on their feet, you know, there was, you
(07:26):
know, there was a lot of productto be sold and to be financed.
So yeah. Yeah.
And we'll, we'll dig into the kind of structure of a loan, you
know, on this next, this next question.
But that also probably helps a lot too because of your basis.
Yeah. The basis back then in, you
(07:47):
know, call it 2010 eleven, you were actually able to go buy
houses that lessen the sticks and bricks cost to build the
houses. Yeah.
So as far as our basis in the loans, you felt pretty safe.
You just, you know, you were going to get your money out.
You just didn't know if it was going to be 6 months or six
years. It's.
Kind of kind of similar to today's market.
I mean with it's just a little different, right?
(08:08):
But values are on the opposite end of the spectrum.
But you know the the cost to go and replace are higher in some
markets than what your basis would be.
Yeah. I mean, real estate at the end
of the day is a local business driven by supply and demand.
And you know, ultimately there'sobviously depending upon the
markets, a greater influence of the cost of financing.
(08:30):
And California, a lot of people are all cash.
So you know, that's a little bitless important.
It's really more primarily location and condition of the
property. In other markets where people
are getting more to entry level buyers are kind of first time
move up, you know the cost of financing for those and buyers
(08:51):
is you know is obviously more important.
Yeah, so evolution, this is going backwards here.
You know, Center St. lending, I,I, we hear the terminology
around the offices CSL, right? It, it is very similar to YSL,
which is a luxury brand. I have a concept that I've been
(09:12):
thinking about. I've, I've read a lot about how
younger generations value their income less than they value the
brand of where they work. I think we have to create like a
cursive CSL shirt. That'd be.
Great. And top producers.
Top producers get an opportunityto win that, but it's like a
luxury swag item. Nice.
(09:33):
Yeah. If that happens, I get, I get
credit for that one. Yeah, OK.
Our borrowers tend to care abouttheir pricing.
Yes, that's right. Yeah, the interest rate, yeah.
They don't want the shirt. Well, that's a good segue.
So walk us through what a typical loan looks like.
Because in in fairness, a lot ofour listeners are agents that,
you know, maybe have representeda fix and flip investor or are
(09:55):
agents that want to go and do it.
Or maybe listeners that you know, like what buy buy house is
up to and want to go and break into the fix and flip world.
What is a typical loan today look like for somebody that
wants to buy a house, fix it up and sell it?
Yeah, I mean it, it really depends on the market.
So a, you know, a deal in Florida, those tend to be lower
(10:16):
price points versus California. You know, Texas is similar to
Florida. Those are our three biggest
markets. We do land in 40 states.
So you see all kinds of projects.
So our, you know, our product offering also includes ground
up. So we do about a third of our
loans are ground up construction, which may be
(10:37):
somebody starting from a piece of dirt or somebody buying an
existing property, scraping it and building either either
multiple units or you know, a larger SFR.
So, you know, it's a little bit hard to to, you know, to.
Yeah, let's talk fix. Yeah, like it's a.
It starts with an application. Sure.
(10:57):
The terms kind of, yeah, the loan process.
So you know, the things that we look for from an underwriting
standpoint are first and foremost is the project and the
viability of the project. So we look at what we think the
costs are going to be to go and rehab it and and those things
tend to be somewhat standardizedon a per foot basis for what
(11:20):
you're doing. So we we look at that and if
it's a good project, then you know, we continue to dig in.
So you know, majority of our businesses repeat borrowers.
We obviously do like to do business with people that have
done it before because there is a pretty steep learning curve on
your first, you know, call it one or two or three deals and
(11:42):
you know, things don't always goaccording to plan.
So we do look at experience. We do look at FICO pretty
heavily as well. So, you know, people with low
credit scores tend not to pay ontime, and that's a bad thing if
you're a lender. Yeah.
Yeah. So you know that that certainly
is a factor. And then, you know, the last,
(12:04):
you know, last leg on the stool is really liquidity.
And does the borrower have enough cash, their own cash or
you know, with partners to be able to go complete the project
and to have some reserves to take care of things that you
know, if the project takes an extra 6 months to go and sell,
do they have the liquidity to goand continue to make the
(12:25):
payments? So if I'm, if I'm a listener and
I want to go and do my first or fifth, you know, fix and flip
transaction and I'm going to Center St., what is a timeline
typically look like from when I submit my application to when I
could actually purchase a property, whether it's on market
or off market? Yeah.
I mean, we can move pretty quickly.
So, you know, typically we're waiting for title to get us
(12:49):
information. And then one of the other things
we require is a borrower to haveinsurance.
That tends to be something wherethe borrower has to provide
that, so they're dealing with a third party.
So sometimes those get delayed. But, you know, in general, our
average time to fund is, you know, some, you know, somewhere
less than 30 days. But we can, you know, we can do
(13:11):
a loan in seven days. I mean, we've done them in 24
hours for repeat borrowers if they have everything there.
So it's it, you know, it's really.
Yeah, exactly. So it's, it's really not, you
know, how long does it take us? It's really how long does it
take the borrower and for us to be able to get the information
from third parties. And so it's typically the
(13:34):
borrower is going to be closing in 30 days anyways, So that's
fine. You know, we can pretty much
meet any closing deadline. It's really just a matter of
getting the third parties to, you know, get the information as
quickly as possible. So yeah, in general, if
somebody's got a property, either repeat, I mean, it's, you
know, it could be 5 days. So, and then on the, on the
(13:56):
terms like let's say it is somebody's first fix and flip
investment. I think you know, a lot of our
listeners here because they, they transact on traditional
deals. They think 30 days is fast
because they're looking at debt to income.
And, and if it's a rental property, an investment
property, they might be getting,you know, 60 or 70% leverage.
(14:17):
So it sounds like it could be asfast as, you know, 10 to 14 days
if everything's buttoned up, maybe 20 days if there's some
strain with these third party relationships.
But what is leverage and pricinglook like versus 30 year fixed
mortgage? Because I, I think that is a
misconception. We talk to agents all the time.
They, they look at the volume we're doing and they still don't
understand the private lending industry.
(14:38):
They say, well, how do you go sofast on a loan if you are still
using a loan? Like doesn't it take Bank of
America 30 days to underwrite you?
And it's like, well, no, we're not going to Bank of America,
right. But what, what is that?
Just broadly, I know, you know, not our listeners.
You can't hold him to a number that he says.
Or can you? We'll see.
(14:59):
Yeah, I mean, I, you know, so I guess to one part of your, your,
your comment, you know, we're essentially like a bank in that,
but we're not a bank. So we have large Capital
Partners, we've got our own capital as well.
And so, you know, really in starting the business back in
2010, it was there was no institutions that were focused
(15:22):
on this space and it really, youknow, there weren't a whole lot
until probably 2014 fifteen either.
So from, you know, that standpoint, the industry has
matured where you have companieslike us that are doing, you
know, multiple billions of dollars of new loans, you know,
each and every year. So the reason why it's so fast
(15:45):
is we only provide business loans.
We don't do consumer loans. So from a federal standpoint,
we're not subject to T lawyer RESPA.
And so those are the things thatadd a lot of time to actually
closing loans. And you know, there are
different states that require you to be licensed, but you're
still not subject to T lawyer RESPA.
(16:05):
So you can still move, you know,as quickly as you need to as you
need to move. Cool.
So in your view, we'll do one more question and then we're
going to break for a segment. In your view, what are the
biggest trends that you see shaping the fix and flip
industry, Not necessarily the lending industry, but just fix
and flip as a whole in the US? You know, I've heard since 2010
(16:29):
that there's no good deals out there.
And so, you know, roughly, you know, in the country, there's
probably, you know, call it 2 to300,000 properties are getting
flipped every year. the US housing stock is getting older.
So the average age is 40 years now.
And you know, I think it's a great industry because typically
(16:51):
people are buying either, you know, functionally or
conditionally obsolete houses and they're making them like new
houses in infill locations. You know, the one trend versus,
you know, early days, you know, that was a lot of the, you know,
sort of late vintage houses thathad just been sold.
Those were the first ones to getforeclosed on.
(17:12):
And there it was, you know, the the repairs were paint and
carpet, right? So those were the houses back on
the market in 15 days or 30 days.
Now people are changing up kitchens, bathrooms, you know,
fixing roofs if need be, doing landscaping and, you know, kind
of everything in between, right?So before 2008, 2009, there's
(17:36):
this like glut of new inventory,people stepped up, paid a lot of
money, then the market corrects.So there are three to five year
old houses getting short sold, foreclosed on.
Those are paint, carpet, quick turns.
That's no longer really there. Correct.
Yeah, I mean for new, for new sales, new homes being produced
(18:00):
back in call it 2005 and six, itwas probably about 1.4 million
units a year for several years. And you know, today builders are
building about 650,000 new units.
So, yeah, you got 15 years laterwe have a bigger population and
we're building half as many homes, which is part of the
(18:22):
reason why prices are are up. And it's, you know, it's really
what creates opportunities for people to be able to go buy
stuff that isn't really desirable for an end consumer.
Now they can go buy it, fix it up, make it nice.
And, you know, it's attractive because it's a great location
versus a new home. Construction tends to be on the
(18:44):
outskirts where there's land available.
Yeah, I mean, that's the whole thesis of buy buy house too.
I mean, you've got boomers exiting workforce.
Those are the houses that are 40years old.
Structurally, a lot of times they're maintained properly, but
cosmetically they're just not what's going to sell for top
dollar today. And, you know, millennials and
(19:05):
younger are the laziest population that the US has ever
seen. So they're not really interested
in buying that old, you know, kind of poopy house and then
slowly fixing it up in those great locations.
But they're also not interested in buying that new track home an
hour and a half away from their job.
So that's why, you know, at least from our, you know,
perspective, you see lower, you know, home ownership rates, you
(19:29):
know, with younger generations, but the vast majority of the
projects that we take off or youknow, to market once we're done
renovating our trading to young families.
Yeah, and I think, I think that's the misconception and you
touched on it a little bit. A lot of times, you know, when
someone, I I think the in the past it was more of just a
cosmetic, you know, quick, quickturn where now, I mean, there's
(19:54):
a lot of work that goes into allof these transactions, all of
these projects. It's sometimes months, sometimes
years. Not yeah, we don't want them.
Hopefully not years. But also you're providing a
product that that is actually functional as well.
It's not just cosmetic like there are sometimes where you
have to dig in a little deeper. So and that is really what we're
(20:17):
seeing from the consumer. I mean, we get these repair
requests that, I mean, they wanta perfect home.
So. Yeah, you know what?
What's being provided is a little different than what it
was in the past. Yeah.
And what people, what, what people think when they think,
oh, he just came in and, you know, painted the walls and made
it look good. Lipstick on a pig.
We always hear that. But actually it's that's not the
(20:39):
case. That's not what's moving.
So. Yes, OK.
Let's break and do our segment. So this is a fun segment.
It's newer, what it's called Home's Gone Wild, and one of our
listeners will submit a story. I have not seen the story.
They like me to read it because I guess my reactions are kind of
(21:00):
funny. But we're going to read it quick
and we'll have a little commentary around it.
So this week on Home's Gone WildI was doing a showing on a
particular house. This was the second time that I
had brought my buyers there. It was beautiful, nice updates,
big fireplace in the living room, nice winding deck, Outback
(21:22):
backyard, slope down the river. Just a magical house.
OK so this is like a Mountain House OK?
On the second visit my buyers decided to bring a contractor
with them. They were thinking it would be a
better idea to get a second opinion on remodeling and the
price before they actually bought the house.
That is a really good idea. Yeah, we're just talking about
that. The contractor decided to check
(21:42):
the entire house from top to bottom.
He went into the basement aroundthe crawl space, checked out the
garage and the wiring, the flooring and everything else.
He had to go to his truck to geta ladder so that he'd get into
the attic access off the 2nd floor.
When he returned with a ladder, he climbed into the attic and
after about two seconds, he squealed and then started
laughing. My buyers were young.
(22:02):
A young couple asked him what was so funny.
He said there's something up there that you should probably
see. And then he dropped a snakeskin
through the hole for us to see. It was a four foot long, and
according to the contractor, there were about 40 more just
like that in the attic. The most difficult thing to
(22:23):
figure out was where was the snake that had made them?
He couldn't find it anywhere. Yeah, I stood there and laughed
with him and the buyer's husband.
As such things have never bothered me.
His wife literally ran screamingfrom the house.
She did this weird little dance out in the front yard like she
was covered in spider webs and decided that at that moment that
(22:45):
she would never own that. Yeah, no.
Matter what, yeah. I don't think I would own that
house. I don't know that one.
It it would haunt me in my in mysleep for sure.
I mean, yeah, I know. To me, I'm like.
You love it, but I don't really like.
Snakes, But to me it's like, OK,you're buying a we're making
assumptions. So this is our, this is my big.
(23:06):
Snake could come back. It could come back.
That's its home it. Probably will because you're
buying a house by the. River in the yes in the
mountains. I wouldn't, I probably would not
be in that location. That probably isn't where
Suzanne is going to live, so. What I like about Homes Gone
Wild is we get really interesting things like this.
What I hate about it is like. We need more.
We need more. Where did these people buy?
Did they decide to not buy near a river?
(23:27):
Like what what? What ended up happening with
this one? Yeah, I guess if you're looking,
if that is your market and that's where you're looking, you
have to know what's going to come along with that.
Unless, I don't know, they're probably watching TV and movies
of like, I mean, they said magical.
There's it's a magical house. Like, yeah, you know, maybe
didn't think that one through. OK.
(23:47):
All right, back into it. We have a few more questions and
then we're going to break. So what common pitfalls do you
see a fix and flip investor make?
Like what are the challenges that you see most often when
somebody has a problem on A? Yeah, yeah.
I mean, I think, I think everybody, it's relatively easy
(24:08):
to figure out what something should sell for once you go and
fix it up. And obviously you know what your
purchase price is. So I, I think the, the biggest
pitfalls that we see are people under estimating either the time
or you know, or the cost to go and improve the property.
So you know, generally, again, it's depending on market and the
(24:29):
level of upgrade you're going tobe doing, but people typically
are spending somewhere from $50 a foot in sort of lower price
markets to $150.00 a foot for basic but extensive rehabs in
California. So you know, when people, when
we're looking at deals, we actually have people review the
(24:51):
budgets and we look at the appraisal as well to see the
condition of the house. And, you know, you can use those
rules of thumb to make sure that, you know, on a global
basis, you kind of have enough dollars to go and fix up what
needs to be fixed up. And, you know, unfortunately, if
(25:12):
you're doing a rehab and and sometimes ground up construction
is easier because you're just starting with a piece of dirt.
Yeah. So you, you know what you're
building. There's no surprises.
Correct. And you know if you're buying an
existing property, sometimes youthink you can take out a wall
and you find out it's a load bearing wall and you can't take
that out. So then you're putting in beams
(25:34):
to provide the space and so things can add up pretty
quickly. You know, the other thing is I
don't people, I don't think spend enough time vetting the
contractors that they're using or the GC.
So if you have AGC that's not doing their job, they're costing
you more absolute dollars and they're costing you a lot of
(25:56):
time. And you know, this business is,
it's just like the home buildingbusiness where margins are
single digits on revenue. They're really attractive on
return on equity because you getleverage with it, But you know,
you have a relatively skinny margin.
So you have to get the project done, you know, on budget, on
time and get it sold on time to be hitting your, you know,
(26:20):
hitting your numbers, right. Especially in a market like this
where prices aren't really increasing, you know, maybe kind
of flat, even maybe down a little bit.
You know you don't have the luxury of home price
appreciation over your hold time, which you know generally
will increase the house price by, you know, 1 or 2% / 6 months
(26:42):
and you know 4 or 5 / / a year. Yeah.
I mean that that one's really important to I think double
click on because, you know, you brought up some different points
the, the profile of a borrower that's getting, you know,
underwriting a deal and thinking, OK, single digit
returns like eight, 910%, maybe maybe they're maybe they're
(27:03):
looking at a 10% deal. When we say return on revenue,
we're thinking, OK, if if you'reselling a $1 million house and
you get a 10% deal, you're goingto make $100,000 after
everything's said and done. If you hire the wrong contractor
or in that beam situation, let'ssay you, you plan to open a
kitchen, you think it's not loadbearing, your inspectors likely
(27:24):
not going to be able to tell unless they really shake the
house down. And most inspectors won't give
you that opinion. So they're going to have you
bring in like a, an architect oran engineer to tell you for sure
if it's load bearing. But if you make that mistake, I
mean, that could cost you 3 months if if not more, depending
on the city that you're in, in Southern California, because
that's going to require, you know, a set of plans you got to
(27:45):
go to the city and get the permit.
That might even require doing concrete work underneath the
house to secure the beam that you're putting in.
So it's not necessarily just thecost, it's really the time.
And if you let's say that I was a repeat borrower, is it safe to
say I could get like 80% leverage on my purchase in a fix
and flip world? Yeah.
So in general, repeat borrowers now are getting and it depends.
(28:10):
There's repeat for one and there's repeat for, you know,
people have done 10 like projects.
So generally we look at the history over the last three
years for what the customer has done, you know, for our better
customers when we're giving you know, 90% of the purchase and
100% of the rehab and you know, if they're super good, like even
a little bit more than that on the purchase.
(28:33):
So you know, if you're, you know, if this is your first
deal, we're probably going to beat like 85% total cost.
So we would hold back the amountfor the rehab and then you would
get the difference upfront. So generally that's going to be
like 82 or 83% upfront and then 100% of your rehab dollars.
So, but, but just to kind of create the picture for our
(28:55):
listeners, if you're thinking ofdoing your first fix and flip
transaction, and let's just use that example of the home is
going to be worth $1,000,000. Once you fix it up, let's assume
that your rehab is going to be $150,000.
So you're, you're going to have transaction costs on both sides
of the deal. So if you're trying to net a 10%
deal where you make 100K, you'reprobably buying somewhere in the
(29:17):
mid to high sixes in that, in that environment.
And so you know, you're, you're coming down with let's say 20%
of that $600,000 purchase price,you know, roughly maybe a little
higher depending on the person. But my, my point in, in bringing
that up is you might, you might bring $120,000 down to get into
the transaction. You know, you're going to carry
(29:39):
your interest payments. But if that six month deal takes
nine months or 12 months, then your return on equity, unless
you get lucky in the market goesbananas, is just dwindling every
month, right? So you still may be profitable
and you still might make money on that single transaction.
But if you were to think about this as a model where you want
(29:59):
to go and do this at scale, it'salmost more important to finish
the project on that six month window, even if your total
margin is lower because you put the capital back to work and go
into another deal. I don't know that most fix and
flip investors think that way. I mean, I, I talked to a lot and
they're, you know, they look at,well, I made 50 grand on the
deal. It was great.
It's like, well, you would have been better off making 40 in six
(30:22):
months than 50 in in nine monthsand then going into another
transaction. So, you know, and what I would
say for our listeners is go back, I think 2 episodes, we
walked through, you know, kind of common pitfalls when
somebody's looking at buying a house, the things that they
could be doing to eliminate someof those challenges.
Things like hiring grade inspectors for termite work, for
(30:42):
sewer work, for, you know, roofs, obviously a full home
inspection sometimes if it's hillside soils inspections, all
those little things ahead of thepurchase will save you a massive
headache, you know, once you're in it so.
Well, and I think it's a unique perspective because we have, you
know, buy, buy house, but we also have Center St. lending
where, you know, there's so muchinsight, you see so many deals,
(31:05):
you know, And so even to your borrowers, I think that provides
so much value to them. As you were saying, you're kind
of reviewing their budget and making sure that it's, you know,
in line with what the actuality is, where not everyone has that
expertise. You know, you see so many
transactions and you have so much data that you can really
pass that on to your borrowers as a value as well.
(31:28):
Yeah. I mean us as a lender, we really
want the people to be, we want our borrowers to be successful.
And, and so, you know, if somebody hasn't done a lot of
properties, we'll look at it more closely and make sure that
again, we think it's a viable project.
And, you know, if somebody's got10 properties under their belt,
(31:51):
then we're, you know, we're treating them as they know what
they're doing. And so our review is much less
on that. But, you know, the worst thing
that can happen is you get, you know, it's easy for us to go
give a loan, but if the person'snot going to be successful, we
don't really want to be involvedwith it because it's, you know,
it's, you know, just bad business.
And it will try and talk people out of deals that they're doing
(32:14):
if we think they're paying too much.
And you know, often times they'll go get price reductions.
And it turns out no good deal, right?
So, OK, we're short on time. I've got just a couple more
basic questions. So, you know, the economic cycle
that we're in the moment, how dohow does inflation and interest
(32:34):
rates affect the world of lending today?
Yeah. I mean, inflation for asset
values tends to be a positive, right.
So if things are going up, then you can go and sell them for
more. And you know, it's sort of mask
any mistakes that you may have had over the life of your
project. And interest rates, higher rates
mean, you know, it's more expensive for people to buy
(32:56):
houses if they're using financing, which most people do.
And so that obviously makes the potential pool of buyers less or
you know, being able to payless because their monthly payments
are higher. And so, you know, AAI personally
prefer markets where prices are steady and they're going up by a
(33:20):
moderate amount, you know, whichis normal.
Typically if you look, you know,over the history, home prices,
and I haven't looked at this recently, but home prices
historically went up by about 1%more than inflation, you know,
over the, you know, over the course, you know, the last 40 or
50 years. So, but, you know, if things are
(33:44):
going up dramatically, then sellers want more and, you know,
that tends to, you know, just tends to put in a lot more
uncertainty into your projects. And so, you know, we prefer sort
of flat, you know, modest growthmarkets and, you know, let
people actually function withoutthese external factors that they
have no control over, you know, really affecting the success of
(34:06):
their project. Volatility bad, Speed good yes,
OK, so thinking back from the day you started the business
until today, can you share with us a success story, obviously no
names of a borrower that you were just like super pumped to
be involved with like think of aborrower that you know a.
Happy ending, yeah. Just a great.
(34:28):
Story a success story. Yeah.
I mean, listen, the vast majority of our borrowers are
successful. They're doing this for a living.
And so, you know, they're doing it over and over again.
Yeah, we've done I think 9000 loans at this point in time.
So, you know, I can't pick 11 success story, but you know, it
(34:50):
is great to see, you know, new construction is very exciting
because you're seeing a new house being built and we'll do
multi $1,000,000 loan. So, yeah, you can see some
pretty nice houses being built and it's, you know, it's great
to go and see that. But it's, you know, it's it's
equally rewarding to see somebody that took, you know,
(35:14):
there's nothing better than looking at appraisal pictures.
And there's pink bathtubs and like, green sinks and, you know,
stuff that's just really old andugly and it gets turned into
like a really cool new house in a great location.
And, you know, that's, to me, that's actually more satisfying
to to watch those success stories.
(35:36):
And yeah, you listen to people deliver a good product.
You know, if they've stayed on budget relatively and stayed on
timelines relatively, they're going to make money doing it.
Yeah, I thought you were for sure going to say bye.
Bye, House. I don't know, I just.
We've had our we love. We love all of our borrowers
equally. Yeah.
(35:56):
Except the ones that don't pay us off.
Yeah, yeah. Yeah, we've never done that.
We've always been on time. Yeah.
The only thing I would say aboutpink bathrooms is that if you're
a agent in Palm Springs, we havenothing against colorful
bathrooms and mid century deals.Yeah, there's.
No carpet in there. That's where we got to draw the
line. Yeah, carpet in bathrooms is.
That's pretty gross. That's a rough one.
(36:17):
Yeah. Rough one to see.
OK. Last question, looking ahead
5/10/20 years, what what does Center St. look like?
What what do you think changes or is it more of the same stuff?
Do you see anything you know, exciting or any risks or any
challenges? What do you think of the future
for Center St. Yeah.
(36:37):
I mean, it's really, you know, our future is the opportunities
that the housing market will go and create, right.
So our goal is to provide attractive loans from a
structure standpoint and a pricing standpoint to our
borrowers and to, you know, be able to offer a loan for every
(36:58):
good property that we see and you know, good borrower that we
see. So our industry has tended to
focus on one to four unit properties.
Those are the most liquid in themarketplace, but we'll probably
continue as we continue to grow,we'll probably start doing
larger projects, you know which will be you know, multi family
(37:22):
properties either for rent or for sale.
So you know, we've done, you know, we've done loans as high
as $40 million, but our average loans $1,000,000, you know it's
$1,000,000. So you know, we'll probably end
up doing more larger loans wherethere's multiple units involved
as somebody's buying an infill property and it's got excess
(37:47):
acreage on it and they're going to go subdivide the land and go
build multiple properties. We really like those investments
because again, you're deliveringnow a new product in an infill
location. So, you know, we'll, we'll focus
on those and, you know, we'll continue to focus on, you know,
providing loans, you know, across the country to good
(38:10):
borrowers also. So, you know, if it's a $200,000
loan and you know, pick any state, you know, Des Moines.
Iowa. That, that, that's fine.
I don't know if we've done loans, but sure, you know, up
to, you know, a 20 or $30 million loan for, you know,
somebody building out a, a smallsubdivision.
Awesome. So lots of optimism in the
(38:32):
market and the business as a whole.
There's more people, you know, being created, although I'm not
sure this year with everybody leaving.
But you know, there's more that,you know, the US population is
growing and and, you know, the supply of housing is, is, you
know, grossly below what is needed.
(38:55):
I don't see that changing just given the rules and regulations
in most states to actually go put out new product.
So, you know, I, I think there'sa good foundation for house
prices on a long term basis, which is, you know, which is
healthy. Would be nice if affordability
was a little bit better. So that can happen in a couple
(39:17):
of ways. You know, rates can come down,
which, you know, long rates are probably not going to come down
until the budget deficit gets, you know, basically figured out.
But, you know, as incomes continue to grow, you know,
people can afford more. So, you know, over time, you
(39:37):
know, the markets tend to kind of self correct themselves.
Yeah, yeah, very good. Well, we get a lot of different
types of listeners. So you know, what I would say is
if you're on a college campus listening to this or if you're
new in the real estate industry as an agent, you know, and
interested in checking other things out, go check out Center
St. Lending online.
(39:59):
They're hiring. There's always opportunity
there. Obviously innovators always
bring a new agents on. We've got some exciting new news
in the future related to growth so.
Yeah. For agents that are out there,
the one thing you know, that's amisconception is we can actually
pay broker fees because we're doing business loans and so
(40:21):
unconventional loans, you know, you're not able to go and do
that. So if somebody has a good, a
good borrower with a good property, you know, they can
actually get paid. You know, there's markets where
you need to be licensed and so they we need to be licensed in,
in those states, but you know, it's a select number of States
and markets where there's no licensing required then you
(40:43):
know, we can, you know, we can pay them as well.
Yeah, I think that's that's something that we remind our
agents of, but probably not enough because it is it, it's
just so rare that agents wouldn't even think that they
can get paid off of these types of loans, so or loans in
general. So it's a huge, that's a huge
point. All agents work with investors.
(41:05):
So whether, you know, what we come across a lot is an agent
that is wanting to get into the business themselves.
They've been working with investors, they see what they
think their investors job is super easy and they want to
start making money. So whether that's the case,
whether they want to go that route or those investors that
they're working with, they want to bring them to Center St.
lending, you know, regardless they they can get involved.
(41:28):
So I think that's really huge, and more agents need to know
that that's a possibility. Yes, All right.
Very exciting. Anything else that either of you
want to add before we close thisbaby out?
You know, I learned a lot. Thank you.
Yeah. All right, if you haven't done
it, please hit the subscribe button.
Check us out on all the platforms.
(41:49):
We appreciate our listeners. It gives us the opportunity to
go and do this. That is another Realty talk
podcast in the books. We will see you next week.
I.
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