May 4, 2023 • 35 mins
Shane has spent the last 17 years financing all types of residential fix & flip and ground-up construction projects across the country.
Shane shares how he went from training to be a fighter pilot to becoming the top hard money loan originator in the country!
In this episode of the Optimized Real Estate Podcast, you'll hear about…
- How he got started, and went from lender to fix & flipper (flipped 1500 homes!) during the Great Recession
- Getting the best pricing from a hard/private money lender
- Using leverage to do more deals and make more money
- Questions to ask your lender before committing
- Top mistakes investors make that cost them tons of time and money
- How to reduce market-timing risk and getting projects funded (and completed) faster
- Avoiding delays in qualifying and closing your deal
- How to submit the perfect loan package (Shane walks us through the whole process)
If you use hard (or private) money financing to fund your residential development project, this podcast is a Must Listen!!
Shane shares how he went from training to be a fighter pilot to becoming the top hard money loan originator in the country!
In this episode of the Optimized Real Estate Podcast, you'll hear about…
- How he got started, and went from lender to fix & flipper (flipped 1500 homes!) during the Great Recession
- Getting the best pricing from a hard/private money lender
- Using leverage to do more deals and make more money
- Questions to ask your lender before committing
- Top mistakes investors make that cost them tons of time and money
- How to reduce market-timing risk and getting projects funded (and completed) faster
- Avoiding delays in qualifying and closing your deal
- How to submit the perfect loan package (Shane walks us through the whole process)
If you use hard (or private) money financing to fund your residential development project, this podcast is a Must Listen!!
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:06):
Hello, real estate investors and professionals. This is Rod Wilson. You are
on with another episode of the Optimizedreal Estate Podcast. Today, I'm on
with Shane Lex. Shane is aseventeen year veteran and hard money and a
couple of things that we cover.We go through his background and some of
the things he's been through as faras you know, various markets and kind
(00:26):
of how the industry has changed lightin the hard money. But more than
that, he shares also some ofthe strategies for getting the best pricing.
He covers, you know, someof the top reasons for delays in the
process, and then we actually doget into the actual process and how it
kind of goes from start to finish. And you know, I've been I've
been a borrower for many years andmany loans and many different lenders, and
(00:48):
I've also been on the hard moneyside. And there's a lot in this
that I didn't know. So thereally enlightening podcast, hopefully for you is
definitely was for me and that's it. Hope you enjoy it and we will
see you on this side. Hey, everybody, I'm on with Shane Lex
of Anchor Loans. How's it goingShane doing well. Roll, I appreciate
for having me on. Yeah,no, thanks for joining, thanks for
(01:10):
jumping on. And Shane. Forthose of you who don't know Shane,
he's been around a while in theprivate lending space or hard money space,
depending on what you want to callit. And I think Shane, you're
probably the OG and in hard moneybecause you've been You've been doing this for
a long time. Yeah, recentlyjust celebrated my seventeenth year at Anchor.
That's all. I love it,and not that we'll get into it on
(01:32):
this podcast. You've gone through someinteresting transitions with the company, so it's
kind of cool. How we Iguess we morphed back in the financial crisis,
Yeah, and then there's been quitea bit of ups and downs since
since I started back in early twothousand and six. Yeah, definitely.
Well let's just jump into it.I guess maybe start with giving us a
(01:53):
little bit about your background, kindof what got you into into lending and
yeah, just what you've been workingon over the years. Yeah, sure,
absolutely, So. You know,I always had a passion for real
estate, got my degree in realestate finance, and you knew I was
going to get into the real estateinvestment world, but I also had a
passion for flying, and I wentthrough several years of flight training, billion
(02:16):
trained as a came a flight instructor, instructing out of John Lane Airport,
and so my initial goal in lifewas to be a professional pilot and then
just do real estate on the side. September eleventh happened, and this is
early on in my training days forbeing a flight instructor, and it was
a very difficult time. A lotof salaries got cut and throughout those years
(02:38):
going up until about two thousand andfour two thousand and five, I got
engaged and just seeing where that negativetrend or whether the airline industry was going,
I had to make a financial decisionon, you know, what do
I really want to do? AndI came across an opportunity to hire Baker
Loons, who was only been inbusiness for at that time less than ten
(03:00):
years, primarily lending out of southcentral Los Angeles. And I was actually
teaching one of the ex partners ofAnchor his wife out a fly and there
had an inspection position that came up, and it was very intriguing going on
their website and seeing when Anchor did, didn't really understand it, but I
knew it involved real estate, involvedfinancing. So I elected to make the
(03:22):
decision to go for an interview andthe rest of history from there. I
switched gears at the time I wasengaged, decided to do full time real
estate instead of full time flying,and so in early two thousand and six
is when I started. I startedon with the company as an especially evaluator
and inspector. So because Anchor atthat time was lending primarily to real estate
(03:46):
investors that were buying at the dailyCounty Trustee sale at the properties were lending
on were in South central Los Angeles. So those first you know, ten
years of Anchor a major goal to, you know, try to help rehabilitate
South central Los Angeles. So Iwas driving around through sell Central inspecting all
the properties. You know, That'swhere I really learned, you know,
the backbone of the business, evaluatingproperties, driving comparables, talking to real
(04:11):
estate agents, doing draws for rehabs, formulating budgets on renovations. But unfortunately
at the time, starting in earlytwo thousand and six, we know what
happened shortly thereafter, right which theco founders of anchor or. You know,
they're very savvy X poker player individuals, and they felt something was wrong
(04:35):
in the market, and so theycut originations back by about fifty percent,
and due to some regulations in thestate of Texas at that time, wasn't
as many the leverage was actually lowerin Texas on you know, when everyone
at that time was getting high leveragedloans, were getting loans just by you
know, signing their name all statedincome type of verification, which obviously we
(04:59):
know led to the crash, Butin Texas, because there were some more
limitations out there, we thought itwas safer to get money in Texas.
So in two thousand, late twothousand and six I moved out to Texas
to start that operation out there,since we were cutting back Linden in California
and we wanted to get money outin Texas. We opened up a satellite
shop out there and started linding inTexas, and then between two thousand and
(05:23):
seven two thousand and eight we gotsome money out there. But then we
saw an opportunity to come back toCalifornia in late two thousand and eight,
two thousand and nine, because youknow, we still had a lot of
relationships with real estate investors and developers, and one of them, which is
a second or third generation auction buyerat La County. You know, they
(05:43):
had the operation in place to buythe trustee sales that've been doing for decades
and then but during this time therewere kind of back then like three thousand
property scheduled a day that we're goingthrough the foreclosure auction, and you know,
we saw this as a big opportunitybecause that operation was in place already,
but they needed the financial backing whichwe had, so essentially we partnered
(06:04):
with them. We came in tohelp support financially, but also down there
at the war room every day buyingthe bidding on the properties and acquiring them.
And it's a really exciting time becausebetween two thousand late two thousand and
eight, about twenty fourteen, wehad established an ancillary company called the Anchor
Homes, which we had bottom solbasically flipped over fifteen hundred homes ourselves,
(06:28):
buying through the La County auction.So that's what brought me back to California.
And it was a really great setuphaving that product from the auction,
because not only did it enable usto develop a construction department that we needed
to renovate the properties. It's alwaysgreat for a lender to have a construction
department because of rio assets that they'llget back, because then it gives them
(06:50):
the option to be able to renovateand sell versus just having to sell the
property as is. So that's abig benefit. But it enabled us too
to really capture a lot of newclients because we were able to bring houses
that we purchased from the auction andsomething we would do and some we would
pitch to our investors and provide anchorsfinancing because we knew at that time looking
(07:14):
to aggressively lend again as we sawthe opportunities, so, you know,
but enabled us to get into flippingbusiness ourselves as well as continual inding.
So through that period, we likeI said, we we flipped a bunch
of houses and we were lending toour client base was continuing to grow,
and then we saw the opportunity whereyou know, we could take this nationwide
(07:35):
because we were primarily through all thoseyears from nineteen ninety eight from when the
company was incepted to develop twenty fourteen, primarily southern California based as far as
lending, and we saw the capabilityof being able to scale this nationwide,
and so at that time we werea bit limited on capital to be able
(07:56):
to scale nationally. So we putup Anchor for sale in order to obtain
buyer that could inject a lot offunding for us to be able to grow,
and so we ended up selling toa Waffare Capital, which was a
hedge fund out of New York intwenty fifteen. And so before that,
because we were limited to about fortyto fifty million in originations per month,
(08:18):
and once WAFA acquired us, itgave us the ability to grow very quickly,
and within probably two years time,we were doing over one hundred million
a month in originations, and withina couple of years time, we grew
from just originate in California all throughoutforty eight states. So the growth happened
(08:39):
really fast, and you know,it's just really exciting times to see see
Anchor be able to grow nationally andreally try to develop that presence across the
country. Yeah, what an amazingramp. I didn't realize that it wasn't
really that gradual, and then youhad the O eight financial crisis kind of
in the middle but yeah, itsounds like from twenty fifteen things just really
(09:00):
kind of went up into the rightabsolutely, and they're you know, they're
at the same time though, therewere a lot of new originators coming into
the space as well, and alot of money flowing into this space,
which as we saw during that time, you know, all the way up
into like twenty twenty before COVID hit, you know, there was a lot
of compression rates and points two twelveto two thou fourteen, and we were
getting all day long at twelve percentand three points, right, and then
(09:24):
got all the way down next thing, you know, and twenty nineteen,
you know, we were originating loansat seven percent and half a point,
and that had to do with justa lot of the money that was in
the space and the competition that cameand we had to you know, maintain
competitiveness as best as we could.Right. No, it's kind of nice
to see that some of the thingsthat we thought were going to happen are
(09:45):
happening, and that some of theseguys that have been overly aggressive on leverage
or pricing or both are having somechallenges. Yeah, No, absolutely,
and you know that's kind of similarto what happened last Great Recession. You
know, at that time, Iremember when origin nats were going up to
like eighty percent of AARB, youknow, one hundred percent financing, and
(10:05):
you know, those are the onesthat really got in trouble how to shut
their doors down when the Great Recessioncame in thirty to sixty percent corrections in
the market. It was a reallytough time for them. And you know,
that's where I think Anchor has donereally well too. Although we've been
able to stay very competitive, wedidn't overdo it and get too aggressive in
the leverage and the pricing to competebecause we were one of the very few
(10:30):
lenders that was able that a wentthrough the Great Recession and B was able
to maintain their doors open exactly there. So when you had a lot of
these other originators that started popping upafter the Great Recession, they didn't go
through all the troubles that we hadto go through. And then next thing
you know, you're hearing all thishundred percent financing they're doing now potentially in
(10:50):
a world of hurt when the marketreally stretched. The shift. Well,
thanks for all that. That's actuallya lot of that I didn't know that's
some good, good history for me. And coming from the investors side of
it, you know, you hearone hundred percent financing or you know,
really high leverage or really low pricing, and now being you know, on
the lender side, it's like,I get it. You know, everyone
wants the best pricing, best leveragethey can get. But the same point,
(11:11):
it's like, you know, andI have to and I'm sure you
do the same, have to basicallypreach to people that you got to protect
the company you want us to bearound to continue to lend you. There's
certain restrictions or whatever. There's certainyou know, guidelines we got to stay
within to be a healthy company.And so that's kind of the goal.
It's not that we're trying to guageor anything. And like you said,
I mean, we've been very competitive, which has been good for me in
(11:33):
kind of getting started in this business. Right, let's switch gears. Then,
kind of curious, I was thinkingabout how to ask you this because
you've got so much experience in dealingwith obviously we deal with experience, you
know, investors, bread and butters, kind of fix and flip and ground
up construction. I would say thenot the highly experienced guide that's doing you
know, hundreds a year. Butlet's just say the kind of the newer
(11:54):
they've got a you know, ahandful of five or ten deals under their
belt up to kind of that intermediatetype but investor, what would be your
advice on when they're coming to useyou know, hard money and if they're
you know, you're they're new toanchor, what are the things that you
think are important for them to focuson when putting together a good package to
get kind of the best leverage inpricing with US. Yeah, that's a
(12:16):
great question. There's been quite abit of an evolution within this space as
far as lenders are concerned, justas far as like how we use to
structure loans versus today. But hardmoney or private money, however, which
term you want to use. Alot of it is about leverage. Right,
If you're paying cash for all yourdeals, there's only going to be
a certain amount of deals that you'regoing to be able to do. Versus
(12:37):
if you use a company like US, and you're able to get a high
percentage of the purchase price funded,high percentage of the rehab funds funded,
it's going to enable you to domuch many more deals. It's going to
cost more than if you just paycash for your properties. But at the
end of the day, if youdo the numbers, you're going to end
up making more when your leverage beingable to do you know, twenty houses
(13:00):
that year instead of just three,so you know when it comes to you
know, a lot of lenders nowthey structure based on the cost of the
deal, you know, the purchaseprice and the rehabit mount and most of
them were going to require some skinin the game. You know, there
are lenders out there, like wejust discussed that are providing one hundred percent
financing, but you're definitely going topay for that. The rates you're going
to be higher, the cost you'regoing to be hire, the points you're
(13:22):
going to be higher, the feesyou're going to be higher. Kind of
evolved over time and so there arethere are options out there. But as
you know, an investor, whenyou're searching around for a lender, a
couple of things you want to keepin mind is you know, how long
has this lender been been around,Because, like we said, there's a
lot of lenders that popped up recently, and and it's really important to understand
their understand their capital structure. Ifyou're dealing with the lender that is heavily
(13:46):
relying on the secondary market, andwe've went through these cycles very recently,
you know, when COVID hit anda secondary markets just froze as well as
you know around April May of twentytwo two, when the bond market started
going crazy, all the same thinghappened where that secondary market, you know,
changed dramatically. And so what happensis when you're dealing with a lender
(14:09):
or an originator that is relying onselling their loans to that secondary market,
it can be held hostage when they'veoriginated these loans thinking that that secondary buyer
is going to buy these loans becausethey originated within this box, and all
of a sudden their box changes,and now that originator can't sell loans and
then they're stuck with these The greatthing about ANCOR is we sell our loans
(14:31):
internally. It's an internal sale.It's not an external sale. If there's
going to be any changes in ourinternal box, I call it, we're
going to know about it well inadvance, and we're going to give enough
time to alert our clients of thatwhereas the other originators they are relying on
the secondary market. You know,it's very possible that you can get to
(14:52):
the closing table next to you know, they just can't fund it. So
that's that's really important to know andunderstand when it comes to dealing with lenders
in this space, is how istheir capital structure and you know, so
the longevity of the lender, howtheir capital structure, and also you know,
asking around people in the space.You know, if you're in this
space and you're operating, you're goingto you should be networking, you should
(15:15):
be out there and talking to otherinvestors. And nothing's better than as an
originator myself getting a lead from areferral and you know, it says a
lot about the company. And soyou definitely want to do your homework on
anyone that you're doing business with,whether it's a lender, whether it's a
real estate agent, whether it's acontractor, or whether it's a third party
(15:35):
lender service provider. You need toreally do your homework and ask others that
I've worked with them before and howtheir experience was. You know, this
space, as far as lenders areconcerned and investors, developers it's not also
too just about the leverage, butit's about the experience, the speed,
the customer service, Because if you'reworking with the right lender, it's really
(15:58):
going to enable you to focus onthe growth of your business because you're not
going to have to worry about wherethe money's coming from. Right, that's
really what you're looking for into youknow lender, a lender that operates in
a whole variety of different asset classes, different types of programs. You know,
they do fix and flip and newconstruction and rental loans. And because
(16:18):
that good lending partner is basically enablingyou to focus on your operation and let
you focus on what you do bestand not have to worry about where the
money's coming from. And that's reallygoing to help you scale, as if
you're too involved in the you know, day to day management of just the
processing of the loans, that's goingto that's going to make it difficult for
(16:41):
your scale as an investor or adeveloper that's that's in this space. So
you know, speed, flexibility,access to the money, all that's really
important when it comes to choosing yourlender. Room. Yeah, no,
I think you've flip toms yourself too. You know a lot of us have
been there before where we talk aboutleverage and pricing so much. In fact,
I have a to post a whileback, maybe even like a year
(17:02):
ago, that I was talking abouthow a lot of investors are just focused
on the wrong thing. If you'reif you're solely focused on pricing and leverage,
I guess there's a there's an argumentwhere, you know, how savvy
are you at this business, becausethose aren't the only factors. Because I've
experienced where you know, if ittakes two weeks to get a draw,
I mean those are two weeks whereyou're either coming out of pocket or sitting
on your hands, and both scenariosare are not pleasant on getting a project
(17:25):
done. So there's you know,the experience, the speed, and it
was good to hear you talk aboutsome of the history with Anchor, because
I think that does set us apart, you know, doing this business ourselves,
you know, being an actual fixand flipper building homes and going through
that process and just seeing what youknow, all the little things that can
affect a project and having direct experienceand doing that I think is why I
think we're one of the better onesin fun control and just how quickly we
(17:49):
move and guess there's somewhat intangibles thata lot of investors don't think about absolutely.
And you know, you bring upa good point about the draws because
you know it's a very important partof ours leverage and the ability to get
the project completed. And investors shouldrealize that from a lender standpoint, a
good lender, a smart lender,does not want the draws to be slowed
(18:11):
down. Right, the quicker thatthose project gets finished, the better rltvs
get right. So we're fully onboard of wanting to get those draws released
and projects completed as soon as possible. And so as an investor, when
you're potentially talking with a lender,it's a good idea to ask see if
you can talk to one of theirdraws managers, the manager that oversees the
(18:33):
draws and talk about the process andways that you can help streamline the process
right. Like for instance, youknow, Anchor partnered with true Pick,
which allows investors to essentially get alink emailed to their phone which they can
download and since there's it could beon site at the property, they can
(18:53):
take the pictures themselves, which willget automatically uploaded into our platform in order
to release that draws. So thatway you you don't have to wait for
scheduling to get a third party inspectorsscheduled to go out and do the draws
for you. You know, it'slittle things like that, and just that
simple question of hey, how canwe work best to really streamline this draw
(19:17):
process and talking with them directly beforeyou can do your first deal with them.
Right, So, what would yousay, what are some of the
top mistakes that you see you guysmaking that really kind of impact the either
whether it's the financing or just thespeed of their project. Well, I
would say that probably the number onething is, you know, even though
you know leverage can really help someonescale in this business, you also have
(19:37):
to be cautious about that right andtaking on too much debt, taking on
too many projects, because if yougrow from let's say you're used to doing
one to two deals every six months, and next thing you know, you're
trying to buy five houses a month, you can get overwhelmed in both operations
and debt very and so you know, that's something to really pay close attention
(20:03):
to because you don't want to gofrom zero to one hundred and six months,
Especially if you're just starting out.You're gonna make mistakes. Mistakes are
going to happen. You're not goingto go through this with everything being perfect,
and so you know, you kindof like they say, take your
baby steps through this process and reallywant to maintain a what I call manageable
growth, because I would say thatthat's probably the number one that's probably the
(20:27):
number one thing I've seen as faras investors getting trouble as they just took
on too many projects and too muchdebt, writing off too much and then
just not getting through them, whichI'm always amazed, you know, for
some guys out they just how slowsome of their projects go. And it's
like, man, and you know, I think the market, you know,
from whatever you want to call it, probably twenty fourteen, fifteen sixteen,
(20:49):
and that following five to seven years, I mean, the market bailed
a lot of guys out, andnow we're it's the opposite. It's like
the longer you take that cost tocapital is going to kill you, especial
if the market, if the valuesare pulling back a bit versus you know,
going up into the right, whichis what they were doing for so
long, right, Well, that'sanother reason why you got to really think
about you know, you got tostay on top of the market and what's
(21:11):
happening. And you also got tobe thinking about, you know, the
types of projects you're gonna you're gettinginto and the and the expected length of
time. Right because the longer theanticipated whole time of a project, you
know, you're more subject to youknow, market timing risk and adjustments in
the market. You know, ifyou're doing deals, you know you're going
to have much less risk as faras you know, market adjustments if you're
(21:36):
doing deals that you're in and outof than three months versus in and out
of than two or three years.When when you're when you're where you're seeing
that, you know, a shiftgetting in those long term deals, you
know, as far as large developmentprojects that are going to take two or
three years to finish, that's anotherarea. I mean, that's where we
got hurt too on the lending side, and you know two thousand and eight
(22:00):
and normally when we're lending on youknow, three to six month term fixing
flips. We also got into thedevelopment space where we're lending on land deals
where you know two year developments andknows two year development deals. As a
lender, the projects we got hurtthe most. Yeah, and so you
know, that's just another aspect thatyou have to be cautious about. Is
not only can you go from zeroto one hundred on the number of deals
(22:23):
you're doing, but you can alsobe impacted if you're going from zero to
one hundred on the size of dealsyou're doing. The higher the price points,
typically the longer they take to sale, the longer it takes to do
the renovation projects because the budgets arelarger. And so I've seen that,
like you were talking about getting overleverage and now you're holding a bunch of
(22:45):
assets on your balance sheet where you'vegot very heavy rehabs and you know it's
taken you at eighteen twenty four monthsto finish the projects, and let's say
you're running your performa at nine totwelve months. That can really impact your
bottom line. Right, I'm curiousyour perspective on one of the top delays.
You know that you see barrowers eitheryou know, if it's a matter
(23:07):
of not providing documentation or not,you know, kind of team the loan
up correctly or what do you seewhat causes most delays? And the reason
I'm asking is I'm always conscious of, you know, obviously, clothes of
escrow, right, we've got youknow, they've got their clothes of escrow.
And then sometimes it'll be like,oh, we got plenty of times
it's yeah, we've got a coupleof weeks and they're a bar we've worked
with in the past, and thenyou know, there's like these these things
(23:30):
will come up in the process thatare kind of either surprises or they're just
I guess not providing what we needwhen we need it. And you know,
a day or two doesn't seem likemuch, but you add a you
know, you compound that a fewtimes, then here we are, we're
not able to close, and thenpeople are freaking out. So I'm just
curious, with all your years ofexperience, Yeah, well, you know,
I strongly believe that that's a veryeasy fix from the investors standpoint working
(23:56):
with a lender, because it's reallyeasy for a lender to provide a full
list of items that are going toneed to the entire processing it. So
if you ask for that upfront,there shouldn't be any surprises and even though
you know you can be sensitive asan investor to you know, how many
documents you're providing what the lender isasking for. You know, personally myself,
(24:18):
I've been through a lot of youknow, I've obtained a lot of
loans throughout my career, and that'sone thing I've never really understood because it's
like for me, maybe it's justme being in the space, but when
a lender asked for something, youknow, we'll get it to them a
minute. And that's one of thebiggest delays I see because what vest are
never going to really know the insand outs of a lender's process. And
(24:41):
so if the lenders asking for somethingand you know it takes you seven days
to get it to them, youhave to realize that that entire seven days
that file mean I've just been sittingthere. You know. Let's say you
got a six step process that alender has and in order from them to
move it from step two to three, they need this item and you're thinking
that, oh, well, it'snot that important, I'll get it to
(25:02):
you. When I get it tothat file might just be sitting there for
setting, right, It'll be thatlong to get it. But you know,
you can even ask the lender tolike specifically, okay, tell me
the steps of the process, andyou know what items you're going to need
in order to get to each rightand then you're not going to get shocked
by you know, the items atthe lenders because you're going to know about
it ahead of time. That's actuallya good point. The perception is a
lot of times, well, youknow, I gave you half of the
(25:25):
documents, can't you just kind ofmove the file forward half the way forward?
You know, And it just doesn'twork like that. In fact,
as you're saying that, I'm thinkingno lenders should do that. The ones
that do are just inefficient because youwant to complete file, you want to
streamline it through the system, andyou know how it is just like our
own jobs, you know, whenwe're working each day to start and stop
and start and stop us it's justso inefficient. So we imagine why,
(25:48):
you know, Like for me andmy team at Anchor, you know,
I require whenever we onboard a newclient, I require for us to have
a call, a video call,just like we're having with my team lead.
They're assigned loan account coordinator myself andthe client, so that way number
one, we could meet each otherall so we all know who we're talking
to as well as the main focusof that call is just to go overall
(26:11):
process for them to understand. Isthe number one thing that I always experienced
when I go off to trade shows, conventions, whatever it is. When
someone comes up to our booth,comes up to me and ask about anchor,
their first question usually is, hey, what is your process? I
think that is one of the leastunderstood far as investors are concerned. He's
like, they're kind of going throughtheir first deal with the lender blinded and
(26:34):
not really understanding the process. Andyou know, they get to the finish
line and you know, you askedthem how the experience was, and they
say, yeah, I just wishI would understood the process. You know,
I didn't know you guys had acredit committee. I didn't know that
he needed to have all the titledocs before you even send a file to
underwriting. Do you want to ripthrough the process maybe an abbreviated yeah,
(26:56):
yeah, yeah, you just remindedme. I've actually wanted to kind of
go through this. I know,I've listen into some of your calls and
this is a new practice for meas far as doing this with every borrower.
But yeah, if you don't mind, maybe just kind of step through
it. Yeah, So you know, with us, you know, there's
two ways to go about it asfar as if you're a new client you're
getting on board. You know,you can get the application in upfront,
submit your entity docs and like yourbank statements, get all that reviewed and
(27:18):
approved up front before you even submitthe deal. That will definitely always speed
up the process on your first loanbecause most of the lenders is like you
know, you apply once. Likewith us, you don't have to complete
the application one so we have torun a credit report once a year,
so and we have to review theentity docs and get those approved. So
I highly recommend doing that upfront beforesubmitting the deal. But it's not technically
(27:41):
a requirement. I mean, youcan submit your deal and then while because
as far as our process is currentconcerned, the first thing we always do
when a loan is actually submitted,as we do our own internal evaluation and
you know, so we don't needto have an appraisal completed, reviewed and
approved in order to fund, andwe actually can fund deals based on our
(28:02):
own internal evaluation, and that's whatenables us to close deals in seven to
ten days. We don't have towait for an appraisal to come back.
There are a lot of originators andthat's something very important to understand too.
If you're shopping around for lenders,ask them if an appraisal is required,
because if they do require an appraisal, it's going to take minimum three to
four weeks of close a deal becausethat's just how long appraisals take. And
then not only that, you're goingthrough the entire process and you don't know
(28:23):
for sure until that appraisal comes backif your loan amount is going to remain
the same. If that appraisal comesback low, then next thing, you
know, two days before closing,that appraisal comes in. Now they're jesting
your loan amount, which just sortof cause you to have more money out
of pocket. It's just not anideal situation. So that's why we do
our internal evaluation and that way,you know, usually within one to three
(28:47):
business days because that's how long jointtakes our internal evaluations team to come up
with value to essentially determine your finalloan amount. So very simple documents we
need in order to get the valuationcompleted, and then once we get that
value in we send you a finalloan estimate in order for you to review
and approve us the investor, andonce you give us the green light that
so now when we start packaging thedeal to go for full approval to the
(29:11):
credit committee. You know, it'simportant too if to understand a lender has
a credit committee or some sort ofapproval committee, because that is one part
of the process that can slow thingsdown. But if you know about it
up front, then you're expecting that. And that's one thing that I think
is big in this business is justsetting the right expectations. And so once
(29:32):
the file gets packaged together and submittedthe credit committee, at that point they're
just you know, usually like withus, only your first couple of files
need to be reviewed by the creditcommittee, and at that point they're just
making sure that you know, you'rewithin the terms. We're providing leverages,
look good, experience credit. Andthen when they're approving it, they're also
approving basically your your blanket terms goingforward. You know, once it gets
(29:55):
through credit committee, then they're justpackaging it together. The documents again there
to get in line for docs.So essentially the beginning the end as a
new investor, you know, getyour application in and your credit run entity
docs, review bank statements in Boom, that's out of the way. Now
we start the evaluation. Evaluation getsdone, you review the final loan estimate,
you prove it, goes to creditcommittee, gets approved, your blanket
(30:18):
terms get approved, and then you'regetting in line for loan docs. So
it could be that that simple,you know, the whole process for us,
you know, we shoot for anew borrower to be completed with all
that within ten business days and thenso on the I'll just add a couple
of little points in here. Sothe valuation is going to be is obviously
a key part of it, andthat'll require the purchase contract, the itemized
(30:40):
budget, you know, bedbath count, square footage are you adding, and
then also kind of the overall gameplan. You know, you're you're buying,
you're adding value, you're adding squarefootage, you're gonna put runners in
there, and then you're gonna goget perm financing or you're gonna sell it
when it's done. Whatever, whateverthe game plan is, we need to
know. Yeah, that we don'tall that. I'm glad you brought that
(31:00):
up, because that's another key pointthat investors need to realize and understand is
that you want to get the highestvalue possible, and so the more information
that you provide them the better,right. I Mean there's often that we
get deal submitted where they just geta property address and no other information,
right right, And then we comeback with the value and they're like,
well, your value is way offand we're like, well, we see
(31:22):
that. You know, you havea based on the tax records, it's
a twelve hundred square foot you know, three bedroom, one bath, and
they're like, but adding three hundredsquare feet and at the end it's going
to be a four bedroom, twobathball. It's like that you would have
been great to know up front,right right, So very critical to make
sure they know what you're doing withthat property, yep. And the detail
(31:42):
and if you want to get intodetails of the renovations that you can do
in the type of finishes your footin, that can all help the value.
That's actually two huge nuggets right there. One is kind of what your
game plan is on the property,and you know, I try to pull
this out of people, and someare better than others, and then some
are very forthright as far as likethere's my last five projects, and here's
our finishes, and they're much higherin than anything else in the neighborhood and
(32:05):
blah blah blah, and this iswhy we've set records. So oh yeah,
yeah, you don't. I guesswhen I was, you know,
developing, maybe I didn't put enoughvalue on that. But it's huge because
that's what you know, underwriters wantto see. It's like, you know,
this is a fairly low risk loan, low risk investment because this guy
is super professional. I mean,one point I bring up is, you
know, put yourself in the evaluatorsshoes, right, And let's just say
(32:30):
you get a property address and you'relike, someone's gonna put fifty thousand dollars
in just what's it worth? Right? And that could be very subjective,
Right, Well, what kind offinishes are they putting in there with that
fifty thousand? What exactly are theydoing with that fifty thousand? Right?
You know, does that involve fulllandscape package? And you know, if
you have your past projects and ifyou submit a deal and you tell them
(32:52):
and you include pictures of a renovationthat you've recently done that's going to look
just like this new deal that yougot, So that evaluator can actually visualize
that end product can be very helpful. Actually I just did this. We
we had a valuations call and theyshowed one of their past projects and got
into the finishes because it's in prettyhigh end neighborhood and they'll those buyers will
(33:15):
they appreciate the nicster finishes and willpay for it, and so we're able
to get a little bit higher value. But yeah, the more we could
have upfront, the better. Theother nugget I thought was in getting the
best pricing, you know. Abig thing that and actually it becomes challenging
in some cases is just experience.And I talk about to borrowers, like
telling your story. You know,you were a real estate agent, you
(33:36):
know, out of high school andyou're building homes for ten years and now
you're developing. I mean that's quitea bit different than just the guy you
just started you know, developing,you know, last week, and that's
what our under writers want to hear. So it's like telling your whole story,
not only the story of the project, but also just yourself and your
experience and background is key. Yeah, I know absolutely. I mean,
you know we'll take all that intoconsideration if we know about it, right,
(34:00):
that's the key thing that we knowabout it. And you know,
as far as you know experience isconcerned, you know, it's a big
thing when it comes to lenders andmitigating risk. They feel like the more
experience you have, the less likelythey're going to take properties back. And
I would just add that, youknow, that's another critical part on your
lender selections because what ends up happeningis, you know, if you're shopping,
(34:21):
you know, if you're going fromone lender or to another lender or
to another lender, it's going tomake it difficult to really build that relationship.
And because most lenders, you know, they're going to appreciate that if
you're showing that performance and that loyaltywith that one lender, that that's where
you're going to be able to reallyget your discounts right as far as pricing
and exceptions being made, so youknow, sticking with one lender and not
(34:45):
only that, streamlining the process right, if you're going from one lender to
another lender, every every lender processesare different, right, you know,
so if you stick with one lenderand you already know that process, they
already know you. That can reallyhelp on the timelines too. Absolutely now
you don't want to keep starting overus for sure? Absolutely great. Well,
(35:06):
thanks Shane, that that was allgreat stuff. I appreciate you jumping
on And yeah, I had agreat time, Rod, I learned.
I learned a lot more about anchor. Thanks.
Hello, real estate investors and professionals. This is Rod Wilson. You are
on with another episode of the Optimizedreal Estate Podcast. Today, I'm on
with Shane Lex. Shane is aseventeen year veteran and hard money and a
couple of things that we cover.We go through his background and some of
the things he's been through as faras you know, various markets and kind
(00:26):
of how the industry has changed lightin the hard money. But more than
that, he shares also some ofthe strategies for getting the best pricing.
He covers, you know, someof the top reasons for delays in the
process, and then we actually doget into the actual process and how it
kind of goes from start to finish. And you know, I've been I've
been a borrower for many years andmany loans and many different lenders, and
(00:48):
I've also been on the hard moneyside. And there's a lot in this
that I didn't know. So thereally enlightening podcast, hopefully for you is
definitely was for me and that's it. Hope you enjoy it and we will
see you on this side. Hey, everybody, I'm on with Shane Lex
of Anchor Loans. How's it goingShane doing well. Roll, I appreciate
for having me on. Yeah,no, thanks for joining, thanks for
(01:10):
jumping on. And Shane. Forthose of you who don't know Shane,
he's been around a while in theprivate lending space or hard money space,
depending on what you want to callit. And I think Shane, you're
probably the OG and in hard moneybecause you've been You've been doing this for
a long time. Yeah, recentlyjust celebrated my seventeenth year at Anchor.
That's all. I love it,and not that we'll get into it on
(01:32):
this podcast. You've gone through someinteresting transitions with the company, so it's
kind of cool. How we Iguess we morphed back in the financial crisis,
Yeah, and then there's been quitea bit of ups and downs since
since I started back in early twothousand and six. Yeah, definitely.
Well let's just jump into it.I guess maybe start with giving us a
(01:53):
little bit about your background, kindof what got you into into lending and
yeah, just what you've been workingon over the years. Yeah, sure,
absolutely, So. You know,I always had a passion for real
estate, got my degree in realestate finance, and you knew I was
going to get into the real estateinvestment world, but I also had a
passion for flying, and I wentthrough several years of flight training, billion
(02:16):
trained as a came a flight instructor, instructing out of John Lane Airport,
and so my initial goal in lifewas to be a professional pilot and then
just do real estate on the side. September eleventh happened, and this is
early on in my training days forbeing a flight instructor, and it was
a very difficult time. A lotof salaries got cut and throughout those years
(02:38):
going up until about two thousand andfour two thousand and five, I got
engaged and just seeing where that negativetrend or whether the airline industry was going,
I had to make a financial decisionon, you know, what do
I really want to do? AndI came across an opportunity to hire Baker
Loons, who was only been inbusiness for at that time less than ten
(03:00):
years, primarily lending out of southcentral Los Angeles. And I was actually
teaching one of the ex partners ofAnchor his wife out a fly and there
had an inspection position that came up, and it was very intriguing going on
their website and seeing when Anchor did, didn't really understand it, but I
knew it involved real estate, involvedfinancing. So I elected to make the
(03:22):
decision to go for an interview andthe rest of history from there. I
switched gears at the time I wasengaged, decided to do full time real
estate instead of full time flying,and so in early two thousand and six
is when I started. I startedon with the company as an especially evaluator
and inspector. So because Anchor atthat time was lending primarily to real estate
(03:46):
investors that were buying at the dailyCounty Trustee sale at the properties were lending
on were in South central Los Angeles. So those first you know, ten
years of Anchor a major goal to, you know, try to help rehabilitate
South central Los Angeles. So Iwas driving around through sell Central inspecting all
the properties. You know, That'swhere I really learned, you know,
the backbone of the business, evaluatingproperties, driving comparables, talking to real
(04:11):
estate agents, doing draws for rehabs, formulating budgets on renovations. But unfortunately
at the time, starting in earlytwo thousand and six, we know what
happened shortly thereafter, right which theco founders of anchor or. You know,
they're very savvy X poker player individuals, and they felt something was wrong
(04:35):
in the market, and so theycut originations back by about fifty percent,
and due to some regulations in thestate of Texas at that time, wasn't
as many the leverage was actually lowerin Texas on you know, when everyone
at that time was getting high leveragedloans, were getting loans just by you
know, signing their name all statedincome type of verification, which obviously we
(04:59):
know led to the crash, Butin Texas, because there were some more
limitations out there, we thought itwas safer to get money in Texas.
So in two thousand, late twothousand and six I moved out to Texas
to start that operation out there,since we were cutting back Linden in California
and we wanted to get money outin Texas. We opened up a satellite
shop out there and started linding inTexas, and then between two thousand and
(05:23):
seven two thousand and eight we gotsome money out there. But then we
saw an opportunity to come back toCalifornia in late two thousand and eight,
two thousand and nine, because youknow, we still had a lot of
relationships with real estate investors and developers, and one of them, which is
a second or third generation auction buyerat La County. You know, they
(05:43):
had the operation in place to buythe trustee sales that've been doing for decades
and then but during this time therewere kind of back then like three thousand
property scheduled a day that we're goingthrough the foreclosure auction, and you know,
we saw this as a big opportunitybecause that operation was in place already,
but they needed the financial backing whichwe had, so essentially we partnered
(06:04):
with them. We came in tohelp support financially, but also down there
at the war room every day buyingthe bidding on the properties and acquiring them.
And it's a really exciting time becausebetween two thousand late two thousand and
eight, about twenty fourteen, wehad established an ancillary company called the Anchor
Homes, which we had bottom solbasically flipped over fifteen hundred homes ourselves,
(06:28):
buying through the La County auction.So that's what brought me back to California.
And it was a really great setuphaving that product from the auction,
because not only did it enable usto develop a construction department that we needed
to renovate the properties. It's alwaysgreat for a lender to have a construction
department because of rio assets that they'llget back, because then it gives them
(06:50):
the option to be able to renovateand sell versus just having to sell the
property as is. So that's abig benefit. But it enabled us too
to really capture a lot of newclients because we were able to bring houses
that we purchased from the auction andsomething we would do and some we would
pitch to our investors and provide anchorsfinancing because we knew at that time looking
(07:14):
to aggressively lend again as we sawthe opportunities, so, you know,
but enabled us to get into flippingbusiness ourselves as well as continual inding.
So through that period, we likeI said, we we flipped a bunch
of houses and we were lending toour client base was continuing to grow,
and then we saw the opportunity whereyou know, we could take this nationwide
(07:35):
because we were primarily through all thoseyears from nineteen ninety eight from when the
company was incepted to develop twenty fourteen, primarily southern California based as far as
lending, and we saw the capabilityof being able to scale this nationwide,
and so at that time we werea bit limited on capital to be able
(07:56):
to scale nationally. So we putup Anchor for sale in order to obtain
buyer that could inject a lot offunding for us to be able to grow,
and so we ended up selling toa Waffare Capital, which was a
hedge fund out of New York intwenty fifteen. And so before that,
because we were limited to about fortyto fifty million in originations per month,
(08:18):
and once WAFA acquired us, itgave us the ability to grow very quickly,
and within probably two years time,we were doing over one hundred million
a month in originations, and withina couple of years time, we grew
from just originate in California all throughoutforty eight states. So the growth happened
(08:39):
really fast, and you know,it's just really exciting times to see see
Anchor be able to grow nationally andreally try to develop that presence across the
country. Yeah, what an amazingramp. I didn't realize that it wasn't
really that gradual, and then youhad the O eight financial crisis kind of
in the middle but yeah, itsounds like from twenty fifteen things just really
(09:00):
kind of went up into the rightabsolutely, and they're you know, they're
at the same time though, therewere a lot of new originators coming into
the space as well, and alot of money flowing into this space,
which as we saw during that time, you know, all the way up
into like twenty twenty before COVID hit, you know, there was a lot
of compression rates and points two twelveto two thou fourteen, and we were
getting all day long at twelve percentand three points, right, and then
(09:24):
got all the way down next thing, you know, and twenty nineteen,
you know, we were originating loansat seven percent and half a point,
and that had to do with justa lot of the money that was in
the space and the competition that cameand we had to you know, maintain
competitiveness as best as we could.Right. No, it's kind of nice
to see that some of the thingsthat we thought were going to happen are
(09:45):
happening, and that some of theseguys that have been overly aggressive on leverage
or pricing or both are having somechallenges. Yeah, No, absolutely,
and you know that's kind of similarto what happened last Great Recession. You
know, at that time, Iremember when origin nats were going up to
like eighty percent of AARB, youknow, one hundred percent financing, and
(10:05):
you know, those are the onesthat really got in trouble how to shut
their doors down when the Great Recessioncame in thirty to sixty percent corrections in
the market. It was a reallytough time for them. And you know,
that's where I think Anchor has donereally well too. Although we've been
able to stay very competitive, wedidn't overdo it and get too aggressive in
the leverage and the pricing to competebecause we were one of the very few
(10:30):
lenders that was able that a wentthrough the Great Recession and B was able
to maintain their doors open exactly there. So when you had a lot of
these other originators that started popping upafter the Great Recession, they didn't go
through all the troubles that we hadto go through. And then next thing
you know, you're hearing all thishundred percent financing they're doing now potentially in
(10:50):
a world of hurt when the marketreally stretched. The shift. Well,
thanks for all that. That's actuallya lot of that I didn't know that's
some good, good history for me. And coming from the investors side of
it, you know, you hearone hundred percent financing or you know,
really high leverage or really low pricing, and now being you know, on
the lender side, it's like,I get it. You know, everyone
wants the best pricing, best leveragethey can get. But the same point,
(11:11):
it's like, you know, andI have to and I'm sure you
do the same, have to basicallypreach to people that you got to protect
the company you want us to bearound to continue to lend you. There's
certain restrictions or whatever. There's certainyou know, guidelines we got to stay
within to be a healthy company.And so that's kind of the goal.
It's not that we're trying to guageor anything. And like you said,
I mean, we've been very competitive, which has been good for me in
(11:33):
kind of getting started in this business. Right, let's switch gears. Then,
kind of curious, I was thinkingabout how to ask you this because
you've got so much experience in dealingwith obviously we deal with experience, you
know, investors, bread and butters, kind of fix and flip and ground
up construction. I would say thenot the highly experienced guide that's doing you
know, hundreds a year. Butlet's just say the kind of the newer
(11:54):
they've got a you know, ahandful of five or ten deals under their
belt up to kind of that intermediatetype but investor, what would be your
advice on when they're coming to useyou know, hard money and if they're
you know, you're they're new toanchor, what are the things that you
think are important for them to focuson when putting together a good package to
get kind of the best leverage inpricing with US. Yeah, that's a
(12:16):
great question. There's been quite abit of an evolution within this space as
far as lenders are concerned, justas far as like how we use to
structure loans versus today. But hardmoney or private money, however, which
term you want to use. Alot of it is about leverage. Right,
If you're paying cash for all yourdeals, there's only going to be
a certain amount of deals that you'regoing to be able to do. Versus
(12:37):
if you use a company like US, and you're able to get a high
percentage of the purchase price funded,high percentage of the rehab funds funded,
it's going to enable you to domuch many more deals. It's going to
cost more than if you just paycash for your properties. But at the
end of the day, if youdo the numbers, you're going to end
up making more when your leverage beingable to do you know, twenty houses
(13:00):
that year instead of just three,so you know when it comes to you
know, a lot of lenders nowthey structure based on the cost of the
deal, you know, the purchaseprice and the rehabit mount and most of
them were going to require some skinin the game. You know, there
are lenders out there, like wejust discussed that are providing one hundred percent
financing, but you're definitely going topay for that. The rates you're going
to be higher, the cost you'regoing to be hire, the points you're
(13:22):
going to be higher, the feesyou're going to be higher. Kind of
evolved over time and so there arethere are options out there. But as
you know, an investor, whenyou're searching around for a lender, a
couple of things you want to keepin mind is you know, how long
has this lender been been around,Because, like we said, there's a
lot of lenders that popped up recently, and and it's really important to understand
their understand their capital structure. Ifyou're dealing with the lender that is heavily
(13:46):
relying on the secondary market, andwe've went through these cycles very recently,
you know, when COVID hit anda secondary markets just froze as well as
you know around April May of twentytwo two, when the bond market started
going crazy, all the same thinghappened where that secondary market, you know,
changed dramatically. And so what happensis when you're dealing with a lender
(14:09):
or an originator that is relying onselling their loans to that secondary market,
it can be held hostage when they'veoriginated these loans thinking that that secondary buyer
is going to buy these loans becausethey originated within this box, and all
of a sudden their box changes,and now that originator can't sell loans and
then they're stuck with these The greatthing about ANCOR is we sell our loans
(14:31):
internally. It's an internal sale.It's not an external sale. If there's
going to be any changes in ourinternal box, I call it, we're
going to know about it well inadvance, and we're going to give enough
time to alert our clients of thatwhereas the other originators they are relying on
the secondary market. You know,it's very possible that you can get to
(14:52):
the closing table next to you know, they just can't fund it. So
that's that's really important to know andunderstand when it comes to dealing with lenders
in this space, is how istheir capital structure and you know, so
the longevity of the lender, howtheir capital structure, and also you know,
asking around people in the space.You know, if you're in this
space and you're operating, you're goingto you should be networking, you should
(15:15):
be out there and talking to otherinvestors. And nothing's better than as an
originator myself getting a lead from areferral and you know, it says a
lot about the company. And soyou definitely want to do your homework on
anyone that you're doing business with,whether it's a lender, whether it's a
real estate agent, whether it's acontractor, or whether it's a third party
(15:35):
lender service provider. You need toreally do your homework and ask others that
I've worked with them before and howtheir experience was. You know, this
space, as far as lenders areconcerned and investors, developers it's not also
too just about the leverage, butit's about the experience, the speed,
the customer service, Because if you'reworking with the right lender, it's really
(15:58):
going to enable you to focus onthe growth of your business because you're not
going to have to worry about wherethe money's coming from. Right, that's
really what you're looking for into youknow lender, a lender that operates in
a whole variety of different asset classes, different types of programs. You know,
they do fix and flip and newconstruction and rental loans. And because
(16:18):
that good lending partner is basically enablingyou to focus on your operation and let
you focus on what you do bestand not have to worry about where the
money's coming from. And that's reallygoing to help you scale, as if
you're too involved in the you know, day to day management of just the
processing of the loans, that's goingto that's going to make it difficult for
(16:41):
your scale as an investor or adeveloper that's that's in this space. So
you know, speed, flexibility,access to the money, all that's really
important when it comes to choosing yourlender. Room. Yeah, no,
I think you've flip toms yourself too. You know a lot of us have
been there before where we talk aboutleverage and pricing so much. In fact,
I have a to post a whileback, maybe even like a year
(17:02):
ago, that I was talking abouthow a lot of investors are just focused
on the wrong thing. If you'reif you're solely focused on pricing and leverage,
I guess there's a there's an argumentwhere, you know, how savvy
are you at this business, becausethose aren't the only factors. Because I've
experienced where you know, if ittakes two weeks to get a draw,
I mean those are two weeks whereyou're either coming out of pocket or sitting
on your hands, and both scenariosare are not pleasant on getting a project
(17:25):
done. So there's you know,the experience, the speed, and it
was good to hear you talk aboutsome of the history with Anchor, because
I think that does set us apart, you know, doing this business ourselves,
you know, being an actual fixand flipper building homes and going through
that process and just seeing what youknow, all the little things that can
affect a project and having direct experienceand doing that I think is why I
think we're one of the better onesin fun control and just how quickly we
(17:49):
move and guess there's somewhat intangibles thata lot of investors don't think about absolutely.
And you know, you bring upa good point about the draws because
you know it's a very important partof ours leverage and the ability to get
the project completed. And investors shouldrealize that from a lender standpoint, a
good lender, a smart lender,does not want the draws to be slowed
(18:11):
down. Right, the quicker thatthose project gets finished, the better rltvs
get right. So we're fully onboard of wanting to get those draws released
and projects completed as soon as possible. And so as an investor, when
you're potentially talking with a lender,it's a good idea to ask see if
you can talk to one of theirdraws managers, the manager that oversees the
(18:33):
draws and talk about the process andways that you can help streamline the process
right. Like for instance, youknow, Anchor partnered with true Pick,
which allows investors to essentially get alink emailed to their phone which they can
download and since there's it could beon site at the property, they can
(18:53):
take the pictures themselves, which willget automatically uploaded into our platform in order
to release that draws. So thatway you you don't have to wait for
scheduling to get a third party inspectorsscheduled to go out and do the draws
for you. You know, it'slittle things like that, and just that
simple question of hey, how canwe work best to really streamline this draw
(19:17):
process and talking with them directly beforeyou can do your first deal with them.
Right, So, what would yousay, what are some of the
top mistakes that you see you guysmaking that really kind of impact the either
whether it's the financing or just thespeed of their project. Well, I
would say that probably the number onething is, you know, even though
you know leverage can really help someonescale in this business, you also have
(19:37):
to be cautious about that right andtaking on too much debt, taking on
too many projects, because if yougrow from let's say you're used to doing
one to two deals every six months, and next thing you know, you're
trying to buy five houses a month, you can get overwhelmed in both operations
and debt very and so you know, that's something to really pay close attention
(20:03):
to because you don't want to gofrom zero to one hundred and six months,
Especially if you're just starting out.You're gonna make mistakes. Mistakes are
going to happen. You're not goingto go through this with everything being perfect,
and so you know, you kindof like they say, take your
baby steps through this process and reallywant to maintain a what I call manageable
growth, because I would say thatthat's probably the number one that's probably the
(20:27):
number one thing I've seen as faras investors getting trouble as they just took
on too many projects and too muchdebt, writing off too much and then
just not getting through them, whichI'm always amazed, you know, for
some guys out they just how slowsome of their projects go. And it's
like, man, and you know, I think the market, you know,
from whatever you want to call it, probably twenty fourteen, fifteen sixteen,
(20:49):
and that following five to seven years, I mean, the market bailed
a lot of guys out, andnow we're it's the opposite. It's like
the longer you take that cost tocapital is going to kill you, especial
if the market, if the valuesare pulling back a bit versus you know,
going up into the right, whichis what they were doing for so
long, right, Well, that'sanother reason why you got to really think
about you know, you got tostay on top of the market and what's
(21:11):
happening. And you also got tobe thinking about, you know, the
types of projects you're gonna you're gettinginto and the and the expected length of
time. Right because the longer theanticipated whole time of a project, you
know, you're more subject to youknow, market timing risk and adjustments in
the market. You know, ifyou're doing deals, you know you're going
to have much less risk as faras you know, market adjustments if you're
(21:36):
doing deals that you're in and outof than three months versus in and out
of than two or three years.When when you're when you're where you're seeing
that, you know, a shiftgetting in those long term deals, you
know, as far as large developmentprojects that are going to take two or
three years to finish, that's anotherarea. I mean, that's where we
got hurt too on the lending side, and you know two thousand and eight
(22:00):
and normally when we're lending on youknow, three to six month term fixing
flips. We also got into thedevelopment space where we're lending on land deals
where you know two year developments andknows two year development deals. As a
lender, the projects we got hurtthe most. Yeah, and so you
know, that's just another aspect thatyou have to be cautious about. Is
not only can you go from zeroto one hundred on the number of deals
(22:23):
you're doing, but you can alsobe impacted if you're going from zero to
one hundred on the size of dealsyou're doing. The higher the price points,
typically the longer they take to sale, the longer it takes to do
the renovation projects because the budgets arelarger. And so I've seen that,
like you were talking about getting overleverage and now you're holding a bunch of
(22:45):
assets on your balance sheet where you'vegot very heavy rehabs and you know it's
taken you at eighteen twenty four monthsto finish the projects, and let's say
you're running your performa at nine totwelve months. That can really impact your
bottom line. Right, I'm curiousyour perspective on one of the top delays.
You know that you see barrowers eitheryou know, if it's a matter
(23:07):
of not providing documentation or not,you know, kind of team the loan
up correctly or what do you seewhat causes most delays? And the reason
I'm asking is I'm always conscious of, you know, obviously, clothes of
escrow, right, we've got youknow, they've got their clothes of escrow.
And then sometimes it'll be like,oh, we got plenty of times
it's yeah, we've got a coupleof weeks and they're a bar we've worked
with in the past, and thenyou know, there's like these these things
(23:30):
will come up in the process thatare kind of either surprises or they're just
I guess not providing what we needwhen we need it. And you know,
a day or two doesn't seem likemuch, but you add a you
know, you compound that a fewtimes, then here we are, we're
not able to close, and thenpeople are freaking out. So I'm just
curious, with all your years ofexperience, Yeah, well, you know,
I strongly believe that that's a veryeasy fix from the investors standpoint working
(23:56):
with a lender, because it's reallyeasy for a lender to provide a full
list of items that are going toneed to the entire processing it. So
if you ask for that upfront,there shouldn't be any surprises and even though
you know you can be sensitive asan investor to you know, how many
documents you're providing what the lender isasking for. You know, personally myself,
(24:18):
I've been through a lot of youknow, I've obtained a lot of
loans throughout my career, and that'sone thing I've never really understood because it's
like for me, maybe it's justme being in the space, but when
a lender asked for something, youknow, we'll get it to them a
minute. And that's one of thebiggest delays I see because what vest are
never going to really know the insand outs of a lender's process. And
(24:41):
so if the lenders asking for somethingand you know it takes you seven days
to get it to them, youhave to realize that that entire seven days
that file mean I've just been sittingthere. You know. Let's say you
got a six step process that alender has and in order from them to
move it from step two to three, they need this item and you're thinking
that, oh, well, it'snot that important, I'll get it to
(25:02):
you. When I get it tothat file might just be sitting there for
setting, right, It'll be thatlong to get it. But you know,
you can even ask the lender tolike specifically, okay, tell me
the steps of the process, andyou know what items you're going to need
in order to get to each rightand then you're not going to get shocked
by you know, the items atthe lenders because you're going to know about
it ahead of time. That's actuallya good point. The perception is a
lot of times, well, youknow, I gave you half of the
(25:25):
documents, can't you just kind ofmove the file forward half the way forward?
You know, And it just doesn'twork like that. In fact,
as you're saying that, I'm thinkingno lenders should do that. The ones
that do are just inefficient because youwant to complete file, you want to
streamline it through the system, andyou know how it is just like our
own jobs, you know, whenwe're working each day to start and stop
and start and stop us it's justso inefficient. So we imagine why,
(25:48):
you know, Like for me andmy team at Anchor, you know,
I require whenever we onboard a newclient, I require for us to have
a call, a video call,just like we're having with my team lead.
They're assigned loan account coordinator myself andthe client, so that way number
one, we could meet each otherall so we all know who we're talking
to as well as the main focusof that call is just to go overall
(26:11):
process for them to understand. Isthe number one thing that I always experienced
when I go off to trade shows, conventions, whatever it is. When
someone comes up to our booth,comes up to me and ask about anchor,
their first question usually is, hey, what is your process? I
think that is one of the leastunderstood far as investors are concerned. He's
like, they're kind of going throughtheir first deal with the lender blinded and
(26:34):
not really understanding the process. Andyou know, they get to the finish
line and you know, you askedthem how the experience was, and they
say, yeah, I just wishI would understood the process. You know,
I didn't know you guys had acredit committee. I didn't know that
he needed to have all the titledocs before you even send a file to
underwriting. Do you want to ripthrough the process maybe an abbreviated yeah,
(26:56):
yeah, yeah, you just remindedme. I've actually wanted to kind of
go through this. I know,I've listen into some of your calls and
this is a new practice for meas far as doing this with every borrower.
But yeah, if you don't mind, maybe just kind of step through
it. Yeah, So you know, with us, you know, there's
two ways to go about it asfar as if you're a new client you're
getting on board. You know,you can get the application in upfront,
submit your entity docs and like yourbank statements, get all that reviewed and
(27:18):
approved up front before you even submitthe deal. That will definitely always speed
up the process on your first loanbecause most of the lenders is like you
know, you apply once. Likewith us, you don't have to complete
the application one so we have torun a credit report once a year,
so and we have to review theentity docs and get those approved. So
I highly recommend doing that upfront beforesubmitting the deal. But it's not technically
(27:41):
a requirement. I mean, youcan submit your deal and then while because
as far as our process is currentconcerned, the first thing we always do
when a loan is actually submitted,as we do our own internal evaluation and
you know, so we don't needto have an appraisal completed, reviewed and
approved in order to fund, andwe actually can fund deals based on our
(28:02):
own internal evaluation, and that's whatenables us to close deals in seven to
ten days. We don't have towait for an appraisal to come back.
There are a lot of originators andthat's something very important to understand too.
If you're shopping around for lenders,ask them if an appraisal is required,
because if they do require an appraisal, it's going to take minimum three to
four weeks of close a deal becausethat's just how long appraisals take. And
then not only that, you're goingthrough the entire process and you don't know
(28:23):
for sure until that appraisal comes backif your loan amount is going to remain
the same. If that appraisal comesback low, then next thing, you
know, two days before closing,that appraisal comes in. Now they're jesting
your loan amount, which just sortof cause you to have more money out
of pocket. It's just not anideal situation. So that's why we do
our internal evaluation and that way,you know, usually within one to three
(28:47):
business days because that's how long jointtakes our internal evaluations team to come up
with value to essentially determine your finalloan amount. So very simple documents we
need in order to get the valuationcompleted, and then once we get that
value in we send you a finalloan estimate in order for you to review
and approve us the investor, andonce you give us the green light that
so now when we start packaging thedeal to go for full approval to the
(29:11):
credit committee. You know, it'simportant too if to understand a lender has
a credit committee or some sort ofapproval committee, because that is one part
of the process that can slow thingsdown. But if you know about it
up front, then you're expecting that. And that's one thing that I think
is big in this business is justsetting the right expectations. And so once
(29:32):
the file gets packaged together and submittedthe credit committee, at that point they're
just you know, usually like withus, only your first couple of files
need to be reviewed by the creditcommittee, and at that point they're just
making sure that you know, you'rewithin the terms. We're providing leverages,
look good, experience credit. Andthen when they're approving it, they're also
approving basically your your blanket terms goingforward. You know, once it gets
(29:55):
through credit committee, then they're justpackaging it together. The documents again there
to get in line for docs.So essentially the beginning the end as a
new investor, you know, getyour application in and your credit run entity
docs, review bank statements in Boom, that's out of the way. Now
we start the evaluation. Evaluation getsdone, you review the final loan estimate,
you prove it, goes to creditcommittee, gets approved, your blanket
(30:18):
terms get approved, and then you'regetting in line for loan docs. So
it could be that that simple,you know, the whole process for us,
you know, we shoot for anew borrower to be completed with all
that within ten business days and thenso on the I'll just add a couple
of little points in here. Sothe valuation is going to be is obviously
a key part of it, andthat'll require the purchase contract, the itemized
(30:40):
budget, you know, bedbath count, square footage are you adding, and
then also kind of the overall gameplan. You know, you're you're buying,
you're adding value, you're adding squarefootage, you're gonna put runners in
there, and then you're gonna goget perm financing or you're gonna sell it
when it's done. Whatever, whateverthe game plan is, we need to
know. Yeah, that we don'tall that. I'm glad you brought that
(31:00):
up, because that's another key pointthat investors need to realize and understand is
that you want to get the highestvalue possible, and so the more information
that you provide them the better,right. I Mean there's often that we
get deal submitted where they just geta property address and no other information,
right right, And then we comeback with the value and they're like,
well, your value is way offand we're like, well, we see
(31:22):
that. You know, you havea based on the tax records, it's
a twelve hundred square foot you know, three bedroom, one bath, and
they're like, but adding three hundredsquare feet and at the end it's going
to be a four bedroom, twobathball. It's like that you would have
been great to know up front,right right, So very critical to make
sure they know what you're doing withthat property, yep. And the detail
(31:42):
and if you want to get intodetails of the renovations that you can do
in the type of finishes your footin, that can all help the value.
That's actually two huge nuggets right there. One is kind of what your
game plan is on the property,and you know, I try to pull
this out of people, and someare better than others, and then some
are very forthright as far as likethere's my last five projects, and here's
our finishes, and they're much higherin than anything else in the neighborhood and
(32:05):
blah blah blah, and this iswhy we've set records. So oh yeah,
yeah, you don't. I guesswhen I was, you know,
developing, maybe I didn't put enoughvalue on that. But it's huge because
that's what you know, underwriters wantto see. It's like, you know,
this is a fairly low risk loan, low risk investment because this guy
is super professional. I mean,one point I bring up is, you
know, put yourself in the evaluatorsshoes, right, And let's just say
(32:30):
you get a property address and you'relike, someone's gonna put fifty thousand dollars
in just what's it worth? Right? And that could be very subjective,
Right, Well, what kind offinishes are they putting in there with that
fifty thousand? What exactly are theydoing with that fifty thousand? Right?
You know, does that involve fulllandscape package? And you know, if
you have your past projects and ifyou submit a deal and you tell them
(32:52):
and you include pictures of a renovationthat you've recently done that's going to look
just like this new deal that yougot, So that evaluator can actually visualize
that end product can be very helpful. Actually I just did this. We
we had a valuations call and theyshowed one of their past projects and got
into the finishes because it's in prettyhigh end neighborhood and they'll those buyers will
(33:15):
they appreciate the nicster finishes and willpay for it, and so we're able
to get a little bit higher value. But yeah, the more we could
have upfront, the better. Theother nugget I thought was in getting the
best pricing, you know. Abig thing that and actually it becomes challenging
in some cases is just experience.And I talk about to borrowers, like
telling your story. You know,you were a real estate agent, you
(33:36):
know, out of high school andyou're building homes for ten years and now
you're developing. I mean that's quitea bit different than just the guy you
just started you know, developing,you know, last week, and that's
what our under writers want to hear. So it's like telling your whole story,
not only the story of the project, but also just yourself and your
experience and background is key. Yeah, I know absolutely. I mean,
you know we'll take all that intoconsideration if we know about it, right,
(34:00):
that's the key thing that we knowabout it. And you know,
as far as you know experience isconcerned, you know, it's a big
thing when it comes to lenders andmitigating risk. They feel like the more
experience you have, the less likelythey're going to take properties back. And
I would just add that, youknow, that's another critical part on your
lender selections because what ends up happeningis, you know, if you're shopping,
(34:21):
you know, if you're going fromone lender or to another lender or
to another lender, it's going tomake it difficult to really build that relationship.
And because most lenders, you know, they're going to appreciate that if
you're showing that performance and that loyaltywith that one lender, that that's where
you're going to be able to reallyget your discounts right as far as pricing
and exceptions being made, so youknow, sticking with one lender and not
(34:45):
only that, streamlining the process right, if you're going from one lender to
another lender, every every lender processesare different, right, you know,
so if you stick with one lenderand you already know that process, they
already know you. That can reallyhelp on the timelines too. Absolutely now
you don't want to keep starting overus for sure? Absolutely great. Well,
(35:06):
thanks Shane, that that was allgreat stuff. I appreciate you jumping
on And yeah, I had agreat time, Rod, I learned.
I learned a lot more about anchor. Thanks.
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