[00:00:00] Speaker A: Welcome, listeners. You're listening to the Deeds in the Desert, where real estate investors tune in for the latest news.
[00:00:08] Speaker B: Hi, I'm Pat Vassar, the host of Deeds in the Desert Today, talking about what borrowers look for in private lending. We are a private lender here at Ignite Funding, and we want to kind of dive into that and see what borrowers are really looking for. So today I brought on our junior underwriter, Jaden Jayden. Welcome to the show.
[00:00:27] Speaker C: I appreciate it. It's great to be back.
[00:00:29] Speaker B: Absolutely. Well, you know, as you know, looking at it from your seat as the junior underwriter here at Ignite Funding, what do borrowers really look for in a lending partner? And what type of questions do they ask you when they first come on?
[00:00:40] Speaker C: Yeah, that's a great question. I'd say from a very high level, there's two big things that borrowers want to see in any lender, and specifically private lenders and our interactions with them, the first of which is the value you're adding to their project. So what knowledge do you have? You know, what nuances about real estate do you understand that you can ask them, you know, bulletproof their project, make sure that they have all the boxes checked that they think they should have, and really just make sure things are running smoothly. Because, you know, most developers think that they can run the project by themselves. And for the most part, that is correct. But, you know, when you're doing so many deals and across so many different asset classes as we do, we'll tend to pick up a few little things here and there. And once it becomes your career, you realize you know a little bit more than you might think. And after a few years of it, you. You almost become an expert, one might say. And so when these borrowers are coming to you, to you with their projects, you know, it's really great to help add value to them, ask the questions that you need to be asking, such as zoning, entitlements, making sure everything's buttoned up there. And really the other side of it is, sure, what do you know? What value may you be able to add to our project on the actual execution side of it, when. But do you actually have the money available? Can you close when you say you're going to close? Because not only in our industry is there sometimes a lack of knowledge on the lender's part, it's more of, I have the money, go do it. But then also there can be the flip side of that coin of, you know, we can close in January and then January you know, January comes up, I don't know, maybe mid to late January is when we're going to be able to close. We're still waiting on a couple of payoffs to come in. And that certainty to close can be a major sticking point for borrowers selecting us versus the next lender. And I've actually seen some of the unique parts about Ignite Funding really be a benefit in working with new borrowers and kind of selling them on why Ignite funding is the lender to go with. And one of our biggest things there is our line of credit that we have. So not only do we have the ability to obviously fund loans and bring investors in, whether it's before we fund in a pre funding scenario or assigning our investors in, but how do you assign investors in? How do you fund a loan when we don't have an immediate base of investors to put on? Let's say there's a quick turnaround to close or it's just a big dollar some, or maybe it's so small it's not worth bringing investors on the start. Our line of credit is incredibly beneficial for that. And having that ability to close when we need to through a line of credit has allowed me to sell at least one new borrower to this point and hopefully a lot more in the future. And then also, you know, just provide a great benefit and certainty to our borrowers, which does matter.
[00:03:24] Speaker B: Absolutely. So that surety to close is one thing you're really harping on there, is that one of the things that borrowers ask you about or first look into to know whether we're real or not.
[00:03:34] Speaker C: I would say it's probably the second or third question they would ask and I typically always include it in our initial kind of who are we? That's something that I feel is important to note. But to your point, before they even understand what a line of credit is, they just want to make sure we're responsive and do we exist? What are we doing here? Are we a real lender or are we just somebody on the other side of the phone trying to pass their project on to the next lender and we'll just get a commission of it. So I would say it's definitely something they want to understand, but most of the time they won't even know to ask.
So, you know, fair enough.
[00:04:10] Speaker B: You know, one of the things that we pride ourselves is the responsiveness that we have and the turnaround time and the communication style in which we deploy how, how much of that is an asset and how much of that, do borrowers really keen in on when deciding what lenders to go with?
[00:04:24] Speaker C: I'd say it's, if not the most important thing, one of the top three to five.
With real estate in general, opportunity is a short. I say a short window, but any individual's opportunity to get into a deal is a short window. And like they say in pretty much every industry, you gotta strike while the iron's hot. You gotta get in there when things are happening. You've got to put your foot in the door and you have to continue to hound or harp on whatever communication avenues you're working with them through and just stay on it. And that's actually something that I feel like everybody can grow on, is just their responsiveness, their turnaround time. Often, you know, as an underwriter, you'll be having multiple loan requests coming through every day while also having to balance your current commitments, slash obligations, deals you're currently working on, you know, deals you need to underwrite, people you need to get back to. And when you say, oh, you know, that'll only take me five minutes, I'll do it later, and you continue to do that, you'll ultimately actually not be able to get back to it, and you'll miss out on multiple, multiple opportunities. So something that I've learned and continue to learn and feel is incredibly important is always getting back to things as soon as you can. So if someone shoots you a call, just call them back and say, hey, I hear you. I'll get back to you in a day, rather than waiting that entire day to respond. That's how you can find deals that are moving quickly. And then also it helps you kind of stay on top of some of the key details that might fall through the cracks when you're not actively communicating with groups and don't have that open line of communication. And really, you establish, how do you say it? A comfortability with them where you start to trust each other, truly understand who you are and they are, and then you're able to have real conversations and really make business happen.
[00:06:09] Speaker B: Yeah, and really making business happen is the key. Right. That's the culmination of all the work and effort both the borrower and lender put into it.
When you're kind of courting a new borrower, how much of that is the sales side on your side, and how much is that of them kind of testing the market, going out to other lenders, putting the same packages together and dispersing them to, you know, a handful of different groups? Is that commonplace or is that kind of a one off that you see other lenders kind of taking a look at the same deal?
[00:06:41] Speaker C: Yeah. I would say as a borrower, it's in your best interest to reach out to as many lenders as possible. You know, if not, how could you say you are, you found the best capital partner, how can you say you're getting the best rates or putting yourself in the best position to not only execute on that project, but the entire profitability of your company? And when they're reaching out to all these lenders, they're testing the waters. They're seeing the how fast is this group able to turn things around, how communicative are they? Are they asking me the right questions to show they actually know what they're doing? And then are they telling me things that I might, I may not have known that sell me even more on their product compared to the next lender over? And a majority of deals and borrowers that I talk with, where it's new business, not an in house borrower that truly understands how we work, but new groups that, to your point, are going out and doing their initial capital raise, talking to multiple lenders. It's incredibly important to not only respond quickly, but then also kind of continue that momentum. So every time you have a conversation with them, it's ending off with next steps and really building that momentum towards that next conversation. So be that action. Items of hey, I want to see your budgets, I want to hear more about where you are in your permitting process, but then also from our end saying, you know, where are we at? What, what can we do to add value to you? One thing that we, we really like to say a lot of the time is we consider ourselves expensive debt, but cheap equity. And that's something that is important to really convey to borrowers what that means and why, you know, why we're worth paying a little bit more for. And when I say that, one of the biggest things is what does that really mean? And for us, you know, a lot of lenders may just have the money, extend the money and hope the project goes well, but we really view ourselves as a partner where we'll act as a pseudo cfo, make sure the project actually is above water, and then also more on the real estate side of asking those questions and really just adding value to their project in every way that we can.
[00:08:41] Speaker B: Yeah, as a pseudo partner in the deal, you know, you have to ask some tough questions because you're not just looking at it purely from a lending side and trying to pass it, get past an underwriter's approval to get a loan done. We're trying to take a deep dive into understand the borrower, the mentality, the market and the asset class in which they're trying to develop.
In doing that, you've got to ask some pretty tough questions, whether that comes to their personal financial, their company financials, or why they're even in the business to begin with.
How do those conversations come up? How do borrowers typically react to them and when do those conversations typically take place?
[00:09:17] Speaker C: I would say those conversations take place from the first interaction you have with a borrower all the way through the day you close the loan, and then really all the way through until that project pays off. We'll always be trying to learn the next thing about either the borrower themselves, how they're running their company, or specifically the project that we're talking on. And when you say how may these borrowers react when we start asking these questions on that first initial phone call where myself or you are talking with a new borrower, we'll ask them some pretty detailed questions, trying to understand what the current capital status is of the project. Do you already have debt on it? Do you own it free and clear? How's the entitlement zoning process going? Are you still working to get all the way to building permits? Are your permits ready to be paid for? Kind of. What's your long term outlook in the project? And when you start getting as granular as that, it can scare away a lot of borrowers. And that's what we want. We want to get those guys out of here. And it's kind of the initial sniff test. And then as you continue through, you're just constantly putting each other through tests, really, because they're testing us just as we're testing them to test their commitment to the deal and real estate in general.
[00:10:25] Speaker B: Right. And those tough questions are not only for the investor side of things, but the borrower side of things as well. Right. There's different perspectives that you bring and you offer because of dealing with different asset classes, different municipalities, different states in general.
That kind of brings in a different perspective that allows for a different mindset to be looked at. So not only are you protecting the investor, but in many cases you're protecting the borrower as well. Uncovering details that may not have been known previously. Are those instances where that happens usually a benefit or a detriment to the borrower when they first arise?
[00:11:02] Speaker C: I would say initially they can be both. It obviously is not always the best case scenario when you're finding out new issues about your project when you're already out there looking for debt. But at the same point, it's always better to know what the issue is yesterday than tomorrow. The sooner you can get something understood and at least in front of you, the sooner you can make a solution and actually work towards fixing it. Now, sometimes these issues may come up post closing as well, but when we're staying vigilant and, you know, picking over every single, turning over every single leaf, looking through the title reports, making sure the title's clean, asking the borrower as many questions as possible, you know, the goal is to mitigate risk for not only the borrower, but our investors as well. And I can think of a few great examples. A lot of it can typically come up pre funding. And that's where it should come up during the due diligence process, where we're really doing our initial underwrites of the loan and trying to understand, you know, hey, you say it's pre sold to a.
For example, you know, we're, we're doing a project with a group who wants to do a land development loan where they're developing, you know, 50 or so lots. And they say, you know, you know, all these lots are pre sold already. You know, your exit strategy is solid. All we need is the money to develop the land and we'll sell it off to our building arm. And you start looking into who actually owns that building arm and you realize it's the same group that you're already talking to. So are those lots really pre sold? And you got to have those hard conversations of what do you mean by are these lots pre sold? And in that same vein, you know, they may say we're permit ready. And you ask them again, you say, hey, what do you exactly mean by that? Specifically where in the process are you. And depending on the municipality, the difference between being permit ready and being almost permit ready can sometimes be one to three years of a difference. And while it may seem like we're just one stop away, you know, that can certainly snowball and add quite a material interest burden and really profitability compression for many projects.
[00:13:06] Speaker B: Absolutely. So that's something you have to underwrite against. Is that downturn in time when you're underwriting that, does it change with new borrowers compared to repeat borrowers? How does what you look at and then depth in which you go change, if at all?
[00:13:21] Speaker C: I would say that's a definitely a loaded question. So first off, as it goes with new versus old borrowers, I would Definitely say for new borrowers, we have no baseline, we have no understanding of what they're good at, how they typically create a budget, what are they making the budget for?
You know, how do they typically communicate with you? So you have to go in with very conservative expectations across the board for a new borrower and then you compare that to a returning borrower, an existing borrower. It really depends on where their new project is. Is it an asset class that they've worked in before? Is it something that they're really rinse and repeating and it's their main business strategy? And is it a market that they've worked in before and that they're well aware of? For example, we have a group, Cripple Creek Homes, Blue Creek Homes, that I imagine a lot of our investors are very familiar with at this point. They have multiple different LLCs and they're a single family residential builder in Texas, where that's their bread and butter. They know what their role is and really they're just consistently churning out these homes. They have established banking relationships for the exit strategy on some of their projects. On others, they have fairly, you know, put together sales strategies. They have brokers they're working with, and we feel very confident about their process now. With that said, when we're underwriting their projects, we'll still pick it apart and make sure that every detail is in place, but the understanding of what they do and how they do it is fairly understood. And then you compare that to, you know, groups where they're working in new markets constantly, or, you know, they're typically a home builder. But we have a retail pad here and we want to develop it. We will certainly dig into those a lot, lot more. Just because we want to make sure that you understand the market the way you think you do. We want to make sure you're understanding the assumptions of this asset class the way you think you do. Do you have enough allocated in your tenant improvement budget to actually do what we say we're going to do? Do you understand what is going to be needed as far as, you know, open space for this residential community? I mean, there's so many different details and as it goes further away from what a borrower is consistently good at or consistently does, it just increases the amount of due diligence that we need to do. Not saying that we don't on simpler projects, but it's just important to keep in mind. Without a doubt, absolutely.
[00:15:43] Speaker B: So there are some discrepancies between new borrowers and existing borrowers. New projects, existing projects what makes a great borrower? What makes a good borrower one that will do repeat business with.
[00:15:56] Speaker C: That's a great question. I would say the most important thing for us with the borrower that we're willing to do business over and over and over again with is open lines of communication and trust. And with that, a form of consistency where we know that the numbers they're giving us aren't what they think we want to see or what may make us feel better about the project, but it's really what it is. Because some of the biggest challenges for us as a lender and working with borrowers is they always feel like they need to sell us on their projects. And while that may be true to an extent, when you go to measures of making a project seem better than it is, you can miss out on a lot of the important details that will really come back to bite you in the future.
And with that in mind, we really value just open lines of communication. And more so than that, I say consistency, but a track record. Have you done this before? Are you consistently holding up your end of the bargain in the sense of what you say you will do versus actually doing it? And then outside of that, I would say also it's important to have a true deal flow. It's hard to have a true relationship with a group that only builds one home a year. You may be the best borrower in our entire Rolodex, but if the volume you're doing is only a home a year, it's difficult for you to really make an impression on our investors, on us, and then really allow us to prioritize you when we're looking at putting together our funding schedules and what we're looking forward to. So it's really a combination of open communication, trust, a consistent deal flow, and then also believing in what they're doing. We do our own market research, we do our own asset class analysis, and really seeing where we think the real estate market may be shifting in the future. And then just saying, does it seem like this group knows what they're doing?
Are they just throwing darts at a board? Are they saying, I want to work here because I live here? Are they truly digging into the numbers? Are they digging into what real estate is, where people are moving and building things that will add value for the community that they're building in?
[00:18:02] Speaker B: Absolutely. So here on deeds in the desert, we've had a few borrowers come through and explain specific projects or maybe specific markets to our investors. What makes them want to come on and explain their project or their company or their marketing strategy in that much detail.
[00:18:19] Speaker C: I mean, I don't, I don't want to sound self centered by any means, but I would say it's us. I would say it's ignite funding and the relationship that we have with them. I think we show up every single day ready to have creative solutions and work through any, you know, problem that may come up, any puzzle that may come up. And at the same point, we're always honest. We're above board and above all else, we want everybody to be successful and we want them to be successful. And when you work with these groups year in and year out, you show who you are. You show up when you say you're going to and really help everybody win. They want to do things for you. And in that same vein, we want to do things for them. We want to, you know, stretch out our line of credit to make sure you can close on land when you need to. We want to prioritize your draw requests for construction projects and make sure you're getting the money before your subcontractors may, you know, need to get their payment. So when we prioritize those little details day in and day out, year in and year out, they're willing to come on, come on our podcast. They're willing to travel out to Vegas and talk to our investors, take as much time as needed to convey what they're doing, why they're doing it, and why it's useful to know to our investors. And you know, it's really just that, that trust between two parties where they're willing to do just about anything for us and then the same goes from us to them. Great.
[00:19:39] Speaker B: And so that kind of shows who we are as a company, what kind of separates us from other private lenders. So private lenders in general kind of have that mentality or that knowledge base to work directly with borrowers and are sophisticated enough to understand the needs of developers and borrowers in general. What makes private money better, maybe more unique or better capable of handling those type of inquiries from borrowers than let's say, just another source of capital or maybe a big bank or a community bank.
[00:20:13] Speaker C: I would say it, it all just depends on the person behind the wheel. Everybody, not everybody, but every lender theoretically has money and can deploy it potentially when they commit to. But who's actually driving that car? Who's making the decisions? What knowledge do they have about real estate and what value are they adding to the project of the borrowers? And then in addition, can you actually Close, as I, as I alluded to earlier.
But as it goes with us versus other private lenders, it's really just the relationships that we've established, how we come in, come into contact with these borrowers. We certainly have brokers reaching out to us every single day with new projects. And while we do look at those, a really big part of our business and how we work with groups is through word of mouth. You know, we'll, we'll do, we'll close on a deal and we'll see. One party that was very interesting in the transaction, it seems like they're adding a lot more value than, you know, you're, a lot of people may realize. And you reach out to them, you say, hey, what are you doing? Like, what's your role in this? And then you, you kind of learn that they're, they're their own entity and you say, hey, you know, if you have a project come up, happy to price it out for you. And then that ends up being a relationship where you kind of found them when they were trying to grow and really supported them. And by the time they become a full fledged operation, they believe in you, they understand what you're doing and why you make a difference to their projects. And in addition to that, why us compared to not only private lenders, but let's say, a line of credit or working with a local bank? The turnaround time for a lot of these more organized or structured entities in the sense of multiple levels of investment committees, multiple thresholds you have to reach before they allocate their capital. A lot of them, and no offense at all, are sometimes a little bit of pencil pushers and they'll just take what third party's opinions of value are and just say, hey, 65% of this is what I can do. And they don't really look into the nuance of the project. So not only is there turnaround time a lot quicker, you likely will not be speaking to a true decision maker the first few times you're working with these groups. But they actually don't really truly know the real estate the same way that private lenders and specifically Knight Funding does.
And so when you're, when you're working with these groups, kind of goes back to what I said earlier of we consider ourselves expensive debt or. Yeah, exactly, expensive debt, but cheap equity, that's, that's pretty much exactly what it is. You know, we're not going to be the cheapest group out there, but we will add value. And if you're looking at us as A lender with debt versus taking this out to an equity raise, we will beat those prices every day. And so absolutely balance, you have to find.
[00:22:56] Speaker B: No doubt about it. Those are all great points that you bring up that borrowers need to know. Is there any specific words of wisdom you would give them to make their loan package more appealing to an underwriter?
[00:23:08] Speaker C: Yeah, I would say the biggest thing is it's obviously important to understand what a lender is and what they may be looking for, but don't cater the reality of your project to what you think they want to hear.
99% of the time, if a lender can tell that you're altering things to show what you think they want to see, once they find that out, you're immediately out.
If we can't trust what you're putting across the table, that's a huge issue. So I would say at a high level, just be honest, be direct.
If the numbers aren't great on your project, why are you bringing it to a lender? And if they are, you should be proud of that and you should directly communicate that to us and, you know, kind of see where it goes from there. So I think just being direct and honest is something that's in short supply in the world, and then specifically real estate as well, so.
[00:23:59] Speaker B: Absolutely. So after giving those two cents about how to be getting your deal through underwriting and what the underwriters look at, how do. How does your everyday investor get ahold of us? How do they become an investor of ours?
[00:24:11] Speaker C: That's a great question. I'd say we have multiple avenues for new investors. I'd say the best way would just be going through our client portal. We have everything you could ever need under the sun as it relates to understanding Ignite funding. We have blog posts, contact information to reach out to some of our customer service representatives, and really a backlog of information, including podcasts and written material about who we are, what we do, why we do it, and then how you can get started so, you know, it's all there on the website. And I'd say that's the best place to start.
[00:24:43] Speaker B: Perfect. So if borrowers are listening to this podcast right now, what's one piece of advice you'd give them to walk away from this whole conversation and say, oh, that's what I need to do on my next deal?
[00:24:54] Speaker C: I mean, the devil's in the details. That's what I would say. I would say, just know not only what you think you should know, but the details you say, I don't know. How relevant is that really going to be? Understand that too and be ready to come to groups with a clear understanding of where you're going and then also ultimately how you can work together and really create a product that everybody's winning with. Perfect.
[00:25:20] Speaker B: Well, I appreciate your time here today and filling in our investors and hopefully some prospective borrowers as well, going over what borrowers should look for in private lending. Hopefully this has given you some more insight of what that is, what private lending is, and more importantly, who we are at Ignite Funding. Thanks. Don't forget to like subscribe and follow our next episode of Deeds in the Desert.
[00:25:47] Speaker A: Thanks for joining us this week on Deeds in the Desert, where short term investments meet long term investors. We hope you enjoyed the content so much that you share it with all your friends. Who doesn't like learning about passive fixed income, right?
Still hungry for more education? Visit our
[email protected] or if you're ready to take the leap and start investing, give us a call at 702-761-0000 and Schedule A free investor consultation.
