[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: Welcome back for another episode of Deeds in the desert. I'm your host today, Izzy Urizari. Today we have Pat Vassar, director of underwriting. Back for another episode here on Deeds in the desert. Today we're going to go ahead and talk about how we make our money and how we don't charge any fees to investors. I brought this up to Pat last week because we went to an event out in Salt Lake City, and a lot of attendees were asking us how we make our money. They understood the ten to 12% they were getting, but they didn't understand how we were getting it. So what better way to answer that than here on deeds in the desert? So, Pat, let's jump right into it. If we don't charge fees to investors, how do we make our money?
[00:00:48] Speaker C: Everything we charge comes from the borrower themselves. When we advertise in interest rate, that interest rate all goes to the investor. So if we're advertising a 10% rate of return, 11%, 12%, whatever the name number may be, that is what the investor gets. We get our money from the borrower. So you can be assured we're charging the borrower more than what we are paying out to the investors. Obviously, we need to keep the lights on and stay in business. We're not a non for profit company, and so we do charge origination points and loan servicing points.
[00:01:20] Speaker B: Is that like how a bank functions.
[00:01:21] Speaker C: Too, when they do a loan exactly the same way?
[00:01:23] Speaker B: Exact same way. All right, so do the points we charge borrowers come from the investor rate, though? So, you know how we said ten to 12%?
Does that come from the same source?
[00:01:33] Speaker C: It comes from the same source. However, it isn't advertised that way. So when we go, and let's say we chart, we're charging the borrower two points to originate it and 12% interest, what we will call a two in twelve loan. We will advertise that same loan to investors at 10%, which means we are keeping 2% of the origination and 2% of the 12% points.
[00:01:58] Speaker B: Is that considered high or low in our industry right now?
[00:02:02] Speaker C: It all fluctuates, to be honest with you. There isn't an industry average per se. It usually depends on the type of deal that you're getting involved with, not necessarily. Necessarily who you're investing with.
[00:02:14] Speaker B: Okay, so how would an investor find out? Or where would they find out where what we're making on a loan?
[00:02:24] Speaker C: Yeah, and it may seem a little opaque and really kind of what's going on here. If we know what we're getting, how do I know how much you're getting? And that is all disclosed. And it's disclosed prior to the investor actually going onto a loan. And how that's done is through the investor loan documentation on the loan servicing agreement and the special power of attorney. Within those documentation, you will find exactly how much ignite funding is making in the origination points and the loan servicing points in some categories. In most categories, it'll be broken down on a percentage of what you're putting in. So for every dollar you're making, how much is ignite making off of your money?
[00:03:01] Speaker B: Also on there, it includes like extension fees or late fees in there, right? Like what they could expect if that did happen.
[00:03:09] Speaker C: Sometimes it does, yeah. But for the most part, it is just the origination and the interest rate. What it does not include is a defaulted interest rate. If the borrower goes into default, what will happen then? It will show the investor how much money they could, what percent of the accelerated rate they will get. However, it's not shown on those documents because we don't know if the borrower is going to go into default.
[00:03:33] Speaker B: To go a little sidetrack. I know you have said this, mentioned, you've mentioned this before in some other episodes is that we don't charge any junk fees to a bar. What does that mean again?
[00:03:42] Speaker C: So junk fees come from all these nickel and diamond, right? When you go to a la carte, when you're ordering a la carte, you have all these different items that you want to put in there. We offer it more of as a bundle. So they pay usually three different times. They pay origination points at closing. They pay load and servicing percentage during the life of the loan. They pay a fee at closing, which is about $700 typically, and then a fee when they pay off a loan, which is about $250.
[00:04:14] Speaker B: Okay, so also about appraisals, are we paying for those appraisals on that side of things?
[00:04:20] Speaker C: We pay for them 99% of the time. Okay, so not, they're not, they're not doing that. So any third party fees we usually handle, any environmental impact studies, any renaming with additionally insured on the insurance side or with the engineer, we will pay pay those fees so the borrower doesn't have to. Those are what are considered junk fees and are not in any of our requirements from the borrower.
[00:04:45] Speaker B: So do we fluctuate what we charge specific borrowers for originating and or servicing.
[00:04:51] Speaker C: Absolutely. That is just a negotiation between us and them that is typically derived from market fluctuations, what the market will perceive to be a good number. If we're charging, let's say we want to charge ten points, origination. Every loan we do well, we're not going to have too many borrowers because they can get cheaper financing everywhere. Then again, if we charge 0%, then everybody's going to want to come to us. So it's definitely a give and take with the amount of investors or investment dollars we have compared to the amount of borrowers that we need to have to to correspond to those dollars.
[00:05:26] Speaker B: Many investors ask us typically, once again, when we're at events, is what's the difference between a ten and eleven and a 12% loan? When I see a 12% loan, does that mean it's more risky? Can you explain that?
[00:05:37] Speaker C: Absolutely. Here at ignite funding, interest rate is not always or usually indicative of the risk you're taking on. If you were going on a 10% loan, 11% loan, or even a 12% loan, the level of risk is typically about the same. If you go look at our defaulted loans portfolio, you'll see the exact same thing. Those rates that we were charging the borrowers weren't necessarily all the high rate loans, or weren't necessarily all the low rate loans either. It's kind of a smorgasbord of everything in between. So, no, it is not indicative of risk. However, it is indicative of the reward. The higher rate, the more reward you're getting for taking on that same level of risk.
[00:06:20] Speaker B: Yeah, we usually explain it from the marketing side, like, hey, sometimes it could be we don't have three weeks to fund a loan. We may only have five days to fund a loan. And we say, what makes an investor want to either do their docs faster or jump on a loan faster? One or two extra points does help sometimes.
[00:06:37] Speaker C: Absolutely. And investors can find that out. Right. Because when you go on a loan with us, you get the loan service agreement and the special power of attorney in there. It'll show how much money we're making. You can calculate that on a percentage basis, and you'll see on those higher rate loans what that typically means is we're making less money. To your point, it's not that we're charging the borrower more, it's that we're charging us less, we're keeping less out of it, giving the investors more. That's not always the case, but most.
[00:07:04] Speaker B: Times it is, historically. I know you've been here I think you're coming up on your 15 years, right? Don't remind me.
[00:07:10] Speaker C: The gray hairs tell it all.
[00:07:12] Speaker B: Well, those on Spotify and Apple won't see that. So we're good.
[00:07:14] Speaker C: Perfect.
[00:07:15] Speaker B: But I know you've been here about 15 years now. What have you historically seen as far as our origination in servicing people always want to ask, what were you doing in 2011 and 2012? What were you doing in 17 or 18? What did you do during COVID All these different things.
[00:07:31] Speaker C: Right now we are about 0.2% higher than the average over my time here at the company.
So we are charging a little bit more, but not historically abnormal rates.
[00:07:43] Speaker B: And for the investor side of things, kept it pretty much the same as well. You know, we've always said double digit returns 1011 and 12% is what we've offered. You know, when things are bad in the market, paying ten to 12%. When things are good in the market paying ten to 12%, Fed rates are going up. I just saw today they had posted out, you know, they're halting. They're not going to be raising them right now. Well, we're still 1011 and 12%, so it's great for us on that side of things, for the investor aspect of it, yeah.
[00:08:09] Speaker C: And when the fed changes their mind and does a pivot, starts to decrease the rates, don't expect us to do the same.
[00:08:15] Speaker B: Right. The last question I'll leave you with is when you're talking to a new borrower and you start talking to them about what we charge, what do you typically get from them? Do you get typically any kickback? Are they used to paying these kind of rates that we charge?
[00:08:28] Speaker C: It depends on who we're going after and what type of borrower. Usually our borrowers are people that have outgrown the friends and family money and aren't quite big enough or sophisticated enough to go to more institutional type of funding. Once they've outgrown their friends and family, we typically are a bump up in interest rate. They're usually not paying their family members as much. If they have already gone to a more institutional approach and gone to a general partner and limited partner route and did a investment offering, we're usually cheaper than that. So it really depends on which bar we're going after, where they are in their life cycle of their company and where they come from. What markets are they in, what property types, what sectors, what lifecycle of that specific property. Is it acquisition, development or construction? Once you take all that into consideration, it really just depends.
[00:09:20] Speaker B: Well, great. Thanks a lot, Pat, for joining us on today's episode of Deeds in the desert. Now, all of you know why we're able to provide investors 1011 and 12% here at Ignite funding, how we make our money, where to find where we make that money, and why we do fluctuate our origination and servicing. And the best words, it always just depends. Depends on the situation and depends on what's going on and what we're looking to fund. So again, thank you for joining us today. Pat on deeds in the desert. We'll catch you guys on the next one. But before we let you go, make sure you guys subscribe like comment, share, all the above on whatever platform. You're listening to us here today on deeds in the desert.
[00:10:00] Speaker A: Thanks for joining us this week on deeds in the desert. We hope you enjoyed the content so much that you share it with all your friends. Still hungry for more education? Visit our
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