Hard-money loans are a great option for real estate investors who want to flip houses. However, there are many different types of hard-money lenders and many different types of hard-money loans. In the past, hard money was extremely expensive, but competition in recent years has driven the cost down. On this episode of the InvestFourMore Real Estate Podcast, I talk with Dan Leyden, who is a founding partner of Asset Based Lending. Dan talks about the different types of hard money available, including rates, terms, how to finance repairs, and who can qualify. He also talks about his company and how they lend hard money.
Click on the green button below to listen to the podcast
What is hard money?
One of the biggest challenges in house flipping is finding a lender who will finance the project. Most banks will not offer short-term loans for flips. Some local banks may lend on flips, but they tend to lend only to experienced investors they have a relationship with. Hard-money lenders specialize in short-term financing. A hard-money lender is a company that either uses their own money to lend to flippers, or they borrow money from other investors and then lend it to flippers at a higher rate. Hard-money loans can have high interest rates and origination fees, but they also offer the ability to finance repairs and the purchase price. In some rare cases, a hard-money lender may be willing to finance all the costs, but it will be expensive. Usually, hard-money lenders will finance from 80 to 90 percent of the purchase price and 80 to 100 percent of the repairs. Rates can vary from 8 to 15 percent, and the points can range from 1 to 5 on different deals. The more money the flipper puts into the deal and the more experienced they are, the better the terms will be.
When a hard-money lender finances the repairs on a property, they do not give the flipper all the money up front. They will use what are called “draws” to pay out money as work is done. The hard-money lender will hire someone to inspect the project to make sure a certain amount of work is done, and then they will pay the investor. In most cases, the flipper pays interest on the money set aside for the repairs, even if they have not used it yet. Some hard-money lenders will charge interest only every month, and a few will wait until the flipper has sold the property to collect interest and fees. Most hard-money loans have 6 to 18 month terms.
How did Dan Leyden get into the hard-money business?
Dan started out in Wall Street but was never a huge fan of investing in the stock market. He hated having no control over the companies he invested in, and decided he would invest in real estate instead. Dan invested in tax notes in New Jersey and also pooled money together with other investors to invest in rental properties. In the mid 2000s, Dan was in charge of a 2 billion dollar hedge fund, which did not do very well during the financial crisis. In 2009, that hedge fund closed and Dan’s partner started to flip houses. His partner did not do well, but he realized there was a huge need for fix-and-flip financing. In 2010, Dan and his partner started Asset Based Lending with 2 million dollars of their own money and a 1,000-square-foot office.
ABL has grown to over 276 million in hard-money loans. Dan talks about how ABL is different from most hard-money lenders because most of the money they lend is their own or comes from direct investors. Many other hard-money lenders use borrowed money and sell their loans to Wall Street investors. ABL offers rates from 9 to 12 percent and charges 2 to 3 points per hard-money loan.
How can you get a loan from a hard-money lender?
Many hard-money lenders and banks only lend to experienced investors. However, ABL works with new flippers. Dan outlines the type of investor they look for. They want someone who has experience, decent credit, and some cash available. The property also needs to be a great deal. However, finding those investors isn’t always easy, and if you do not meet those criteria, they may still lend to you. Be sure to listen to the podcast to hear Dan’s full explanation of who they will lend to and when. ABL will lend 80 percent of the purchase price and up to 100 percent of the repairs, as long as the total loan does not exceed 65 percent of the after-repaired value.
You can find out more about ABL on their website. They love to help flippers learn since they are in the business to make money on loans and not foreclose on properties.
New Facebook coaching group
Some of you may have heard about the new Facebook group I am creating that specializes in getting awesome deals. The group is almost ready to launch (we have many experienced flippers and wholesalers helping out). If you are interested, send me an email and I will get you more information soon! [email protected]
[0:00:13.9] MF: Welcome to the Invest Four More Real Estate Podcast. My name is Mark Ferguson and I am your host. I am a house flipper. I flip 10 to 15 houses a year, I own 13 rental properties with a goal to buy 100 by 2023. I’m also a real estate agent. I’ve been licensed since ’01, I run a team of nine and we sell close to 200 houses a year.
So on this show, we like to interview house flippers, landlords and the best real estate agents in the business. So stay tuned for some great shows, if you want more information on my rentals, on the numbers, how I buy properties, check out investfourmore.com.
[0:00:59.0] MF: Hey everyone, it’s Mark Ferguson with Invest Four More. Welcome to another episode of the Invest Four More Real Estate Podcast. I’ve got a great guest for today’s show. Dan Leyden who is a founding partner of Asset Based Lending which is a hard money lender on the east coast.
Dan has not only founded this company but he’s an investor himself on a lot of different projects so I’m excited to talk to him about how he got started in the business, how he came about to you know, helping start a hard money company and what exactly they offer and how they help investors.
Dan, thank you so much for being on the show, how are you?
[0:01:31.8] DL: I’m doing great Mark, thank you, as you know, busy as could be in this real estate sector that you and I are involved in, thank you for having us on.
[0:01:40.4] MF: No, great to have you. I’d love to start off with kind of the beginning story of how you first got into real estate, what attracted you and how did you get into the business?
[0:01:49.5] DL: Well, you know, being a Wall Street, my background being from Wall Street, I was always anxious rather than investing in stock market which you have no control of being in hard assets, where you can control better the asset itself and understand the profitability of the assets.
I started a number of years ago, investing in real estate through other people and then had an opportunity to start a hard money business in 2010.
[0:02:17.0] MF: Cool, how are you investing in real estate with other people? Were you kind of a silent partner or were you know, doing any of the work, finding deals, what did that look like?
[0:02:25.7] DL: Well, we did a couple of different ways, we bought tax notes in New Jersey for a while which was a way to kind of a back ended way to learn about real estate assets because you buy the tax obligations and if the owner of the house does not pay the tax obligation, you end up getting the house for essentially the tax bill.
We did that for a couple of years, made a bunch of money, like everything else, Wall Street got involved with that asset, made it so that you couldn’t make much money in that asset. We moved on to the next thing which was developing a group of people that would pull some money in, with somebody who really knew the real estate market, and buy houses and rent them out for a while and then ultimately help sell them for more.
I did that for a little bit before I started this business.
[0:03:16.0] MF: I’m always curious how it works doing a partnership or pooling money into rentals. Can you go to details on how the profits were split? Or how that works?
[0:03:24.7] DL: Yes, for the Wall Street days, my last stop on Wall Street was a partner and a CFO of a two billion dollar hedge fund and so I was well aware of how to setup a pool to the vehicle, a legal vehicle, where people can put money into using and operating agreement in LLC. Then the strategy was run by the managing partner of the LLC.
You would earn a pro rata amount, based on what your investment is of that investment. It is what today, and we can go in to it later, it was what differentiates what we do as a hard money lender today versus almost everybody else that I know about in the market place.
[0:04:09.9] MF: Okay. No, it’s interesting because I hear people, investors come to me all the time and be like “Hey, I want to partner with somebody in a rental property.” But how do you figure out, you know, what the actual returns are? What people make from it? Because there’s so many different things that go into it with taxes, equity growth, appreciation and then there’s cashflow.
I mean, it just seems really complicated trying to figure out how to structure a pool just for rentals when you have a bunch of investors.
[0:04:36.9] DL: It’s a barrier to entry for people that have never done it but once you’ve done it, like my two partners and myself, it is actually an advantage. When you’re in a pulled asset like vehicle like that, you know, you basically get a share of the profits that an accountant will run for you at the end of the year.
It’s not as difficult – it is complicated – but not as difficult as one might think, once you understand what it’s all about. It is definitely a barrier of entry and it’s why there is no other – you know ABL (Asset Based Lending) has 66 million, 140 of my best friends and family, their friends and family invested in one, in an LLC called ABL One LLC.
Those 140 people, that’s 66 million dollars. They earned their pro rata percentage if you’re five percent of the fund or five percent of the equity, they’re earning 5% of the profits, all the profits that that entity earns.
It’s no different than if you would go with a guy, buy a rental property, if you’re 50/50 at the end of the year, you would be 50% of the net profit or a loss of that entity that you would ultimately report on your tax return.
[0:05:57.9] MF: No, I’m glad you said that, that’s interesting because we’ve had different hard money lenders come on and talk on the show and most of it’s about what they offer, how hard money works, but I think it’s really cool to hear the back story of why you’d start a hard money company and how the investors get paid and how it works on the back end, not just for the fix and flippers.
How did you end up starting this company and what was the attraction to start a hard money company?
[0:06:27.0] DL: It’s interesting how we started, so when I was running the hedge fund, my partner Paul Omen started the hedge fund, the two billion dollar hedge fund back in – I joined him in 2003. When 2007 hit, everybody remembers that time I’m sure, 2007, 2008, 2009, the hedge fund didn’t do well. We had to close it in 2009. My partner Paul started flipping houses on Long Island and trying to learn that business with his wife.
I went to another lender, two and a half billion dollar private equity company in New York City and I was their COO. Long story short, my partner after about nine months of flipping houses in Long Island, a few of them, he made a little bit of money, not a lot of money.
He realized that he knew less than everybody else flipping houses because he wasn’t doing it for very long but what he did have was money in the bank. And everybody that he was doing it against on Long Island needed money.
Honestly, in November of 2010, he called me and I was not liking my role at this lender, this big private equity company that was a middle market lender. He said “Hey, I’m going to start a hard money lending company, do you want to join me?”
I said, “Isn’t hard money lending when someone shows up at your door and breaks your legs if you don’t pay your interest?” I had no idea what hard money lending was honestly, before that. He explained it to me, he had done his homework, he went to the APLE, The American Association of Private Lender Conference, that year and he was going to start it.
So we did and in December of 2010, we opened up Asset Based Lending and began our business. Our business began with literally a thousand square foot office, two guys, two phones, a Craig’s List ad and us looking at each other for the first 90 days hoping the phone rang. And we were you know – with two million bucks in the bank, wanting to lend it out.
You know, flash forward today, we have done 276 million as of last Friday, 1,270 loans which is an average loan of $217,000. We do it all with our own money, 66 million at the moment, we have a 25 million dollar line of credit with Colorado Federal Savings Bank, a nationally insured, a federally insured bank and we sell loans on occasion to private equity companies in a hedge fund as a third source of liquidity to fund.
[0:09:08.2] MF: That’s really cool to hear that how you get your money and people get paid and how you started out. How long did it take you before you really got going in new – well felt a little more comfortable starting the business?
[0:09:20.5] DL: You know, the interesting thing is, we did our first loan in East Orange New Jersey. That loan is to gift that keeps on giving until today.
Mind you that is six and a half years ago, that loan, still on our books, still costing us money, still creating problems. We did $130,000 loan in East Orange and we had to take it to foreclosure, we had to sell it and we had to sell our financing when we sold it and the people we sold it to are not paying us.
That $130,000 was our education on this business. Mind you, thankfully, everything from that loan has been fantastic. We haven’t had anything even remotely close to that issue but we learned the ropes on that loan way back when.
[0:10:18.5] MF: A lot of times, the first one is the worst one but teaches you the most about the business. Flippers, rental properties, even lending it sounds like.
[0:10:26.5] DL: Yes, that is very true. But we’ve been patient in our growth, very planned out, we now have a staff of 16 people across six states and we’re now in 3,000 square feet of space, in the same building we started and looking to grow more. If all goes well, it looks like we’re going to be over a hundred million in new production in 2017. Versus you know, it’s been a progression, we did 80 million dollars in 2016.
We did 65 million in 2015, we did 35 million in 2014, and so on and so forth. It’s been ramping up every year.
[0:11:09.1] MF: I know there’s a lot of hard money lenders out there. You know, I’ve been in the internet side of the investing business for a few years now and when I first started, it didn’t seem like there were that many hard money lenders. Now, there’s not only the local ones – like per state but then there’s some national ones popping up as well. Have you seen increased competition as your business has grown and the years have progressed?
[0:11:32.0] DL: Yeah, there is definitely a lot of liquidity out there, a lot of increased competition and different kinds of it. So you have your private lender, you have your regional lender, you have your national lender. We are a regional lender but we consider our self – you know there’s not a lot of data on our market place in the United States – but we consider ourselves one of the larger national lenders given the fact that we’re going to do a hundred million plus this year.
I would say that the – but people are finding the differences, people that are treating their flipping business as their prime source of income in their business, the smarter people are learning that having solid liquidity resources is going to be the difference between a successful business and a non-successful business.
I think that that’s the key. I often – speaking to newbies and speaking to some experienced people, they’ll say “You know, when you’re fixing your house, you have a tool box of different things that you need to get your house fixed and flipped and sold.” Well, we’re one of the tools that ever serious flipper or real estate investor should have, which is a good hard money lender in their pockets, when they need it quickly. They know they can count on it and it’s there for them. It is not somebody that necessarily you would use all the time on every deal.
But if you are in this business seriously, you will need to have at least one hard money lender as part of your tool set.
[0:13:15.3] MF: Yeah, that makes sense. I’ve actually, yeah, I’d never used hard money before in the past. I’d used one when I got my first loan, this last year just because I had 20 flips going at once earlier this year so it was a bit crazy, getting funding and everything together.
What does a typical investor look like for you guys? Are you constantly looking for new investors and vetting people or are you – do you have the same customers who come back to you over and over again? What does your primary flipper look like?
[0:13:42.4] DL: It’s morphed over the years that we’ve been doing this. I think what we’re seeing recently, because of our rate structure. So if we talk about rates though – when we first started this business, we were on the east coast of the United States and we were getting 12 to 15% annual interest with three to four points.
Our largest, most expensive loan was 18%, 15 and three. That lasted a number of years, about a year ago, we changed our rate structure. We are now lending between nine to 12% with two to three points. Our lowest loan is 11% and our highest costing loan is 12 and three, 15%. With that rate structure – and intentionally we’ve done this, which was one of our goals – we’ve attracted a more experienced flipper and we are now competing with private money. So at nine and two, 10 and two.
We’re on the east coast. We’re as good as most private lenders for the most part. We’re seeing a more experienced borrower and we’re seeing higher loan – we wanted to do a higher loan balances. Try to get our 200 plus per average loan higher to maybe three, 350, four is a goal.
[0:15:16.4] MF: That makes sense. I was going to ask you too about the points and the rates, if those have changed over the years because just about every hard money lender I’ve talked to has seen the same progression. They’re getting much higher rates before and it’s kind of slowly come down as more competitions out there and I think investors have become more savvy about what they can pay and getting private money. It seems like everyone’s kind of had to lower rates a little bit to compete.
[0:15:40.8] DL: We did, but also, you know, as a function of lowering the rates, our repeat borrower business is significant now. I would say – this is me taking the guess at what our current book at business – I would say, 40 to 50% of our book is repeat business now. Which is you know, telling about how you are doing as a company in a market place that is so crowded with choices for who you want to borrow from.
[0:16:11.5] MF: That’s a good number to know because yeah, there’s a lot of different companies out there and there’s some stories of not so good and some horror stories too about different lenders.
[0:16:26.2] DL: What makes Asset Based Lending different than all the other lenders. Really, the major thing is our capital structure meaning all of the money we have as a – I’m not talking about the private guys but as a regional lender and national lender, almost everyone that I know, they don’t have a fund like we do. We’re SCC registered fund, number one. Number two, of the 66 million myself and my two partners have 15 million. We’re 15 million of the 66 million.
Every loan we lend money own, I own a good percentage of that loan. I’m personally invested in what business they’re doing which makes a difference. We don’t sell our loans for the most part. Many larger regional lenders if you’re following this market place, are selling loans to private equity and hedge funds. At dictated terms by those funds.
Which makes rates come down by definition because the Wall Street funds are willing to buy at a lower interest rates. Therefore rates have come down, that’s another reason why rates have come down. When Wall Street decides that this asset class is out and not interested, all those lenders will close up.
Because that is their only source of liquidity. That is a source of liquidity for us but it’s the one that we use the least because we have our 66 million plus the 25 million dollar loan and credit. That’s what sets us apart. When people come to us – I think generally when anybody goes to a hard money lender, what should they be worried about? One, will they run out of money? Will they close the deal? Are they telling you the truth? A day before they close are they going to switch out the terms? Are they going to charge me fees and I can’t get to another lender in time and I have no choice but to close it down?
Things of that – or are they just not going to show up at the funding table? I can’t prove it to you other than you can Google us up “Asset Based Lending” or “ABL”. To my belief, there’s no one that has any complaints against us. We have never not funded, we have never walked away from a deal that we committed to, we have never changed rates a day before and never added fees – all these things that you hear about from smaller and bigger players out in the market place.
In our minds, myself and my two partners from Wall Street, we really did want to bring some institutionalization to the hard money lending market place and I think on the east coast, we’ve done that to a degree.
[0:19:12.5] MF: That’s really good to know because I have heard stories from people who I know and trust about showing up to closing or the day before and the hard money lender saying, “Oh sorry, we didn’t get this approved yet” or something. In those cases, luckily, that investor had cash or another way to finance the deal but for someone that doesn’t, if you show up to closing and you don’t have money – I mean the seller can walk away and keep your earnest money.
They can sue you and force you to perform in some cases. It can go very bad very quickly.
[0:19:43.1] DL: The other thing that we do and that other hard money lender should do and that people are going to look and to get into this business, we have a big newbie business here you know? We educate more people and don’t charge them $25,000 for a three day weekend meeting at all. We educate many people on what to think about. So an example would be if someone comes to a deal and they’re – you know we have a minimum.
If the person coming to us with a deal themselves, is not going to earn $20,000 or more in cash, we won’t do the deal. We just won’t say “No,” we’ll put together a spreadsheet, we have a deal PNL spreadsheet and we’ll send it to them and we’ll say “See, all these things add up and see what your profitability is.”
“This is a deal we wouldn’t recommend you do, here’s why and you know what? Whether you do it or not, we’re not interested in funding this with you. We’d love to do business with you but we want to do it where you’re making money, not just us. Both side’s got to make money.”
We do a lot of education, free education along the lines of that.
[0:20:51.8] MF: That’s great to know, there are a lot of – well especially if you watch the house flipping shows on television and they give a completely unrealistic view of the numbers of what goes into it and so many people don’t realize all the costs. Selling cost, caring cost, repair cost. It’s nice to see that you guys aren’t just blindly lending to people on deals. Going back on that, when you do lend to someone are you requiring appraisals? How do you calculate the value on properties?
[0:21:18.8] DL: Yeah, well basically our most common loan is lending someone 80% of purchase and a 100% of rehab, capped at 65% of completed value. So when we get appraisals, our appraisals are always ARV, After Rehab Value, or completed. We check our loan amounts and the profitability to the finished value and how do we get comfortable with that? Because appraisers could be making mistakes and the answer is, we are working with appraisers in the States that we have been working for a number of years now.
And we keep track of what houses sell for versus what houses are finished value appraisals coming in at. Appraisers that are not within, call it 5% plus or minus, of what their completed evaluation was. If they do that a lot, we would get a new appraiser. So we have a really good set of service providers that come and provide evaluations on properties that we’re comfortable with. The three partners here, myself and my two partners, we are the underwriters of our firm.
So we’re the ones that underwrite loans and have our money in their loans as we have discussed ourselves. So we are intimately reviewing these appraisals. Reviewing the three comps that comes with it, seeing the adjustments, seeing if it’s in a flood zone, seeing how far the three comps were from the house we’re looking at, seeing if the house that someone is buying – this is interesting because this is one that came over today.
Someone wants us to fund them a cash out on the house that they’re having trouble selling on White House Turnpike in the Atlantic City area. It’s a house that is on a four lane highway, two lanes each way and a flag lot. A flag lot is a lot behind other houses, a long driveway behind a front house. So if anybody knows this business well, it’s already challenging selling a house on a busy road. Now add a flag lot onto a busy road, no wonder why that person is having trouble selling that house.
So they want us to give a cash out. Will I give a cash out? If I do, it’s going to be at a very low loan to value. But I haven’t decided yet.
[0:23:44.9] MF: Yeah, I can imagine. There’s usually reasons why places don’t sell but I think just looking for a cash out and a short term until they can sell it, is that what they want?
[0:23:51.3] DL: That’s what they want, yeah because they could like everybody they want to go. They found another house, they want to take the money from that house and buy the next house.
[0:24:00.2] MF: No it makes sense. I think it’s really cool that you are looking at the appraisals so closely and making sure you’re having good appraisers on your deals. Have you guys seen crazy price increases there like we’ve seen in Colorado? I mean we’re seeing prices going up 20% a year here. Are you seeing that in some of your markets and if you have are you accounting for that in some of the appraisals?
[0:24:21.7] DL: We do. So two areas come to mind on that. In Brooklyn, the price increases in Brooklyn have been off the charts. To mitigate that risk, what we have done is instead of lending 80% of purchase, 100% of rehab on a Brooklyn, let’s say two family, we would cap it at 65% of finished value or ARV. We’re now capping it at 60% of finished value or ARV. So if you are not getting a really good deal, we’re not going to fund the deal in there because it’s too risky given the run up in pricing in Brooklyn.
The second area in New Jersey that comes to mind is Jersey City. Jersey City has unbelievable growth. It has a lot to do with the people from Brooklyn can’t afford it anymore so they are moving to Jersey City. That’s what happens around here and people from Jersey City are starting to move to Newark so even Newark is starting to go up and it’s what’s going on. So we’re watching the Jersey City market right now. We’re still lending it up to 65% of finished value but we’re cautious about who we lend to and the project that we lend on there.
[0:25:32.5] MF: No, that makes sense. It’s nice to see that too. Where I think so many flippers get in trouble in hot markets, is they assume the prices will go up to make money and that’s how you get yourself in trouble in my opinion.
[0:25:44.7] DL: That is for sure, I mean if you’ve ever played musical chairs you know, what we used to be ten chairs is now down to four or five chairs. So you know it’s getting slightly – there is definitely more risk on the flipping side. We do believe that it’s been a great run for you and for us and for the people in the flipping community in whole, in general. We do believe that we should all be more cautious as we’re on the other side of the trade.
In our minds, we’re at least half way if not more through this great trade of flipping houses and I think that people should be cautious.
[0:26:28.9] MF: I’m curious too if you are seeing a change in the flipping market, you know five six years ago a lot of people were flipping houses, there are so many foreclosures, so many distressed properties available. I think it was a lot easier for some people. Now it’s gotten in a much different market. Are you seeing more flippers go into this speculative investing or are they going into areas they hope will go up or have you seen other changes in the industry?
[0:26:53.5] DL: We have. I mean what’s interesting is the east coast is very different than the other regional areas in the United States, especially using your area as an example in Colorado. The reason why the local banks probably have not gotten involved in the east coast is the cost of foreclosures are high and the time to get that house is two to three years in New Jersey and New York and some of the other states that we lend in and that timeline is long.
As opposed to like I’m sure with your business which is a much – where you are doing your business in Colorado – the timeline is probably a lot shorter. So the barrier here for banks to lend is much more challenging at that level.
[0:27:43.5] MF: Yeah, in Colorado you could foreclose on a house from start to finish in six months as long as there are no hiccups. Maybe even a little sooner but yeah places like Texas it seems like it’s a couple of days before you can foreclose on a house but it’s definitely a different environment.
[0:27:58.5] DL: That’s what’s crazy yeah, that’s what really defines the areas and that’s why rates honestly even though they are lower on the east coast, they are still higher than the west coast, right? Because of those challenges.
[0:28:11.0] MF: Yeah, that’s a good point. I have never thought about that before because a few years ago my primary business was as an REO broker. I would sell foreclosures for banks and so just going to conferences and hearing from other agents. Especially Massachusetts seemed like the worst, and New Jersey, taking three, four years to foreclose on properties. And like you said, there’s still a ton of foreclosures there not because the economy is bad or worse but because they are still working through the housing crisis inventory. It’s crazy.
[0:28:39.1] DL: Right and the east coast will continue to operate like it is due to the high inventory of foreclosure. The way people are getting their houses on the east coast now, up to share of sales, believe it or not the MLS these days, I am seeing more and more of the MLS and the auctions sites, online auction sites, are much more popular and prevalent in the last three to six months. I don’t know if you have seen that in Colorado? But I’m seeing a lot of people getting their properties through the auction sites these days.
[0:29:11.7] MF: Yeah, in Colorado we have virtually no foreclosures. It’s crazy we led the country in my county back in 2005 or 2006, we led the nation in foreclosures and routinely from 2001 until now, when I have been in this business, we can see 20 to 30 foreclosures a month or a week in our county. At the peak there would be 60 to 70 properties going. Now if you go to the foreclosure sale there’s one or two properties in the entire county going to foreclosure and half of those are bought by investors. So there’s just almost no foreclosures in our entire state. It’s just crazy how much things have changed.
[0:29:52.4] DL: Wow, so that makes it a very tough environment from your perspective if you’re trying to flip in that area. It is more challenging on the east coast. We lend in right now – so we’re lending in Massachusetts, all of Connecticut, all of New Jersey, most of New York, Pennsylvania, Maryland and Florida. In those States the inventory – there’s still plenty of inventory around but less from a few years ago but we are still seeing –
We had our busiest month ever. We had a record month last month, we did 53 loans in June for $13.8 million. This month, we’re going to do, because we are closing a few today, I’m going to guess 42 or 43 loans for about $11.5 million. So it’s active here, really, really active.
[0:30:43.7] MF: Yeah and I am finding deals here. It’s just that people always ask me “How do you find the distress sales, how do you go after these foreclosures?” And I tell them “There’s a lot of other properties out there besides foreclosures.” So I do get a lot of my deals from the MLS – I am an agent which helps. From wholesalers, we have our own direct marketing campaign and actually a couple of weeks ago I did buy one from the foreclosure sale but that was the first one I bought in almost a year. So there is always going to be deals out there if you are flexible and have different ways to get them.
[0:31:14.7] DL: Yeah, absolutely. I think when we’re looking or when someone new or experienced comes in, we look really at four major things. We look at their experience level, we look at their credit background, not so much FICO score, just their credit background like what’s going on, why is their credit a 6-20 or a 5-80 for that matter. We look at their cash position, are they liquid or not and we look at the property.
And you know, on a new investor they have no experience but they might have good liquidity, a great property and a 6-50 credit score which is that is who we’ve been lending to on the newbie side. That characterizes the type of person that comes in and that person gets educated by Asset Based Lending and that person we want to come back time and time again. That person might start at 12 and 3, 12% and three points, but hopefully soon on deal three, four or five they’re down to 11% and two points at 13%.
And if they keep going after five deals, they’re at 9% and two points. So for people that, like yourself, that want to borrow on the east coast and states that we lend in, I think they need to come over with a business plan which includes how they are going to fund their business like any new business starts. So I think if they think in terms of how lenders like ourselves look at them, it will help them really jump start their business.
[0:33:00.9] MF: I have a scenario for you. So let’s say it’s a new investor who maybe doesn’t have the best credit and they have enough cash but it’s still tight but they’ve got an amazing deal. Let’s say it’s 50% of ARV with their total cost going into it. What would you do in that situation?
[0:33:17.4] DL: Well we’re definitely not a loan to own shop. A loan to own shop is to find someone that will lend. If the property is great, they don’t care about any other factors that they just lend that they get the property, they’re indifferent whether the loan gets paid back or whether they own the property. We care a lot about not owning the property. We care a lot about getting paid back. So on that scenario, if their credit score wasn’t good, they have no experience, a great property.
If they didn’t have some of the liquidity to bring – you know I have to understand where the 20% was coming from. So if it wasn’t coming from them, we won’t do the deal with them. We want them to be successful and make a lot of money and that’s a risky deal from our perspective, for them and us. If they had some liquidity where they can fund the 20% and they had a few dollars that they could pay their bills throughout the life of the project and pay our interest, we would fund the project. Does that make sense?
[0:34:19.8] MF: Yeah, it makes a lot of sense and that makes sense to me too or if they’ve got their own – I think the basic idea is if they have their own skin in the game it makes it a lot more attractive loan than if they are borrowing every single penny.
[0:34:30.8] DL: After 1,270 of these, for sure. The people that will be successful are people that will have some skin on the game, they will be better at their business for sure.
[0:34:46.2] MF: Yeah, I completely agree with that and I know there’s a lot of people out there who won’t invest with no money and it’s tough. There’s ways to do it but I always tell people, “Well you need to work on your money problems as well as trying to make it real estate”. If you can get one fixed it sure makes the other a lot easier.
[0:35:02.1] DL: Right, yeah. We advise them not to do that. We don’t believe that is the right business plan for a sustainable business.
[0:35:11.8] MF: Right and I agree with that too. Well great information. I am trying to think here if I had any more questions for you. I think we covered a lot about how you structure your flips, lending, what you look for, how you’re a direct lender and you’re not selling off most of your loans and borrowing everything and then how you got started. Is there anything else you can think of that is important for flippers to know when they are considering hard money or considering flipping, anything else at all?
[0:35:38.8] DL: Yeah, one thing I would say is don’t write the $25,000 check to all these different educators across the United States. Call us, Asset Based Lending in New Jersey or if you’re not regionally located here and doing your business elsewhere, find someone that you can trust that will want to lend you, partner with you, lend to you money. We believe as ourselves as partners with people, with the people that we lend to. You’re better off spending and putting that $25,000 into your first house.
Because a good lender will educate them and we have seen it time and time again if that makes sense. In fact people that have spent the money, then have tried to apply it to their first loan. Honestly some of them have had disastrous results and I want to see people have a good return on their effort.
[0:36:33.4] MF: I would agree completely with that. I have written a couple of articles about those programs and the sales tactics they use to get people to sign up and the people they target to sign up. It doesn’t sit well with me and there are so many options out there. Books, websites, lenders, other investors who will help people without charging that money and I always tell people too. If you just take that money and buy a house, you’re going to learn so much more than you would than going into that seminars. Even if you lost that money investing and most likely you’re not, but just buy a house if you have the choice.
[0:37:14.7] DL: Well and another way to do it is go take that money and become a gap funder. Go to a real estate investor association meeting locally and offer up to partner with some experienced people with your money, which is what experienced real estate investor’s love and then you learn the trick of the trade that was as well. A much better way to learn on the job than to sit in a classroom somewhere in Salt Lake City paying some guy how to do your first flip.
[0:37:55.1] MF: Yeah, I completely agree with that. Great advice and hopefully more people will listen to that. I’ve talked to a lot of people who have taken those courses too and some people are really happy with it but they still have never actually bought a house or got a deal with it so still it doesn’t sit well with me.
[0:38:10.3] DL: Right.
[0:38:11.1] MF: Great. Well Dan, thank you so much for all the information you’ve provided. Now if somebody wants to get started flipping or they are a flipper and they’re interested in your program, what’s the best way to contact you guys or get a hold of you guys?
[0:38:23.0] DL: The best way to contact us is either call us in New Jersey. It’s 201-942-9090 or email to [email protected] or you can Google up Asset Based Lending in New Jersey, you’ll see our website. We’ve been told that our website is extraordinarily helpful and informative and I believe more than just selling what we do, which of course it does, but it also will help people get started as well.
[0:38:57.8] MF: No, that’s great. I will provide a link as well in the show notes for people to look at that and hook up with your website and yeah, I think that’s all the questions I had. I think we’ve covered a lot of great information. I will give you one more chance, anything else you want to cover?
[0:39:12.3] DL: No Mark, thank you very much for giving Asset Based Lending the opportunity to get to speak with you on this podcast and anybody regional, anybody in the United States if you have any questions, you just want to run something by me, feel free to call, 201-942-9090, and I’d be happy to give you my view point on whatever you’re thinking about wherever you are.
[0:39:35.8] MF: Great, thank you so much for being on the show. I really appreciate it Dan and great information on not just on what you guys offer but how you work and how you got into the business and yep, hopefully we’ll keep in touch.
[0:39:46.0] DL: Yes Mark, take care and I look forward to doing our first loan with you.
[0:39:49.3] MF: Like I said, I’ve got pretty cheap money but we’ll see.
[0:39:54.9] DL: Okay, take care now. Bye.
[0:39:57.1] MF: Bye.