A APL CONFERENCE HIGHLIGHTS SPECIAL SECTION
New York’s 20% Speculation & Flip Tax
Scaling Your Private Lending Business
MARKET TRENDS The Official Magazine of AAPL Winter 2020
Inventory & Household Formation Impacts
Thomas Standen Automating His Way to Success WINTER 2020
Rehab to Rental
Take It Down... Bridge The Gap
No Bait and Switch, No Teaser Rates, No Catch.
Need a No-Money Down Fix-And-Flip Funding Solution? Need time to season your ﬂip to lock-in the a long-term rate? Are you trying to build wealth through your rental portfolio?
LET US HELP!
% TAKE IT DOWN
BRIDGE THE GAP
• 100% Funding Up to 70% ARV • 10% Interest • 3 Points Rolled In • 9-Month Term
• 100% Funding Up to 70% ARV • 9% Interest • 2 Points Rolled In • 12-Month Term
• Up to 85% LTV • Rates Starting @ 6.25% • 1.0x DSCR • 5/1 ARM to 30-Year Fixed • 2 Points Paid At Closing
Your business is building wealth through real estate. Our business is providing eﬃcient capital to help fund your rental portfolio. We can help you take it down, bridge the gap and build long-term wealth in your rental portfolio! Contact us today!
APPLY NOW: (866) 441-0223 firstname.lastname@example.org www.rescappartners.com
RESIDENTIAL CAPITAL PARTNERS
07 NY FLIP TA X
A A PL OPINION
A A PL O ppos e s A nti -
42 MARKET TRENDS
Flipping Ta xes /Spec ial C onveyance Flip Ta xes
12 T A X
N YC Home
C A SE S TUDY
Ocean V iew Proper t y Ge t s a M akeover
22 BUSINESS S TR ATEGY
Your Produc t s Ge t t he Job Done D ur ing a M ar ke t Dow nt ur n?
t he Deb t Y ield Ra tio
INTE RN ATION A L
Funding “ Dow n Under ”
54 LENDER LIMELIGHT
wi th T homas St anden
2019 E xcellence Awards W inner s
68 ECONOMIC FOREC A S T
B USINE SS TR A NSITIONS
W hen Sc aling Your
2 020 Economic and
L e t ter f rom t he Edi tor wi th K at Hunger ford
82 MARKETING & SALES
B ROCHURE S
12 C ompany Broc hure Wr i t ing T ips
CH A LLE NGE
FOREC A S T
Lender s to Face More Tec hnolog y- Dr i ven
10 t h A nnual
INDUS TRY RECOGNITION
I s Your Loan Enforceable
78 LEGISL ATION
Challenges in 2020
C onference Highlight s
B A NK RUP TCIE S
in Bank r uptc y C our t?
C ONFE RE NCE REC A P
Par t ner ships
5 Q ues tions to A sk
C limb to E xcellence
60 CONFERENCE REVIEW
S TR ATEGIC PA R TNE RSHIPS
4 Bene f i t s of Busines s
Br idge Loans Gi ve Po tential in 2020
E BT R ATIOS D
T he Ad vant ages of
B RIDGE LOA NS
L ender s Grow t h
P RODUC T S
Pr i va te L ender s: W ill
Zelman’s V iew
on 2020 Housing
Flipping A nal y sis
I NDUS TRY DATA
93 RESOURCE GUIDE 98 L A S T C ALL
Trouble is O ppor t uni t y wi th J on H or nik
Housing Forec as t
Real E s t a te Busines s
Liquid Logics is a SOC 2 Certiﬁed Company Is your current provider SOC 2 certiﬁed? How conﬁdent are you?
Future Proof Your Business Deploy Liquid Logics, today! Put your lending process on autopilot. Ask about our NEW Collaboration Portal. We also oﬀer Broker, Borrower, Investor, and Inspector portals. Plus, 100% U.S. Based Support!
think different, think liquid logics
Schedule a demo today! 4
Go online at liquidlogics.com or call 866.547.8430
SOC 2 certified
FROM THE CORNER OFFICE
YOUR ASSOCIATION UPDATE If you thought 2019 was a big year for AAPL, you ain’t seen nothing yet (to quote one of the top songs of the 70s and, yes, it’s Bachman Turner Overdrive, if you’re wracking your brain).
EDDIE WILSON CEO, AAPL
We’re opening the decade with our best foot forward as the private lending industry’s oldest and largest trade association. We remain strongly dedicated to promoting our members and the industry as viable alternatives for borrowing and investing. Every action we take supports that mission.
Managing Director, AAPL
KAT HUNGERFORD Executive Editor
KELLY SCANLON Copy Editor
SPRINGBOARD CREATIVE Design
Katie Bean, Daren Blomquist, Edward Brown, Marty Coyne, Abhi Golhar, Robert Greenberg, Matthew Gunter, Jon Hornik, Kay Hungerford, Ruby Keys, Beeta Lecha, Jeff Levin, Chris Ragland, Alexa Stephenson, Adam Tilley, Nancy Wallace-Laabs, Ivy Zelman
COVER PHOTOGRAPHY Efrain Valenzuela
Private Lender is published quarterly by the American Association of Private Lenders (AAPL). AAPL is not responsible for opinions or information presented as fact by authors or advertisers.
Visit www.facebook.com/aaplonline or email PrivateLender@aaplonline.com.
Visit aaplonline.com/magazine-archive, email PrivateLender@aaplonline.com, or call 913-888-1250.
For article reprints or permission to use Private Lender content including text, photos, illustrations, logos, and video: E-mail PrivateLender@aaplonline.com or call 913-888-1250. Use of Private Lender content without the express permission of the American Association of Private Lenders is prohibited.
Here are just a few of the tangibles we already have for you in 2020: We are launching the private lending industry’s first benchmark data survey this quarter in partnership with Zelman & Associates. If you are an owner-operator or C-suite-level executive in the private lending industry, you should be signing up to respond now at aaplonline.com/industry-survey. The survey is quarterly, with respondents gaining access to the aggregate reports from the AAPL/Zelman Private Lender survey and Zelman’s most popular report, the Housing Market Overview. To see why this is a true business gamechanger for any survey respondent, check out Zelman’s article on page 46. Certified Fund Manager is now available as an online course for any and all AAPL members. As of the new year, you can watch videos, take the exam and download your certificate/CFM emblem from the comfort of anywhere you can access the internet. Our in-person courses will expand on the video course content. We are hard at work fighting New York Senate tax bill SB3060E, which, if passed, is likely to snowball across the nation. Check out Matt Gunter’s article on page 8 for why this kind of legislation will destroy the fix-and-flip industry. Specialty Lending Group’s Case Study on page 20 sheds light on why legislators are misguided in thinking flippers hurt affordable housing. And, Kat Hungerford’s article on page 78 outlines our legislative strategy. The 2020 AAPL Annual Conference is already off to a strong start. We launched our all-new conference site at aaplonline.com/conference, with registration now open for the nation’s single largest private lending event. We are also ecstatic to welcome back both 2019 Title sponsors: AlphaFlow for the third consecutive year, and Residential Capital Partners for the second. Check out our 2019 highlights with testimonials and photos on page 60. As always, we appreciate the support of our members, sponsors and advertisers. Your dollars have helped us achieve some very big goals. Keep your eyes open, because really, you ain’t seen nothing yet!
Managing Director, American Association of Private Lenders
www.aaplonline.com Copyright © 2020 American Association of Private Lenders. All rights reserved.
REAL ESTATE INVESTORS
WE’VE GOT YOUR BACK ...and your funds Fast and flexible financing options powering today’s Real Estate Investor.
Fix & Flip Bridge Up to $3.5M
Ground Up Construction Up to $10M
30yr Rental Up to $2M
Up to $10M
85% of Purchase
Up to 100% Rehab
Rates starting at 8.49%
Multi-Family / Mixed Use
Rates Starting at 7.99%
Loans $500K - $10M
Up to 100% of Renovation
Rates starting at 5.30%
Rates starting at 7.99%
Loans Up to $2M
Loans $100K - $3.5M
Loans $500K - $10M PHONE
BUILD. SUCCEED. EVOLVE.
www.triumph.capital Funding in 42 of 50 states Call or click for more information.
California Finance Lender Lic. #60DBO-72340 Business purpose and non-owner occupied loans only.
SPECIAL SECTION NY FLIP TA X
Understanding the New York State Flip Tax An Introduction for Private Lenders
Since July 2019, the American Association of Private
Lenders has been engaged in redirecting seemingly
isolated tax code legislation in the State of New York.
Although the bill is housed in the state’s Senate and Assembly, SB S3060E/AB A5375A applies to property transfers for one to five separate residential property units located in New York City’s five bureaus. The bill imposes a 20% conveyance tax on property sales if a property is transferred within one year of the prior assignment, and 15% if transferred within two years.
with states planning to pursue
a rise in regulation impacting
York City flip and mortgage
their own versions should New
multiple areas of our businesses.
data to statistically exemplify
York find success.
Until we change the perception
why perception of flippers and
that’s been cemented over
private lenders as harming
hundreds of TV episodes—
affordable housing is mis-
What real estate investors and private lenders are battling is not simply a business-breaking tax hike—although that’s plenty in and of itself. With the meteoric rise of the industry since the Great Recession, we are beginning to see the unintended fruits of our reality-TV-framed reputation. Legislators do not see us as small-business owners who support communities and
the true business risk or our community-boosting impacts— we will continue to fight battles against legislators who see us as the enemy of their voters: traditional homeowners. In this special section, we’ve worked with subject matter experts to show the true outcomes of high conveyance tax
help homeowners into proper-
legislation and our industry.
ties they would never have
O n page 8, Matt Gunter,
The extreme nature of this tax
had access to otherwise. They
would effectively end the fix-
see us as making big-buck
and-flip industry citywide.
profits off anyone-can-do-it,
Further, if passed, the tax will
which never show our failures,
not remain singular to the
The discrepancy between a
nation’s most populous city.
flashy media-driven reputation
Our contacts in state legisla-
and our hard-working reality
tures indicate they are keeping
means that beyond tax-specific
watch on the bill’s progress,
legislation, we are likely to see
our Government Relations Committee Legal Chair, delves into why AAPL opposes high property conveyance taxes beyond their repressive shock to the private lending and real estate investment industry.
O n page 12, Daren Blomquist from Auction.com uses New
guided at best. We’ve also created a handy infographic to visualize his argument.
F inally, Specialty Lending
Group’s case study on page 20 examines the localized effects that recovery of a blighted, vacant Washington, D.C., property had on its surrounding neighborhood.
As you read, we encourage you to explore how your own story has contributed to your community. We need help showing why legislators should look to us as potential partners in their affordable housing goals, rather than viewing us as the opposition. Then, tell your
story by signing our petition and providing comments at
aaplonline.com/petitions. ∞ WINTER 2020
SPECIAL SECTIONÂ NY FLIP TA X
AAPL Opposes Anti-Flipping Taxes/Special Conveyance Flip Taxes Instead, promote incentives to increase economic activity and to create the change we all want to see. by Matthew Gunter
and are like most other
suffering from specific local
and takes an active role in
problems that require the
to generate revenue.
increased revenue to fund spe-
opposing their implementation.
sions that we are aware of impose what is known as
a conveyance tax, transfer
tax, sales tax or fee on the
sale of real property. These taxes are generally very
low in percentage terms
taxes or feesâ€”designed
On top of these taxes, governments occasionally levy additional taxes, fees or surcharges in smaller or incremental amounts, again to raise reve-
cial projects. These taxes are normal, passive and, to a large extent, appropriate. When these taxes are increased exponentially, however, The
WHY AAPL OPPOSES HIGH TRANSFER TAXES AAPL opposes significant transfer taxes for several reasons.
nue. But these are targeted
American Association of
to specific towns, districts
Private Lenders stands firmly
First, these taxes directly harm
or counties that may be
against such taxing schemes
our members by increasing
the cost of doing businessâ€”
total transactions will take
will decrease, impacting the
whether itâ€™s a lender or broker
place. This is due in large
contractors who provide these
whose borrowers take fewer
part to fewer business-related
tions and total transactions.
loans as their profit margins
transactions, because business
erode or other service providers
transactions acutely depend
whose business depends upon
upon profit margins large
these lender transactions.
enough to make an investment
The result is a decrease in
worth the time and the risk.
Second, they indirectly harm
By making it more expensive to buy or sell real estate, fewer
These industries include consumer-level and trade-level renovation service providers, retail and commercial construction materials providers, attorneys, real estate agents
services the most. Ultimately, it results in lower income and loss of jobs. Reduced income and job losses are felt across the board, which in turn touch all aspects of a local or
and title insurance providers,
other service providers and
among others. With fewer
Third, these taxes lead to an
industries that depend upon
transactions, home renovation
erosion of the very tax revenue
SPECIAL SECTIONÂ NY FLIP TA X
they were designed to produce,
harming the states or local com-
munities they support. As overall transactions decrease, there are fewer transactions from which the tax can be generated.
are not generally replaced by consumer transactions
that would make up the tax
shortfall. This is because the property is either a commercial property or a blighted,
Results like these are a
rundown, dilapidated, vacant,
quence when the transfer tax
move-in or consumer ready.
subsets of transactions, such
these types of properties,
particularly hidden conse-
residential property that is not
is increased on only particular
Consumers will not purchase
as business-related transac-
unless they are first converted
tions. When business-related
or remodeled via a business-re-
for example, those transactions
in total tax revenue results in
transactions decline due a tax,
lated transaction. A decrease
fewer funds available for the various initiatives, often laudable, that the revenues were designed to serve. In short, the result is the opposite of what was intended.
of commercial property into
Fourth, the increases lead to a decreased rate of housing stock availability, particularly in the lower, affordable end of the market.
actions continue to take place,
As the increased cost of transactions decreases the business-related transactions frequency, there are fewer conversions
end consumer. Transfer taxes
housing or the rejuvenation of formerly vacant or derelict properties into useful and legal housing. In the limited instances in which these transit shifts to the higher end of the market, where the increased transaction costs can be hidden and more easily borne by the are generally regressive in their effect, harming lowerincome communities.
Fifth, but certainly not finally, higher transfer taxes are disincentives to homeownership and business-transactions alike. Homeownership is a universally acknowledged societal good, playing a vital role in helping to build strong, stable communities. Governments keen on promoting this institution should not be disincentivizing its growth and attainability. Ironically, a decrease in homeownership leads to an increase in rentals, putting pressure on the available rental stock, which results in higher rents. Nearly universally, landlord owners of rental property are business, profit-maximizing entities that are acutely affected by increased transaction costs. Increased costs result in fewer total transactions, fewer units available and, thus, higher rents despite the units being in worse physical conditions. In this way, higher transfer taxes have several significant effects on affordability, directly with respect to homeownership and indirectly in rentals.
INCENTIVES INCREASE ECONOMIC ACTIVITY While AAPL strongly opposes transfer taxes greater than a nominal amount, which disin-
“ ... we [AAPL] strongly support and advocate for any sort of incentive to directly promote economic activities that lead to these [thriving, lowercost] communities.”
ABOUT THE AUTHOR
MATTHEW GUNTER Matthew Gunter is an
attorney working for RCN Capital as their assistant
centivizes the activities needed to develop healthy, thriving, lower-cost communities, we strongly support and advocate for any sort of incentive to directly promote economic activities that lead to these communities. Incentives could, for example, take the form of a reduction in transfer taxes, either broadly enacted or targeted to specific areas or transaction types. With proper incentives, the result is more economic activity—more transactions that the remaining or reduced transfer tax rate can capture revenue from. It means cheaper access to housing. It means less risky real estate investments and, therefore, more available housing, further pressuring prices downward.
which in turn reduces crime and increases property values. When property value increases, it results in increased property tax revenue, further promoting the feedback loop that a reduced transfer tax can help initiate. AAPL and its members recognize the several struggles that housing in the U.S. faces, from affordable housing to blighted and crime-filled neighborhoods. We are supportive of efforts to address these problems, and our members want to be a part of the solution. Disincentivizing those with the greatest ability to help is not the way forward. Instead of governments attempting to raise revenue through additional taxation, governments should promote incentives to effect the change they want to see. ∞
Gunter’s focus is in licensing
compliance, mortgage finance transactions, foreclosures, REO property and tenant management, real estate closings, title clearing,
business litigation, contract
management, and lobbying/ lobbying management.
Gunter received his B.A. in political science from
California State University
Long Beach and a J.D. from University of Connecticut, School of Law. Gunter
presently practices in the Connecticut state and federal courts.
Increased economic activity in housing also results in the removal of blighted properties, WINTER 2020
SPECIAL SECTION NY FLIP TA X
NYC HOME FLIPPING ANALYSIS b y Daren Blomquist
Legislation aimed at deterring “property speculation and flipping in vulnerable neighborhoods” in New York City begs the question: Just how prevalent and harmful is home flipping in the five boroughs that would be impacted by the policy change?
State Senate Bill S3060E would
2018, according to the ATTOM
amend the administrative
data. Those 874 home flips
code of the city of New York to impose an additional transfer tax on properties sold within one or two years of a previous sale. The bill would impose an extra 20% tax on the transfer of properties that occur within
An Auction.com analysis
of public record data from
ATTOM Data Solutions shows home flipping in the five
demonstrates that investors are
shouldering the bulk of the risk involved with this speculation,
even while stabilizing neighbor-
boroughs of New York City
hoods by renovating distressed
of home flipping in the five
values and providing inventory
is on the decline, and the rate boroughs is lower than the
home flipping rate statewide and nationwide.
Furthermore, while it certainly holds true that home flipping is speculative in nature—
using the Oxford definition
of speculative as “involving a
high risk of loss”—the analysis 12
housing stock, improving home that is more affordable than the
one year of the previous trans-
fer, and an extra 15% tax on
the transfer of properties that occur within two years of the previous transfer.
NYC FLIPPING BELOW AVERAGE
overall real estate market.
represented 5.6% of total home sales in the five boroughs in the first 11 months of 2019, below the 5.8% home flipping rate statewide and the 6.3% home flipping rate nationwide. The number of home flips in New York City climbed to an 11-year high in 2018, but the decrease in 2019 is likely due to shrinking potential profits for home flippers—a trend also playing out nationwide, according to the ATTOM Q3 2019 U.S. Home Flipping Report. That report shows gross home
Before diving further into the
A total of 874 homes were
in New York City, it’s worth
ond time within a 12-month
of the legislation. Titled the
of 2019 in the five New York
Anti-Speculation Act, New York
flipping returns nationwide hovering around 40% in 2019,
analysis of home flipping data
flipped—sold for the sec-
providing a quick overview
period—in the first 11 months
New York State Small Home
City boroughs. That’s down
63.1% in 2019, but similarly at
6% from the same period in
the lowest level since 2011.
the lowest level since 2011. Gross home flipping returns in New York City are higher, at
FORECLOSUREHEAVY FLIPPING Although on the decline, gross home flipping returns in New York City are well above the national average because home flippers there are taking on a higher percentage of foreclosure properties. Nearly half (49%) of all properties flipped in New York City in 2019 were originally purchased by the real estate investor at foreclosure auction or as a bank-owned foreclosure (REO). That’s compared to only 28% nationwide. Statewide in New York, 52% of 2019 home flips were originally purchased in foreclosure. Foreclosure properties tend to be in distressed condition, which translates into bigger potential discounts at purchase. But it also means more extensive property repairs that
come with higher rehab and holding costs. This all bears out in the data. In New York City, the average purchase discount for homes flipped in 2019 was 30% below full “after-repair” market value of the home. That was well above the average purchase discount of 24% for homes flipped nationwide in 2019, although it’s a bit below the average purchase discount of 33.3% statewide in New York.
21 PERCENT LONGER TO FLIP The bigger upfront discount available with distressed foreclosure properties in New York City comes with a cost: The average home flip completed in New York in 2019 took 216 days, 37 days longer than the nationwide average of 179 days.
The 21% longer it takes to flip a home in New York City means higher holding costs—think property taxes, utilities, basic property maintenance and financing costs. It also implies more extensive (and expensive) rehab, given that a home flipper is motivated to sell as soon as possible after completing any property renovations.
62 PERCENT PURCHASED WITH CASH Purchasing distressed foreclosure properties comes with another cost that may not be as immediately obvious: lack of available financing. At most foreclosure auctions, winning bidders are required to pay in cash on the spot, and lenders are less likely to approve financing on highly distressed REO properties. This lack-offinancing feature of foreclosure
purchases means that a higher percentage of New York City home flippers are purchasing with cash: 62% in 2019 compared to 57% nationwide. The high percentage of cash purchases on eventually flipped homes has two other important implications. First, buyers who pay with their own cash are taking on more risk than financed buyers, who share the risk with their lender. Second, most retail, owner-occupant buyers would not be able to purchase a foreclosure property even if they wanted to because most don’t have six figures in cash sitting around for use on a home purchase.
EFFICIENT RETURN-TO-RETAIL Given these implications,
cash-buying home flippers act WINTER 2020
SPECIAL SECTION NY FLIP TA X
as an important and necessary bridge between the distressed and retail markets, particularly in areas like New York City with more legacy foreclosures.
comparison, only 43% of homes
pers in New York City sold at
that reverted to the bank at
a lower price point, and lower
This distress-to-retail bridge is evident in national data from the Auction.com Q2 2019 Distressed Seller Strategy Report, which looked at what happened to more than 9,000 properties sold to third-party real estate investors at foreclosure auction in second quarter 2018. The report found that 56% of those properties were in the hands of owner-occupants a year after the foreclosure auction. By
are much more efficient than
foreclosure auction (REO) were owner-occupied a year later, indicating real estate investors banks at returning distressed properties to the retail market.
FLIPPED HOMES MORE AFFORDABLE
price-per-square foot than the overall retail housing market. New York City homes flipped in 2019 sold at a median price of $565,000, 14% below the median sales price of $660,000 for all existing home sales in New York City in 2019, according to an Auction.com analysis ATTOM home price data.
Surprisingly, the investor
The flipped discount was
return-to-retail function does
also in double digits on a price-
not come with a home afford-
per-square-foot basis: $439
ability penalty. On the con-
per square foot for flipped
trary, homes sold by home flip-
homes, 11% below the $495
per square foot for all existing home sales. Considering all this data, it’s appropriate to revisit the original question posed in this article: Just how prevalent and harmful is home flipping in New York City? The short answer is this: Home flipping is rare in New York City compared to other markets. And, rather than being harmful, home flipping in the five boroughs is helping to efficiently renovate and return distressed housing stock to the retail market at a relatively affordable price point.
It’s infographic time. Here’s a visual review of New York City’s flipping market and the impacts Senate Bill S3060E will have on the market.
NYC HOUSING PURCHASED FROM FLIPPERS IS MORE AFFORDABLE THAN TRADITIONAL ALTERNATIVES: FLIPPERS PROVIDE A COST-PERSQUARE-FOOT DISCOUNT OF 11% OVER HOMES PURCHASED FROM NONFLIPPERS.
For the purposes of the data set, a “flip” is any property that transfers ownership for the second time within a 12-month period, with the second transfer being an arms-length (regular market) sale.
I n 2019, the median sale price of a flipped home in NYC was
Here are the key points.
$565,000, with a median price per square foot of $439. That compares to a median price of $660,000 and median price per square foot of $495 for all existing home sales in NYC.
2019 median price per square foot of flipped home sales in NYC:
2019 median price per square foot of all existing home sales in NYC:
THE FLIP TAX WOULD ALSO HURT LOCAL BUSINESSES AND TRADE JOBS, LIKELY PULLING AT LEAST $46 MILLION AWAY FROM LOCAL RENOVATION SUPPORT INDUSTRIES SUCH AS CONSTRUCTION, ROOFING, PLUMBING, ETC.
other budgeted less than 10% of the purchase price for rehab
budgeted at least 30% of the purchase price for rehab
Auction.com’s 2019 Buyer Insights Survey Report estimates that 20% of flippers budget at least 30% of the purchase price for rehab, with 29% of flippers budgeting at least 20% of the purchase price for rehab, 35% budgeting at between 10-20% (conservatively rounded down to 10%) and 8% budgeting less than 10% (conservatively rounded to 0%). The remaining
budgeted 10-20% of the purchase price for rehab
budgeted at least 20% of the purchase price for rehab
8% responded “other.” B ased on flips’ median purchase price of $346,500 and 874 flips in 2019, this means that NYC flippers budgeted around $46,334,673 in renovations.
FLIPPERS ARE TAKING ON DISTRESSED PROPERTIES AND ADDING VALUE THROUGH EXTENSIVE REPAIRS AND RENOVATION. THIS HELPS RAISE THE VALUES OF SURROUNDING PROPERTIES AND NEIGHBORHOODS AND INCREASES REVENUE FROM PROPERTY TAXES. From 2011 to 2019, NYC home flippers sold properties for $191,808 more than they purchased them for, an increase
in value of 73.4%. In 2019, NYC home flippers sold for $218,500 more than they purchased, a 63.1% increase in value.
From 2011 to 2019, NYC home flippers purchased at a 36% “discount” below full “after-repair” market value, and they sold for a 7% premium above market value. In 2019, NYC home flippers bought at a 30% discount and sold at an 8% premium.
Increase in value of flipped homes (2011-2019):
Increase in value of flipped homes (2019):
SPECIAL SECTION NY FLIP TA X
IN 2019, NEW YORK CITY FLIPPERS LIKELY MADE BETWEEN $114,550 AND $367,700. THESE FIGURES DO NOT INCLUDE FLIP HOLDING COSTS AND BUSINESS OPERATIONAL EXPENSES. T he average New York City flipper likely only flips one or two properties per year. Of the 765 flips in NYC in
2019 net revenue after NYC flippers budgeted 30% of the purchase price:
2019, 682 were by unique flipping entities, which implies
1.12 flips per flipper (although it is possible some flippers operate under multiple entities).
B ased on a 2019 NYC flipper median gross sale price of $218,500 more than the purchase price and the
purchase price percentage that flippers budget per renovation from Auction.com’s 2019 Buyer Insights
Survey, NYC flippers budgeting 30% of the purchase price make back around $114,500 per flip, with
flippers budgeting 10% making around $183,850.
2019 net revenue after NYC flippers budgeted 10% of the purchase price:
FLIPPERS GET DISTRESSED PROPERTIES INTO THE HANDS OF OWNER-OCCUPIED HOMEBUYERS FASTER AND AT A HIGHER RATE THAN BANKS. From 2005 to 2019, 24% of all NYC flipped properties were
homes sold to third-party buyers that were owner-occupied a year later
originally purchased by the home flipper in some stage of
foreclosure: default, foreclosure auction or bank-owned (REO).
In 2019, 49% were purchased in some stage of foreclosure in NYC. A n Auction.com analysis of more than 9,000 U.S. homes sold
homes reverted to the bank that were owner-occupied a year later
to third-party buyers at foreclosure auction in second quarter 2018 shows that a year later, 56% were owner-occupied. By
comparison, only 43% of properties that reverted to the bank
at foreclosure auction (REO) were owner-occupied a year later.
IF THE FLIP TAX SUCCEEDS IN KILLING THE NYC FLIPPING INDUSTRY, IT WONâ€™T AFFECT JUST FLIPPERS. IT ALSO IMPACTS LENDERS, BOTH INSTITUTIONAL AND PRIVATE. F rom 2005 to 2019, 54% of NYC home flippers have purchased with cash, while 46% have used financing to purchase. In 2019, 62% are purchasing with cash, while 38% are using financing.
ALMOST ALL FLIPPERS WOULD BE HIT BY THE 20% NYC FLIP TAX, RESELLING IN JUST AN AVERAGE OF 216 DAYS. I t takes an average of 194 days to flip in NYC
based on 2005 to 2019 data, with an average of 216 days to flip in 2019.
Average amount of days it takes to flip (2005-2019):
home flippers who purchased with financing in 2019 Average amount of days it takes to flip (2019):
home flippers who purchased with cash in 2019
SPECIAL SECTION NY FLIP TA X
Overall, SB3060E is misguided, creating more issues than it purports to solve. The tax will not only kill the flippers but also funders and construction-related trades. Further, it will diminish, if not eliminate, some of the more affordable housing in New York City. ∞
ABOUT THE AUTHOR
FIX-AND-FLIP PROVIDING MISSING
Daren Blomquist is vice president of market economics
MIDDLE-MARKET HOUSING INVENTORY N ew Home Sales
at Auction.com. In this role,
Blomquist analyzes and fore-
F lipped Home Resales
Median Price of Flipped Home Resales
casts complex macro and microeconomic data trends within
Median Price of New Homes
the marketplace and greater
industry to provide value to both buyers and sellers using the Auction.com platform.
Blomquist’s reports and
analysis have been cited by thousands of media outlets
nationwide, including major news networks and leading publications such as The
Wall Street Journal, The New York Times and USA Today.
Blomquist has been quoted in hundreds of national and local publications and has
appeared on many national
network broadcasts, including
CBS, ABC, CNN, CNBC, FOX
Source: Auction.com analysis of public record data from ATTOM Data Solutions and Auction.com’s 2019 Buyer Insights Survey Report
Business and Bloomberg.
SPECIAL SECTIONÂ NY FLIP TA X
PRIVATE LENDER PLAYS ROLE IN RESTORING ROWHOUSE, REVITALIZING A COMMUNITY BEFORE
A dilapidated Washington, D.C.,
rowhouse is converted into mid-level condominiums to match the already transforming neighborhood.
he borrower had purchased this 5,000-squarefoot rowhouse but needed additional funds
to complete the renovation. The property was
blighted and vacant, but it had the potential to become
a taxable property and to change the neighborhood. The lender, Specialty Lending Group, was able to provide a 12-month loan, which covered seven months of renovation and provided a cushion for the borrower to sell the unit and fully repay the loan.
Lender // Specialty Lending Group Borrower // JL Ventures LLC Location // Washington, D.C. Architecture // Rowhouse Originally Built // 1929 Square Feet // 5,000 Loan Amount // $1,115,000 LTV // 69% LTC // 85%
Credit Score // Considered Borrower Experience // Very experienced Interest Rate // 9% Length of Loan // 12 months Rehab Costs // $600,000 Summary of Opportunity // All in all, the
renovation was good for the neighborhood. The borrower was able to change a blighted, vacant property into a taxable property while adding additional housing units to a popular, rapidly growing area of town. Opportunities such as these give investors and renovators/developers the opportunity to bring life back into neighborhoods that have previously experienced a period of neglect. In this particular case, the project increased the housing supply and added a high value property to the tax rolls.
Given the initial state of the property compared to the final mid-level condominiums that were sold, the borrower was able to recoup on the investment and profit to their satisfaction. Overall, a great deal for everyone!
BUSINESS STR ATEGY
Private Lenders: Will Your Products Get the Job Done During a Market Downturn? A real estate investor provides advice on developing creative financing strategies that could carry both lenders and investors through a softer market. by Nancy Wallace-Laabs
s a real estate
loan terms for every deal
years, I have
operating processes and
investor for 15 worked with
my share of private lend-
ers. During that time—and
through economic turmoil— I have seen the industry evolve from offering
to standardized products,
made a private lender’s pro-
lets you offer better, more com-
cesses look more like a bank’s.
petitive products, and it helped
That is not a bad thing. It has
get me to close faster and at a
brought the industry to borrow-
lower cost to my bottom line.
ers who would never have had
But this standardization also
the opportunity or patience to
means a certain lack of flexibil-
institutional lenders will not or
work with private lenders oth-
ity for deals that do not fit into
cannot touch, but streamlining
erwise. And, it has elevated the
the (admittedly much wider
to finance more debt at a faster
industry to a “yes, I’m working
than banks’) parameters that
pace than ever has naturally
with a real business” stature. It
private lenders’ standardized
These days, private lenders still take on the deals that
loan products and underwrit-
standard bank or private lender
Flexibility is what has kept
with. In harder times, lenders
ing allow. Standardization also
many private lenders oper-
who demonstrate their willing-
means it’s operationally slower
In markets that feel like they
ational while banks had to
and more difficult to change from modus operandi.
can change on a dime based on hundreds of competing factors,
receive bailouts. I worry that technology and ever-increasing structure around private
As the market shifts, whether
standardization cannot always
part of a natural cycle or as
serve. Private lenders need
part of larger economic issues,
to think long and hard about
real estate investors will find
supplementing their bottom
themselves thinking: “Contrac-
line with options outside of
tors are in short supply and
2 points/10% interest. They
the profit from fix-and-flips
must be willing to get creative
is just not there right now.
with borrowers. Working out-
But, I still want to focus on
side the box may be what helps
become less so.
real estate investment to build
keep both the real estate invest-
Following are some strategies
wealth and monthly cash flow.
ment and the private lending
I’ve seen developing and that
How am I going to fund my
industries afloat during the
have worked quite well for both
deals if they no longer fit the
next inevitable downturn.
me and the lenders I partner
lending will be a double-edged sword. These developments have served extremely well
ness to negotiate and customize their offerings will be the ones I go to first for every real estate investment deal I do.
THE BUY-ANDHOLD STRATEGY
during prosperity but may not serve as well when deals are thin on the ground and previously profitable loan products
With end-homebuyers struggling to find and qualify for traditional financing during harder economic times, many prospective homeowners will instead remain renters. Lenders who capitalize on this by switching gears from WINTER 2020
BUSINESS STR ATEGY
fix-and-flip terms to compet-
whom are considering getting out of the business entirely
until the market corrects)
hold terms will find that the
should encourage them to look
market itself will help them survive as fix-and-flip demand retracts. With banks only
at different exit strategies.
THE OWNERFINANCING STRATEGY
willing to finance a certain number of loans from a single real estate investor, the private lending industry can do much to supplement this area as renting continues to grow. The same holds true for investors. Lenders having conversations with worried fix-and-flippers (many of
As affordable housing and
financing becomes unavailable
for many homeowners, investors will start looking for creative ways to get their properties
to prospective buyers. Owner
financing is one such solution,
allowing the real estate investor to “wrap” the loan. Coupled with longer-term loan products, this strategy would allow the lender to create structured programs for real estate investors that allow the underlying mortgage to be wrapped with the buyer vetted through the RMLO process.
THE EQUITYSHARING STRATEGY
relationships become the deciding factor on who survives and who doesn’t. Private lenders who take on an equity-sharing strategy will get to know their borrowers’ business practices and be able to form a solid lender/investor relationship. It’s a strategy I also suggest for private lenders new to real estate. They’ll get a closer look at the process, which will enable them to better figure out the right deals for their goals.
When the economy and
financing is on shakier ground,
Here’s a sample equity share to demonstrate:
The advisory, assurance, and tax professionals at CohnReznick work to understand your strategic objectives, helping you optimize fund performance and manage risk. Are you ready to achieve your vision? Let’s get going. Visit us at: cohnreznick.com/industries/financial-sponsorsand-financial-services
SAMPLE EQUIT Y SHARE
willingness to build solid relationships.
Purchase Price: $100,000
D emonstrate willingness
to negotiate flexible/
No points Reduced interest rate of 7% 20% profit to lender after sale to end buyer
H ave an exit strategy if
the deal goes awry.
H ave a plan around
Owner-Financed Sale Price: $150,000
E nd buyer pays a minimum of $15,000 down payment
L ender earns $3,000 (20% profit from down payment, higher than $2,000 via points paid at origination) L ender continues to earn interest on money loaned, plus a share of the monthly profit
This is just one of several scenarios that can be negotiated between investor and lender.
Other options for lenders not
keen on owner financing might
include a shorter-term businesspurpose loan, with the lender
instead taking a portion of the sale profits.
While equity sharing does
necessitate the lender taking
on higher risk if the profit isn’t there at the end of the deal,
combining equity share with a loan can mitigate some of this risk. It also allows the
ABOUT THE AUTHOR
earning of a higher rate of return than a more standard deal. As markets thin, equity sharing may mean the difference in the lender and the investor keeping their doors open until fairer weather. The lender earns more return on each deal, while the investor can now bring more deals to the table via a deeper partnership and more favorable loan terms. At minimum, lenders should
like death, divorce or
C an be diligent about the
structured agreement and length of partnership.
A re willing to make
regular reports (monthly
at minimum) to the lender.
NANCY WALLACE-LAABS Nancy Wallace-Laabs is a
licensed real estate broker
in the state of Texas. She has more than 15 years of real
estate investing experience,
owns several rental properties and manages properties in the North DFW area.
Her new book, “Winning
Deals in Heels,” hit No. 1 on
Although most private lenders
Amazon’s Best Seller List for
three strategies on a regular
She and her husband own
would prefer not to use these
Real Estate Sales & Selling.
basis because they require
KBN Homes, LLC, a real
acceptance of longer loan peri-
ods and/or additional risk than a more standard loan, they
should be carefully considering them now—ahead of any
financial crisis. The lender who can even temporarily abandon
old products in order to survive through more creative means
estate investment company
that’s making neighborhoods great again, one home at
a time. By actively seeking homes that are difficult to sell and compassionately representing owners in
distress, KBN Homes offers hope, relief and options to sellers while also creating
opportunities for investors.
will be able to capitalize ahead of competitors who rely on
market-mismatched products until too late. ∞
look first to investors who: H ave a successful
BUSINESS STR ATEGYÂ
THE ADVANTAGES OF THE DEBT YIELD RATIO Banks are moving away from DSCR, and private lenders should consider doing so too. by Edward Brown
For many years, banks have used the Debt Service Coverage Ratio (DSCR) to assess risk regarding a borrower’s ability to make mortgage payments after subtracting normal expenses from income. This ratio is crucial to determining a borrower’s ability to repay a loan, but it does not tell a financial institution about the impacts to its bottom line if it must foreclose on the property and sell at less than market value. As you may remember, this was an oversight that contributed significantly to the 2008 housing crisis.
WHAT DSCR DOESN'T ADDRESS Before 2008, the larger the
Debt Service Coverage Ratio, the more comfortable the bank felt making a loan.
For example, let’s presume a borrower is considering
applying for a $650,000 bank loan amortized over 20 years at 4%. The monthly payment would be about $3,939 per
month. If the apartment building grossed $8,000 and the
normal expenses were $3,000
(LTV) in conjunction with the DSCR. Presuming the
value of the apartment building was $1,000,000, a 65% LTV
loan would be acceptable to most banks.
In previous years, many banks were willing to allow a DSCR as low as 1.00, meaning the
NOI exactly covered the bank’s
monthly payment. The problem was that in a market crisis with borrower income shrinking,
exactly covering the net operating income wasn’t enough and defaults skyrocketed.
per month, the Net Operating
Following the Great Recession
per month. The DSCR would
protect themselves was to raise
course, the bank would also
with most finally settling on
Income (NOI) would be $5,000
in 2008, banks’ solution to
be 1.27 ($5,000/$3,939). Of
the DSCR to 1.15, then to 1.25,
look at the Loan to Value
1.35. This severely constrained WINTER 2020
BUSINESS STR ATEGY
many borrowers’ ability to finance their real estate projects. They either had to come up with more cash, negotiate for a longer term (25- to 30-year amortization periods) or request a lower interest rate due to the supposed lower overall default risk to the bank. These compromises allowed borrowers to borrow the total amount they initially needed while still meeting the more stringent 1.35 DSCR. While from many perspectives this would “fix” the DSCR problem, the issue is the bank was still at the same LTV. In fact, you could argue the bank was not compensated for the benefits bestowed upon the borrower in the form of a lower rate and longer amortization period. Just because the borrower met the new DSCR requirement did not put the bank in a safer position if default occurred due to another market crisis. It only addressed the borrower’s ability to make the monthly mortgage payment. DSCR does not address the LTV risk for the bank or give the bank a rate of return (ROR) should the bank need to foreclose on the property. Added to this, as banks were dropping interest rates and stretching amortization periods to help borrowers accommo28
date high DSCRs, they were also forced to allow higher LTVs. Before 2008, banks were willing to lend at a high LTV. Historically, 60-65% was the norm; however, increased competition between banks pushed LTVs even higher to gain an advantage with borrowers. While the lower interest rates appeared to assist the bank with risk due to the relatively low (historical) mortgage payments, when market prices dramatically decreased, many lenders were faced with borrowers who were upside down on their loans. From all perspectives, DSCR was no longer a good assessment of risk because it only provided for a fair-weather scenario where the borrower remained the property owner.
ENTER DYR Enter the Debt Yield Ratio (DYR), which allows financial institutions to assess risk for when they must foreclose and possibly sell below market value. Although this ratio has been making the rounds with banks, many private lenders are still unaware of it—to their detriment. This ratio allows institutions to forecast scenarios in which the borrower’s net operating income is stressed. For example, in a booming economy combined with low
“Although this ratio [DYR] has been making the rounds with banks, many private lenders are still unaware of it— to their detriment.” interest rates, NOI drops considerably. The main reason is the confidence level of buyers needing only a marginal return and the perceived lack of risk, especially with desirable properties in excellent locations. For example, a four-plex in Sausalito, California, was sold at a paltry 1.76 capitalization (CAP) rate. The rents were at market level. If the economy suddenly turns negative, the value of this property could potentially plummet as would-be investors would command a much higher ROR (i.e., a high CAP rate). In this scenario, DYR effectively shows the bank what rate of return it would earn if it had to foreclose. The annual NOI for the apartment building was $60,000. Since the loan request was $650,000, the DYR was a healthy 9.23%. Although no bank wants to foreclose, it still must
face the fact that there are times when it will need to. When CAP rates are in the 4-6% range, a DYR above 8% gives the bank some leeway should it need to sell the property at less than fair market value and recoup its entire loan with no loss. The ratio itself is simple: Net Operating Income Debt Amount 100% % cash-on-cash return after foreclosure
You can see that although most real estate investors focus on CAP rates, the DYR zeros in on the ROR the bank will earn upon foreclosure. The DYR also ignores the interest rate the bank charges as well as the
amortization of the loan. The reason for this is the bank is focusing on what the expected income derived from the property is compared to its loan. It is strictly a ROR function. The DYR is vital in todayâ€™s low interest rate environment. As interest rates dropped over the previous 10 years, values substantially increased. Lenders do not want to get caught in situations where, all other factors staying the same, the fair market value plummets due to increased interest rates. Thus, the DYR focuses in on the ROR
the lender would receive if it were to receive the property upon foreclosure.
the bank is willing to lend
Of course, if interest rates rise, the bank would have liked to have had a larger DYR, but it is similar to an investor being happy with a bond that is locked in at 10%, even if interest rates rise to 12%. The main drawback for lenders using the DYR has more to do with closing loans. The higher the DYR, the less likely the bank will be competitive with terms they can offer the borrower, mostly having to do with how much
ADVANTAGE FOR PRIVATE LENDERS
against a specific property.
Where is the advantage to private lenders in all this? By requesting a high DYR, the bank will automatically limit its LTV. As banks get skittish, they will continue to raise their DYR. One large bank has already increased its DYR to 11%. Factors that may lower the bankâ€™s DYR may be the location
of the real estate. Desirable and stable areas may command a lower DYR. Of course, these same areas also command lower CAP rates as well. The opportunity for private lenders is that the higher the DYR the bank requires, more borrowers will need private financing. The banks simply will not be able to provide the needed capital due to constraints applied by a high DYR. Of course, private lenders should look at their own DYR they impose on borrowers.
Quick. Creative. Flexible. We are a direct private lending firm that provides financing solutions to real estate investors. Contact us at 1 (888) 833-0381 to learn more about our residential and commercial loan products. www.grandcoastcapital.com email@example.com
BUSINESS STR ATEGY
Most do anyway because that is the nature of private lending. If the lender forecloses (and retains the property), the DYR suddenly becomes the ROR on the loan. Private lenders have more flexibility in assessing what DYR to apply, and each situation will be different depending on location, asset type, condition of the property and other factors.
KNOW THE EXIT STRATEGY
The main question for private lenders is “What is your exit strategy?” As banks get more conservative with their underwriting and have stricter ratio requirements, private lenders need to make sure the borrower will be able to meet the refinancing bank’s guidelines or see that the borrower plans to sell the collateralized real estate. Just as rates may vary when considering higher versus lower LTVs, bank rates may vary based on higher versus
Although banks using high DYR thresholds can open more loan opportunities for private lenders, there can also be drawbacks.
lower DYR. This makes sense when considering that banks price their products based on risk. From a borrower’s perspective, negotiations will now have to be looked at from not only
the CAP rate and the DSCR rate but also the DYR. Borrowers who can make a larger down payment should consider all three ratios. A little extra down payment may go a long way toward receiving attractive terms from the bank or private lender. As a private lender, if you are not already considering your own or a prospective bank’s DYR when transacting a loan, it is a detriment to your bottom line should another downturn occur. The DYR, among other considerations, allows all lenders to better navigate and survive the vagaries of the real estate market and economy. ∞
ABOUT THE AUTHOR
EDWARD BROWN Edward Brown is in the investor relations department at
Pacific Private Money and is
host of the long-running radio show “The Best of Investing.” He has published multiple
works, appeared on CNN and has served as chairman of the Shareholder Equity Commit-
tee protecting 29,000 share-
holders in a $500 million REIT. Brown is also a recipient of a prestigious MBA Tax Award.
Over 1,300 Private Lenders Canâ€™t be Wrong
# AMC in America for Private Lending And itâ€™s not even close
2019 Service Provider of the Year
5 years running! AppraisalNation.com | 866-735-0901 | ClientRelations@AppraisalNation.com WINTER 2020
BUSINESS STR ATEGYÂ
4 Benefits of Business Partnerships No man is an island; neither is a business.
he idea that and autonomy are signs of
strength applies less and less as the business landscape evolves. While globalization shrinks the distance between us, technology is simultaneously giving birth to a more complex and decentralized business environment. Now, more than ever, it’s important to understand the value of business partnerships.
Let’s look at four areas where companies stand to benefit from partnerships with other businesses.
ADDING EXPERTISE The simple act of bringing in outside expertise strengthens your business in more ways than one.
by Chris Ragland
Partnerships can be a good way to enter new geographic markets or industries where you might lack experience. The right partner can bring a familiarity with industry— with market-specific regulations and other particulars that can be invaluable for growing a business.
EXPANDING NETWORKS The potential to expand your network is a major incentive
for many companies to pursue business partnerships. By
network, of course, we’re not
talking just about expanding your contacts list.
Expanding your network
also means expanding your reach to generate more
business. A business partnership can expand your reach
geographically, helping to open the “fat” end of the marketing funnel and making potential leads more accessible.
Both strategic and tactical decisions will benefit from gaining additional knowledge that you might not have had in-house previously. This is particularly useful if your company is expanding its offerings or you’re planning to enter new geographic or business markets. You’ll have more immediate access to that new knowledge base rather than learning as you go, which can improve your strategy and speed the process. Partnerships also provide different perspectives that can enhance your business strategy, improve problem-solving, and potentially add creative capacity. The addition of outside expertise not only increases the probability of a positive overall business outcome, it can create education
conduits for the less experienced members of each party.
ENHANCING CREDIBILITY When two companies form a partnership, the assumption is that it will be beneficial for both parties. Each company typically conducts due diligence on the other before making a commitment. When two reputable companies show confidence in one another and place a certain amount of responsibility for their success in the hands of the other, it creates the outward appearance of validity for the partnership and establishes even more credibility for both parties. A business partnership compels both parties to be mutually accountable for the outcome of that partnership. Whether it’s the success of an investment or the creation and launch of a new product, each company has a stake in the success of the venture. Since they are relying on each other for their own success, there is an added responsibility for each party to act in good faith and fulfill their obligation to the partnership.
INCREASING RESOURCES Many companies probably explore a business partnership WINTER 2020
BUSINESS STR ATEGY
to increase their tangible
“ The modern business
resources. Unlike networks, knowledge and credibility, the
benefits of physical resources
a strategic advantage
be a little easier to understand
for almost any kind of business—perhaps even more so for businesses in the complex and
are much more visible and may and define. You’ve almost certainly heard that “it takes money to make money.” That is the basis for the first (and probably most obvious) resource that can
result from a business part-
amounts of capital.
nership—access to greater
The addition of capital can benefit any type of business. But the benefit of additional capital is invaluable when it comes to investment-based firms like private lenders where it literally takes money to make money on an ongoing basis. For a lender, more capital can help increase market share, expand geographic reach as well as add to operational capabilities. Partners often can avail themselves of the other’s technological capabilities. Whether they are in-house technologies or
outside third-party technology platforms, access to a partner’s platforms may allow you to pool your resources, which can result in cost savings. In addition to cost savings, systems and platforms can increase the accuracy of your operation, speed your processes and add other efficiencies to make your life easier and your business more profitable. You may also benefit from the marketing resources of a business partner. Perhaps a company you partner with has an
in-house marketing department that can help you freshen your brand, build a new website or provide collateral to promote your products and services. And it’s likely that, within a business partnership, your partner can do so at a cost lower than that of a thirdparty agency. Additionally, it is useful to pool marketing and advertising budgets with your business partners to stretch those dollars further than you might be able to with your own budget.
Pro Cyclist Justin Williams
Dedication. Focus. Commitment. Navigating the residential real estate investment race requires all three. 5arch will serve as your guide to success. Win with low-rate, high-speed capital: Fix & Flip | Multifamily | Ground-up Construction | Lines of Credit
• firstname.lastname@example.org • 5archfunding.com/JustinWilliams
5 Arch Funding Corp./NMLS ID # 1039184. 19800 MacArthur Blvd., Ste. 1150, Irvine, CA 92612; Arizona Mortgage Broker License # 0933148; Oregon Mortgage Lending License Number ML-5475; CA Bur of Real Estate – Real Estate Broker Corporation License #01928500; California loans made or arranged pursuant to a California Finance Lenders Law License, # 603K373; Louisiana Loan lends to entities. In Nevada, loans are available through 5 Arch Funding Corp.’s business partners; 5 Arch Funding Corp. does not make or arrange loans in Nevada. Borrow Better is the service mark of 5 Arch Funding Corp.
There are other in-house resources that can be particularly useful for private lending companies that create partnerships. Gaining an entire business division is one of them. Your partner might have its own underwriting division or loan servicing division that is more experienced or more robust than your own and can accommodate a larger loan volume than you would be able to otherwise. Taking advantage of these resources can alleviate pressure on your own operations, increase your capacity for throughput and add substantial headroom for growth.
to grow your business. You can almost always strengthen your position in the market with carefully-planned strategic partnerships. It may take only a single person to build a viable company, but it takes a village to raise your revenue. ∞
ABOUT THE AUTHOR
Such resources can also improve quality or expand your current services and product lines, creating a better overall experience for your clients.
SUM AND SUBSTANCE
company’s chief operating
There are many motivations for forging strategic business partnerships, and there’s a bevy of benefits to be gained. The modern business landscape necessitates a strategic advantage for almost any kind of business—perhaps even more so for businesses in the complex and sometimes erratic financial industry.
Chris Ragland is a partner
and board member of Noble Capital and served as the officer for 10 years.
He has spent nearly 20 years
building firms that specialize
in finance, loan servicing, loss
mitigation, full-service brokerage, insurance, management, maintenance, rehabilitation and REO disposition.
Chris holds a bachelor’s degree in entrepreneurship and an
MBA in global entrepreneurship from St. Edward’s University.
Whether you’re seeking access, expertise, credibility or other resources, the goal is the same— WINTER 2020
Focus on what matters most to you – growing your business. Fast Approval
Our Mission Our mission is to make lenders more successful by empowering them to give borrowers the best experience possible.
Credit Buy Box Purchase Rate: 6.99% + Loan Amount: $75K - $2MM Max Term: 24 months Credit Score: 600 minimum Type: 1st lien, lender participation permitted
Loan Purpose & Property Types Fix and Flip/Value-Add, Cash-out Reﬁnance, Stabilized/Rent, Ground-up Construction.
Contact Us: lenders@alphaﬂow.com (212) 381-0902 36
Our Offices: 564 Market St Suite 450 San Francisco, CA 94104 135 Madison Avenue New York, NY 10016
OR SFR ( 1-4 units, Condo, PUD )
Multi-family Residential ( 5-9 units )
New AlphaFlow Lending Platform The most efďŹ cient way to sell your loans
Instant Feedback Real-time feedback - see if your loan fits our "credit box" via our proprietary Loan Sizer Simplified interface to upload loan tapes and supporting collateral One-click submission for soft-approvals
Real Time Visibility Credit insights on loans to complement your underwriting Transparency into the status of loans being reviewed for purchase More efficient way to communicate with your dedicated investment team
Weâ€™ll Get In Touch
We Buy Your Loans
Complete our simple application process in minutes.
We'll evaluate loans within 24hr and give you fast feedback.
Receive funds fast! Our customer support team WINTER will 2020 37 guide you each step of the way.
BUSINESS STR ATEGYÂ
QUESTIONS TO ASK WHEN SCALING YOUR REAL ESTATE BUSINESS Creating a successful business requires forward planning and strategic thinking. by Abhi Golhar
Before planning to scale your private lending business, it's important to gather detailed information that will help to inform your decisions. In the spirit of the internet’s buzzword “scale,” here are five questions you need to ask.
your strengths to build a solid
WHAT ARE YOUR STRENGTHS?
reputation that customers and prospects can rely on. Identifying your main strengths and learning how to use them to
Every business has its strengths and weaknesses. It doesn’t
your advantage is crucial for developing an effective long-
matter if you’re a private
term plan for your business.
money lender, real estate agent,
Focus on the areas of your
wholesaler or flipper. Successful scale works only if you use
business that provide superior experiences to those your
competitors offer. For example, as a private lender, you might have more local market knowledge, skills, experience or qualifications than your competitors. Or, perhaps you offer additional services, such as 24-hour customer support, a custom online portal for borrowers to request a loan outfitted with AI to help streamline the process and communicate regular updates
BUSINESS STR ATEGY
automatically, a sponsored meet-up where you provide a regular market update, next-day funding for seasoned borrowers, or a more personalized service. Business strengths can also
include benefits to the wider
make all the difference for some lenders, especially when the market competition is heavy.
WHAT ARE YOUR COMPANY’S VALUES?
community. For example,
many prospects also like to buy products from companies with a reputation for being socially responsible. So, is a certain
percentage of your basis points allocated toward a quarterly
donation to your favorite char-
ity? Communicating and acting on your passions like this can
Honesty and transparency inspire trust and help build a positive view of your company. It's important to share your business vision and brand values. Some lenders try to appeal to as large an audience as possible, but this kind of strategy rarely works. People tend to
buy from businesses that share their values. Defining and communicating your values is an important part of your brand and marketing strategy and, ultimately, helps to scale your business more quickly. Start by identifying your company's most important values. Let’s use an example that’s in a different industry. If your company sells soft furnishings aimed at middle-aged parents, you might choose to focus on family values, the local community or children's education. If you're
selling health products aimed at young adults, you might focus on fun, fitness, independence or healthy eating. If you’re a private lender, what would you focus on? Take a few minutes to write down a few ideas.
WHO ARE YOUR BORROWERS, EXACTLY? As a private lender, understanding everything about your borrowers is the key to your business success. And if you’re like many lenders, the idea of
casting as wide a net as possible to catch every borrower you can seems compelling. However, creating a borrower profile provides you with a detailed portrait of your potential borrowers and makes it significantly easier to develop effective branding and marketing strategies to scale your business. Some of those strategies may be blog posts, LinkedIn videos or targeted podcast appearances. Don’t know where to begin? Start by gathering basic information about your ideal customers—age range, geographical location, marital and family status, annual income, number of completed projects in the last year, etc. Are your borrowers SFR owners, flippers, developers or focused on new construction? The more data you have, the better as you can use the information to research the interests, beliefs, values and habits of your borrowers. Now that you have a clear idea about who your borrowers are, where do you find them and how do you interact with them? Social media, forums and other public platforms allow you to eavesdrop on your borrower’s conversations, providing a great opportunity for you to research their habits. Pay attention to the subjects they talk about, as well as the books and publications
they read or the podcasts they listen to. This will give you clues about how and where to focus your advertising and exactly what to say in your messaging.
WHAT DO YOUR BORROWERS ULTIMATELY WANT? Once you know who your customers are, you need to find out what they want so you can scale your lending business quickly. Customers don't just get loans. They are looking for long-term relationships with private lenders for one main goal: to get wealthy with real estate. To make your prospective borrowers’ lives easier, your job is to discover which problems affect your borrowers the most and then find solutions to them. There are many different types of problems, some of which are deeper than others. For example, if you are selling child safety equipment, such as refrigerator locks and baby gates, your customers are probably worried about the safety of their young children and will be looking for products to help keep them safe. Rather than simply selling child safety equipment, you are selling peace of mind and helping to alleviate deeprooted fears. Put yourself in the shoes of your borrower and ask yourself: “What are my deep
problem areas and what do I need to look for in a lender to solve my problems?”
WHY WOULD CUSTOMERS CHOOSE YOUR COMPANY? The final question you need to ask when scaling your real estate business is why customers would choose your business over your competitors. It’s obvious that competition is tough, even with “joker brokers” with a developing brand. But, if you develop a deep understanding of your borrowers, know your strengths and have clear brand values, you should be able to answer this question. You should also take the time to research your competitors. What are their strengths? How do their strengths compare to yours? Are your competitor's products and services cheaper than yours? If so, why would borrowers pay for your loans? If your loan experience is of a higher quality, make sure your borrowers know they will be getting a better deal and significantly more value by choosing your company, even though they may pay an extra point in origination fees.
business relies on gathering the right information about your business, your customers and your competitors. Identifying your strengths and your brand values gives you a starting point to work from as you scale your marketing and business development efforts. In the end, it all comes down to understanding your customers and their needs so you can create an experience that fosters a longterm relationship. This means implementing smarter custom software, gaining visibility and, ultimately, building the relationship offline. ∞
ABOUT THE AUTHOR
ABHI GOLHAR Abhi Golhar is a three-time
nationally syndicated radio host, author and investor.
Discover tips for developing
smarter software to get better
leads and brand visibility faster at AbhiGolhar.com.
Creating an effective strategy to scale your real estate
ZELMAN'S VIEW ON 2020 HOUSING Put the puzzle pieces together. by Ivy Zelman
The American Association of Private Lenders has partnered with Wall Street housing research firm Zelman & Associates to launch the private lending industry’s first and only researchfirm-backed benchmark data survey. This quarterly survey— which launches in April—will gather key data on everything from origination volume to loan terms and foreclosure rates. Respondents will gain access to aggregate reports from the AAPL/Zelman Private Lender Survey and Zelman’s most popular report, the Housing Marketing Overview. This benchmark data will provide respondents with a statistically relevant and ongoing view of our industry’s trends and forecasts for the first time—ever. The survey is open to private lender owner-operators and C suite level executives. Find more information and sign up to respond at aaplonline.com/industry-survey. In her article, Ivy Zelman provides a snapshot of the kinds of macro and micro information respondents gain.
expertise, extensive surveys of industry executives and rigorous financial analy-
sis to deliver proprietary research and advice to
leading global institutional
“Heading into 2020, we remain confident in the underlying fundamentals driving the ongoing housing recovery.”
investors and senior-level company executives.
03 M ultifamily front-end
We publish detailed monthly
surveys of homebuilders, real
estate brokers, mortgage originators, apartment operators
and single-family rental com-
panies that provide perspective on nearly the entire housing
market. Our survey process and
KEY THEMES UNDERPINNING OUR HOUSING OUTLOOK
conclusions are unmatched,
Heading into 2020, we remain
sizes, synthesized data, action-
fundamentals driving the
correlation to macroeconomic
However, we balance our
Most importantly, the insights
outlook—including a demo-
vides enables us to connect the
pent-up demand and still-fa-
often ahead of other publicly
given their substantial sample
confident in the underlying
able conclusions and high
ongoing housing recovery.
and other industry data points.
positive long-term fundamental
our unique survey network pro-
graphic tail wind, significant
dots across the housing mosaic,
vorable absolute levels of
available data sources.
constraints that are likely to
To highlight our current out-
look, we walk through several
dynamics impacting the market and provide an overview of our 2020 expectations.
dampen the magnitude and, indirectly, home improvement spending growth. However, if inventory pressure grows even more intense in 2020, our unit sales outlook could be biased downward, whereas our home price appreciation estimate would be biased upward.
become more prevalent again as builder backlogs increase,
including tight labor and land development delays.
To summarize our views,
there are four key themes
01 S ingle-family spec
inventory is down yearover-year for the first time in seven years, setting the stage for a strong ramp amid robust entry-level demand. Interestingly, we estimate that new construction completions are still running 24% below normalized household formation and replacement demand, suggesting there is still a significant need for new supply to satisfy demand.
02 H ome price apprecia-
tion should modestly reaccelerate, but excess supply and more tempered demand in the move-up market will
production remains steady, but completions continue to trail our expectations. The result is a mounting pipeline that is already at a 45-year high.
04 M ortgage rates are
unpredictable, but we assume any surprises would likely be higher than lower, putting pressure on affordability and total mortgage originations, but creating more competition among lenders in favor of consumers.
While mortgage rates remain a wild card, we take comfort in the fact that after a substantial drop in mortgage rates in 2019, the forward Treasury curve
underpinning our macro housing outlook.
suggests a benign outlook,
with an implied 30-year rate of 3.70% in 2020. That said, the
rate has moved at least 50 basis points between the high and
low of the year in each of the last 40 years.
The current state of the eco-
nomic environment and Fed policy would seemingly put greater
odds on an upward versus downward surprise. Another interest-
that is another headwind to inventory turnover because it creates an impediment to discretionary sellers, especially if rates rise further.
HOUSING ON STRONG FOOTING, BUT FORMATION SLIGHTLY DELAYED
ing dynamic on the rate front is
Underpinning our constructive
mortgage holders have mortgage
etary analysis of household
that roughly three quarters of
view of housing is our propri-
rates of 5% or lower. We believe
formation and demographics.
LIQUIDITY SOLUTIONS FOR PRIVATE LENDERS Smith Graham Investment Advisors is a dedicated strategic capital partner for private money lenders throughout the United States. Our platform helps lenders, like you, raise capital by efficiently selling loans. Since 2009, we have successfully transacted in over $1.5 billion of whole loan purchases.
Institutional Note Buyer
Common Sense Purchase Guidelines
Long Term Strategic Partner
140 Broadway, New York, New York 10005 email@example.com 212-487-5086 www.smithgraham.com
In 2017-18, total population growth fell to the lowest levels since World War II at less than 0.65% annually. However, due to unwinding recessionary effects and the makeup of the adult population, household formation has been strong the last four years, surpassing the annual average from last decade by over 20%.
residence) and non-owneroccupant purchasers. This might appear to be playing with semantics, but it is not.
We believe 2019 was similarly strong, although we estimate household formation of 1.260 million was slightly below 2018 at 1.290 million. Although we are confident that for-sale housing demonstrated seasonally adjusted improvement throughout the year, combining with still-solid rental housing demand, year-over-year growth has taken slightly longer to unfold. Less new construction supply was also a factor. Nevertheless, near record-low total housing vacancy rates continue to reward housing developers in the current economic environment.
02 P urchased to hold and
To estimate the share of the market attributable to owners and non-owners, we triangulate numerous data, including from our proprietary industry surveys, robust mortgage disclosures, third-party providers, government surveys and public-company results.
In tracking housing demand, we segment the market between owner-occupant purchasers (i.e., those that will be using the home as a permanent
By our definition, non-owneroccupant buyers cover four main scenarios:
01 P urchased for use as a vacation or second home
03 P urchased to renovate (either marginally or materially) and resell
04 P urchased to hold and
speculate on home price appreciation (In contrast, other housing commentators have differing definitions of “investors,” which we have found has resulted in some misleading conclusions cited in the media and causing confusion among executives.)
ABOUT THE AUTHOR
IVY ZELMAN Ivy Zelman, CEO of Zelman & Associates and a highly
In aggregate, we estimate that
values. This was bad. From
their purchase volume is
were to non-owner-occupants,
that were attracted to dis-
established market, including
23% of 2018 total home sales
2012-14, cash-heavy investors
up slightly from 2017 but well
tressed asset values helped to
Additionally, while non-own-
put a floor under a downward
erally painted with a negative
undercutting all homeowners.
cyclical risk, we believe that the
More recently, iBuyers such
intent and leverage of the buy-
Zillow and Redfin have caught
below the 30% peak in 2011.
clear foreclosure inventory and
er-occupant buyers are gen-
spiral in home prices that was
brush given perceived higher
This was good.
focus should instead be on the
as Opendoor, Offerpad,
ers. From 2004-07, sales were
propelled by non-owner-occu-
pants using high leverage, with a greater share of investors
speculating on rising home
the headlines. These entities
are purchasing homes directly for a convenience fee and
then reselling to other owners or non-owners. Nationally,
immaterial, but in their most
Phoenix, Atlanta, Raleigh and
Charlotte, their share of home sales is reaching mid-to-high
respected thought leader for housing and housing related industries, has been guiding investors and corporate
executives toward business
success for roughly 30 years. In 2007, Zelman co-founded
Zelman & Associates, which is
Overall, we care less about
firm nationwide, serving
the type of homebuyer and
more about the risk associated with a buyer. At this point, we believe cyclical risk is quite
low, as the shortage of single-
family home supply across the for-sale and for-rent markets
is constrained and leverage is still responsible. âˆž
the leading housing research
institutional and private equity investors and corporate exec-
utives from the homebuilding,
building products, real estate, mortgage and finance and rental sectors and more. Zelmanâ€™s firm provides
in-depth analyses across
all aspects of the housing
spectrum. Her methodology, which puts Zelman & Associ-
ates in its own league, remains strongly rooted in the ability
Zelman & Associates is the leading Wall Street research firm specializing in housing. Every month, Zelman surveys nearly a thousand executives across various segments of the housing industry to maintain a pulse on current activity in order to provide investors, financial advisors and corporate executives with critical and real-time insights that can guide their investments and business decisions. Insights and analytics from these in-house surveys and other proprietary research offerings are available to institutional investors,
to perform thematic research overlaid with proprietary
surveys to produce unparalleled, differentiated, valueadded research.
corporate executives and others engaged in the financial and housing industries. The firm was founded in 2007 by Hall of Fame Institutional Investor Equity Research Analyst Ivy Zelman.
Bridge Loans Give Lenders Growth Potential in 2020 by Jeff Levin
Whether you’re a residential or commercial lender, bridge loans are a way to grow your revenue this year.
the loan lifetime is shorter than
to charge higher interest rates
offer residential lenders intrigu-
ing growth opportunities in 2020. Economic and demographic trends make this
financing option relevant in the new year. Let’s find out
a mortgage. Plus, it’s customary for bridge loans.
HOUSING HEATS UP
why and discover how you
First, let’s look at residential
grow your business.
middle of its longest economic
can leverage bridge loans to
Consumer bridge loans give homebuyers money they can use to make a down payment on a new house, helping people buy their next home. This type of financing product is attractive for lenders because
lending. The U.S. is in the
expansion in history. Home-
ownership in the U.S. increased in the third quarter of 2019 to
64.8%. But the housing market isn’t maxed out.
According to the U.S. Bureau
of Labor Statistics, residential
fixed investment (RFI) contributed 3.1% to U.S. gross domestic product (GDP) in the third quarter of 2019. RFI accounts for things such as single-family home construction and real estate brokers’ fees. For comparison, RFI’s share of GDP was 5.9% in 2005, two years before the housing crisis. In other words, there’s more room in the economy for housing to expand. As Fannie Mae Chief Economist Doug Duncan said in December, “Housing appears poised to take a leading role in real GDP growth over the forecast horizon for the first time in years.”
Many economists believe there’s pent-up demand for houses, and a lack of homes for sale has constrained housing growth during the expansion. Realtor.com expects singlefamily home construction to grow 6% in 2020. Notably, housing starts increased by 3.2% in November 2019. More properties on the market could lead to an increase in annual home sales. Low interest rates may help fuel home buying. Rates for 30-year fixed mortgages are currently around 3.7%. This rate is 0.79 percent lower than a year ago, and down from 4.94%
in November 2018. Freddie Mac Chief Economist Sam Khater said rates may tick up to 3.8% in 2020, but he doesn’t expect the increase to depress home sales. “Our forecast is for the housing market to maintain momentum over the next two years,” Khater said. More people looking to buy homes can mean more buyers interested in bridge loans. This line of thinking is even more persuasive when one considers home prices—another reason why many economists expect housing to survive the next economic downturn.
WITHSTANDING THE NEXT RECESSION Low inventory is one reason
many experts think housing will
survive the next economic downturn. A drop in home prices
exacerbated the 2007 housing
crisis. Home values fell because there was a glut of available properties on the market.
There were about 4 million
homes for sale in the U.S. at the end of 2006. By comparison,
in November 2019, there were
only 1.66 million houses on the market. This scarcity should
keep prices high and prevent
negative impacts on housing in the next recession. Plus, many experts expect baby boomers to hold on to their homes. A recent report from realtor.com said: “With housing prices expected to stabilize and concern over economic uncertainty, there will be little incentive for Baby Boomers to sell in the coming year.” Boomers own about 40 million homes, which is a lot of inventory that won’t be available for younger buyers. Additionally, the rate of new construction is still low considering the country’s economic growth over the past decade.
Another reason housing could remain active during a downturn is borrower quality. Tight lending standards during the expansion means borrowers are more likely to withstand a downturn. Redfin Chief Economist Daryl Fairweather said, “Most of today’s financed homeowners have excellent credit and a cushion of home equity, making them unlikely to default on their mortgage even if their weekly grocery bill grows or their stock portfolio shrinks in the next recession.” Higher prices can make it
harder for buyers to afford a
down payment. If houses cost
too much, people may not
50% of homebuyers. In 2020,
buy a house, especially if they
about 5 million of those millen-
already have a mortgage. Given
nials will turn 30, the average
high home prices, you may
age of first-time homebuyers.
ask why bridge loans are an
Bridge loans, though, aren’t for
excellent opportunity for lenders. To answer that question, let’s look at the demographics of likely homebuyers.
GO WHERE THE PEOPLE ARE
people buying a home for the first time. They’re for people looking to buy their next house. Age 39 is when buyers tend to purchase their second house. And today, there are 21.5 millennials between 35-39 years old.
By spring 2020, Realtor.com
The census bureau states that
expects millennials to make up
about 60% of people between
35 and 44 years old were homeowners in third quarter 2019. That’s a large number of existing homeowners who may look to buy in the new year. High prices could scare some of these buyers from taking the plunge. Bridge loans, though, can help them get into their next house. Another demographic trend worth monitoring is the growth in Hispanic homeownership. Hispanics are 18% of the U.S. population. Yet during the past 10 years, this group comprised 63% of home sales. Also, 42% of U.S. Hispanics are age 36 or older, putting them in the age group that is looking to buy their second homes. It’s not enough to offer bridge loans to this growing demographic. You can make your product more accessible by providing literature and documents in Spanish and hiring Spanish-speaking loan officers. These actions can help you better serve Hispanic homebuyers. Doing so is an investment in your company’s future. Thirty-five percent of the generation after millennials, Gen Z, are Hispanic. There are about 91 million members of
Gen Z, and 86% of them said they expect to buy a home one day. Investing in serving Hispanic homeowners in 2020 could support your business for decades to come. Location is another demographic trend to watch this year. Home sales grew in three of the four U. S. regions in November 2019. The highest increases came in the South and West. And many people are moving to cheaper cities. Cities such as New York, San Francisco and Los Angeles are losing people to places such as Charlotte, Phoenix and Charleston, South Carolina. This shift of people to more affordable cities can present an opportunity for your business. Are you in a market that’s experiencing an influx of transplants? If so, devote time and resources to reaching these potential buyers. Bridge loans
bridge loan to rehab a senior housing community in Phoenix. QuickLiquidity closed a $600,000 senior mortgage bridge loan in Kansas City, Kansas, in July. And Dwight Capital originated a $23 million loan on a 228-unit apartment complex in Hattiesburg, Mississippi.
LESS COMPETITION, MORE VALUE
ABOUT THE AUTHOR
JEFF LEVIN Jeffrey Levin is a bestselling author and the founder and
may be the help they need to move from where they live to where they want to be.
OPPORTUNITY FOR COMMERCIAL LENDERS
But they’re also an opening for commercial lenders.
The rental vacancy rate for
the third quarter of 2019 was 6.8%. That’s down from a
high of 11.1% 10 years ago. The
Mortgage Bankers Association Some of the factors influencing residential lending are also impacting commercial lending. For example, there are about 45 million people in the U.S. between 20-29 years old. Renters make up most of this age range. Some millennials are buying their first and second homes. Yet many are still unable to do so because houses are too expensive. Millennial homeownership is about 20% less at this stage than it was for boomers and Generation X. Higher housing prices are an opportunity for single-family lenders.
expects multifamily lending
this year to reach $390 billion, surpassing a projected $359
billion in 2019. Low rates are
also encouraging commercial
construction projects. The U.S. 10-year Treasury yield is trad-
ing around 1.75%, down from 1% in January 2019.
The market is active, but many banks still have tight lending
standards, creating an oppor-
tunity for private lenders, some of whom are already taking
If the housing market continues to grow as expected, mortgages and refinancings will continue to produce positive results for lenders. But in 2020, bridge loans may be an opportunity for both residential and commercial lenders. There’s a strong demand from buyers for their second or third homes. Many of these buyers, though, may need help acquiring their next home. And there’s still room in the market for more rental housing. These conditions provide possibilities for your business. Whether you’re a residential or commercial lender, bridge loans are a window through which you can grow your revenue in 2020. ∞
president of Specialty Lending Group (SLG), a boutique
private real estate lending
company servicing the Washington, D.C., metro area.
Prior to launching SLG, he
was the co-founder and CEO of iWantaLowRate.com and
Monument Mortgage. Levin
is a recognized authority on real estate investing and a
frequent lecturer and panelist. He is a member of the American Association of Private
Lenders and serves on its Education Advisory Committee.
He is the author of the Amazon best seller “The Insider’s
Guide to Private Lending,”
which details his experiences in private lending and advice for individuals looking to get into the business.
Levin earned a bachelor’s
degree from the American
University in Washington, D.C.
advantage. Last year, Thorofare Capital provided a $13 million
Funding “Down Under” Explore Australia’s private mortgage industry. by Adam Tilley
Private lending has been practiced in Australia for more than 100 years, although its origins are markedly different from how U.S. private lending evolved.
necessarily a better deal for
of unethical practices at the
scape changed after a series of
Misconduct in the Banking,
the borrower, and the land-
regulatory changes starting in
2000 that were predominantly designed to protect borrow-
ers from over-borrowing and
increase transparency of their contractual obligations. According to the Reserve Bank of Australia, it is estimated that the Australian private funding industry in 2019 settled $20 billion (approximately $US14B). Just as it does in the U.S., private loans in Australia can free up capital, provide greater control of fund distribution and allow clients to maximize tax deductions on interest payments. In addition, private funding in Australia has a higher approval rate due to its flexible nature and the elimination of the middleman, a hurdle often associated with mortgage approval within the banking industry.
THE LAWYER CONNECTION In Australia, private lending was started by lawyers lending to their client via trust accounts. There were two main reasons that lawyers controlled this market. First, lawyers had money to
Second, loan documentation was facilitated by these very lawyers, which made it easier to get funding and documentation from the same place. It was not
Superannuation and Financial Services industry.
The Royal Commission found that many lenders were more
focused on generating income
than lending responsibly. This
The enactment of the
was evidenced by many people
Investment Act in 2000 meant
ing debt into retirement due to
be licensed to continue this
and property spruikers. Since
most of them ceased the prac-
market has become more strin-
tation side of lending.
paperwork requirements has
applications than ever.
being overindebted and carry-
that lawyers were required to
sales tactics by lenders, brokers
lending. The result was that
then, the residential lending
tice and stuck to the documen-
gent. Adherence to rules and
lend to their clients and knew their businesses intimately.
recent Royal Commission into
Across Australia’s banking
system, the major players have
all come under tighter scrutiny
led the banks to decline more
OPPORTUNITIES FOR PRIVATE LENDING
from the Australian Pruden-
The private funding sector is
(APRA). That’s due to findings
it is increasingly viewed as a
tial Regulation Authority
not immune to regulation, but
viable and easier option for
the purpose and character of
transaction. Clients who cannot
those looking to borrow. Today,
the individual behind the loan
prove their current earnings
the regulations of both the
private lending and the bank
The amount of red tape appli-
lending industries in Australia are similar to those in the U.S. The consumer market is very highly regulated, and private lenders can still lend to newly created businesses if
cants must get through in order to secure a loan from traditional banking institutions for residential borrowing is highly
or who may have a poor credit rating often find it impossible to secure finance. Consumers are becoming increasingly frustrated with the long and cumbersome processes and are,
regulated and prohibitive for
therefore, turning to private
many on both sides of the
funding groups to assist them.
High net worth individuals and groups looking for opportunities to invest are turning toward online platforms, which bring investors and borrowers together in private or peer-to-peer lending opportunities. All across the region, peer-to-peer lending is gaining momentum, with Australia becoming the largest alterna-
tive (online) finance market in Asia-Pacific, excluding China,
“All across the region,
up 88% from 2018.
peer-to-peer lending is gaining momentum, with Australia becoming the largest alternative (online)
The similarities between the
Q uicker approval times
due to lower regulatory requirements
interest rate include the loan purpose, size, the loan-to-valuation ratio
ty yal Lo
al ion ss
O ther considerations for
by the borrower’s credit history (risk), terms of the loan and loan assessment
Pre cis ion
Relia bili ty
er stom Cu Care
• Online Portals • Multi-lender Loans • ACH & Direct Deposit • No Note Minimum/Maximum • Property Taxes & Insurance payments • 1098’s, 1099’s, and CA 593-I’s • And more! Contact For More Information.
I nterest rates determined
Australian and U.S. private
up 88% from 2018.”
Our Services Include:
for short-term investments for commercial, industrial or residential mortgage lending or property development financing
L ower documentation
with seasonal cash flows
I nterest-only loans, ideal
lending markets are as follows:
finance market in Asia-
P erfect for companies
(LVR), exit strategy and loan term
R ates can vary signifi-
There are a small group of
to provide a financial capacity
private lenders without licenses
statement that their client can
that can still trade because
cantly from lender to
there is no controlling body;
may even be lower than
gain investors’ trust and less
lender, and in some cases
however, they are less likely to
that of a traditional bank
likely to sell loans. A common
LICENSING ISSUES Most private lenders are licensed through the Australian Securities & Investment Commission and are governed by several laws. These licenses are referred to as an Australian Financial Services License (AFSL). Once they have the
belief is that within five years all private lenders will need to be licensed with an AFSL.
ADDITIONAL COMPARISONS Generally, there are several similarities when comparing the approaches of private funding institutions in Australia to
license, lenders are required
those in North America.
to be audited for compliance
Australia’s documentation pro-
each year and must employ
cess is very similar to the U.S.
a Responsible Manager.
system. In Australia, loan docu-
That person is required to
ments are prepared by the lend-
be approved by the industry watchdog, the Australian Securities and Investment Commission (ASIC). The Responsible Manager must ensure the private lender adheres to regulations and report in a timely manner any breaches they uncover. Investors in private lending do not need accreditation or licensing in Australia.
ers’ solicitor, and the borrowers then sign them with their own solicitors as witnesses. The borrower’s solicitor must provide a certificate that states the solicitor has fully explained the contents of the loan documents. A photograph of the borrower is also obtained ensuring two
afford the repayments. Most private lenders’ funds are sourced from high net-worth individuals or family offices. These investors do not need an accreditation or license to invest in a private mortgage fund. Some private lenders in
Australia have associations
Adam Tilley has more than
with larger hedge funds and similar institutions. All loans require clear exit strategies, and private lenders are happy to lend to pay out tax debts and facilitate access to cash, which is generally not allowed by the
30 years of experience in the
property finance sector in the Asia Pacific region. He has
experience in commercial and residential property finance and, to date, has overseen
approximately AUD$1 billion of funding in Australasia.
major banks and credit unions.
Tilley started his banking
In short, in Australia, like the
and his understanding of
U.S., there are opportunities for private lenders because of the more stringent regulations surrounding traditional lenders such as banks. And although historically Australia’s private lending industry has had even fewer regulations than its American counterpart, that is starting to change. Legislation during the past several
forms of identification are
years has tightened up lending
provided and certified by their
requirements, even for private
solicitor. In addition, the bor-
lenders. Still, for those who
rower’s accountant also needs
ABOUT THE AUTHOR
career at ANZ McCaughan, finance and credit has helped hundreds of companies and
corporations reach their goals. Tilley is a Responsible
Manager of Pacific 8 and
has the qualifications and
prerequisites to provide an
extensive range of services
to all sectors of the property finance market.
Tilley has a Diploma in
Finance, a Certificate IV
in Mortgage Broking and successfully completed an ASFL course for
understand how the system works, opportunity exists. ∞
LENDER LIMELIGHTÂ WITH THOMAS STANDEN
CLIMB TO EXCELLENCE Thomas Standen IV has ascended the ladder of
success one service and one system after another. by Katie Bean
LENDER LIMELIGHT WITH THOMAS STANDEN
After stints as a firefighter, cook, waiter, housekeeper and construction laborer, a fateful broken wrist helped steer Thomas Standen IV into working at his grandparents’ business, Note Servicing Center.
company to adopt the Note Ser-
vicing Center name in 2005.
The company also has shifted
its focus over the years, to some extent hastened by the Great
Recession. Around 2007-2008,
the company stepped back from servicing all types of loans to In 2003, Standen was at a family party his grandparents, Tom and Roberta Standen, were hosting. Surprising everyone, Tom announced that he wanted someone in the family to help with the business he founded in 1984. There were no takers.
“One of Standen’s contributions to the company’s evolution is the automation of processes.”
About six months later, Stan-
den fell off a ladder while working construction and broke his right wrist. Unable to swing
a hammer, he decided to give the office job a try. Then 23,
ing loans, which resulted in “no extra benefit and just a ton of headache,” Standen said.
Today, he’s president and CEO
the automation of processes.
found he had a knack for it.
to the company’s evolution is
of Note Servicing Center.
“What I noticed as soon as we
Roberta remains the company’s
started working with brokers
director. Tom’s grandfather
wanted to know what was hap-
Thomas IV became president
Particularly when cash flow
owner and serves as a company
and private lenders is that they
died in 2015, which is when
pening all the time,” he said.
was tight during the recession, everyone involved wanted to know where the money was at every stage. Standen developed
The work that Note Servicing
an automated email system that
and that’s why we chose it,”
ever his company received a
Center does “is all in the name,
California Equity Corporation.
loans were mainly nonperform-
One of Standen’s contributions
The company was founded as
loans. At that time, purchased
Standen learned on the job and
Standen talked to his grandfa-
As the company grew, it began
Standen couldn’t imagine being
evolved into more of a white-
ther briefly about the work, but
to service more states and
stuck in an office. He preferred
label back office operation.
to work with his hands.
focus on privately originated
Those developments led the
would email lenders whenpayment. “Then that blossomed into how much we received, and then it was how we broke the pay-
ment down, and then it turned into when can you expect the
payment and how much are you going to get,” Stranden said.
Some lenders also wanted to know when a borrower was
GET TING TO KNOW THOMA S
late on payments and how
many notices the borrower
had received. While all of this was being logged in an online database, Standen said, he
discovered that many lenders
THIS OR THAT
TEXT OR CALL? TEXT, BU T NOT IF YO U’RE A CUSTOMER. IN THAT CASE, EMAIL.
weren’t keen to log in and dig up the information. That prompted
him to create email notifications for all steps of the process.
“It’s the double-edged sword,
you know—some people hate emails, and others only want
email,” he said. “You can’t make everyone happy, but they just
learn to live with being overly communicative.”
ANDROID OR APPLE? APPLE IPHONE. IT WAS MY FIRST SMARTPHONE AFTER SWITCHING FROM A FLIP PHONE. I BO UGHT SO MAN Y APPS THAT I’M JUST TOO FAR IN VESTED NO W.
PEN OR PENCIL? PEN. O W N IT IF YO U’RE GOING TO DO IT. POOL OR POKER? POOL. POOL IS M ORE ABO U T ANGLES AND MATH, AND POKER IS M ORE ABO U T PEOPLE AND READING THEIR FACES.
MOUNTAIN OR BEACH?
The latest project Standen is
spearheading is automating the loan boarding process. Lenders will work through the website
IT USED TO BE M O U N TAINS ALL THE TIME AND BEACH NONE OF THE TIME, AND NO W IT’S A MIX OF THE T WO.
COMEDY OR MYSTERY? COMEDY. I’D RATHER SIT DO W N TO WATCH SOMETHING THAT MAKES ME LAUGH AND SOMETHING THAT I DON’T HAVE TO THINK ABO U T.
to set up their loan, and the
system will notify them of the documents and information needed to complete setup.
Standen said he’s creating the system in-house, and his “big frustration” is wrangling the
different systems the company uses into communicating with each other.
ALWAYS LEARNING Though much of his training has been on-the-job, Standen took college classes while work-
MOVIE? I HATE TO DO THIS BECAUSE IT SHOWS YOU HOW BIG OF A GEEK I AM, BUT ‘AVENGERS: ENDGAME.’
PLACE YOU'VE TRAVELED? KAUAI, HAWAII, WHERE I TRAVELED WITH MY WIFE AND KIDS.
SEASON? SPRING BECAUSE IT’S NOT HOT YET BUT NOT COLD, EITHER. GUILTY PLEASURE? A GOOD HAMBURGER, SPECIFICALLY A BURGER YOU HAVE TO HOLD WITH TWO HANDS.
LENDER LIMELIGHT WITH THOMAS STANDEN
ing at Note Servicing Center to learn more about business, management, leadership and administration. He earned his MBA in 2009. “The more time I spent in the business and around the people in the business, the more you realize how important education is and staying up with regulations and things that are going on in the real world,” he said.
are what Standen says keep
Though those challenges can
Recession was one of the big-
him excited about his job.
be at times unnerving or frus-
gest challenges Note Servicing
trating, he said the challenge is
Center has faced in its 35 years
“I know it sounds odd to say, but it’s the challenge—the challenge of complying with regulations, the challenge of working with lenders, working with borrowers, working with people. And through all of these regulations, to make sure we’re still complying to make
what keeps him going. “Dealing with the everyday struggle—there is always something different, there’s always something new that you don’t know.”
PERSISTENCE AND PERSEVERANCE
sure that people are still getting
in business. “During that time, we talked about closing up shop,” Standen said, though he noted “it wasn’t a very big conversation.” Instead of closing, the team did whatever it took to keep the company going. The staff was cut to just five—Standen, his
Surprisingly, regulations and
what they deserve, what’s ethi-
Just as it was for many compa-
grandparents, an uncle and one
other demands of the industry
cal, what’s sound,” he said.
nies in the industry, the Great
The company’s growth is
“This is a tough business—it’s not always going to be fun. It’s rarely going to be easy.” — T H O M A S S TA N D E N I V
certainly worthy of Standen’s excitement.
“The amount of work we do now in a month is what we did in a
year back then. A couple of years
ago, we did that much in a week,” he said. “To sit back and see that kind of action, it’s incredible.”
ALL IN Standen’s advice to others in the industry reflects his experience. “This is a tough business—it’s not always going to be fun. It’s rarely going to be easy,” he said.
Standen elaborated on that theme: “It’s OK to make a mistake; it’s not OK to hide it, and it’s not okay to do it again. “We deal with other people’s money, we deal with their livelihood, we deal with their life, their homes, we deal with their investments. You can’t hide something that you did, even if you didn’t mean to do it, even if it was someone else’s fault. You can’t give excuses—this business doesn’t care,” he said. “When you make the mistake, you tell them how either you fixed it or you will fix it, and tell the truth, and write the check when you have to.” ∞
Lenders and originators have a long memory, he said, so there’s only one chance to make a first impression. There’s also no opportunity to take a He recalled stories of his
“We’ve been through all the
grandparents eating cereal
tough, hard times, and we’ve
for dinner. “Being the owner,
seen this type of thing play out
(Roberta) had to pay the
before. We know what actions
employees first when you need
to take in different situations
them to do the work so that we
because I’ve been through a
can keep moving forward,” he
said. “We all sacrificed to keep
Having experienced those hard
the business alive.” The lessons they learned during that time benefit the business today.
times gives Standen perspective. “It makes times like this when we have 10-12 people here … that much better,” he said.
“We already know the answers
“I’m able to reminisce about
to the questions,” Standen said.
the bad old days.”
“me” day because every day is about the clients and employ-
ABOUT THE AUTHOR
ees. In particular, he stressed that others in the industry are watching because companies like his are dealing with other people’s money. He doesn’t take that responsibility lightly, and he recalled advice from his grandfather on the subject. “My grandfather always told me there’s no right way to do a wrong thing, so everything that you do, it always has to be
KATIE BEAN Katie Bean is a former newspaper and magazine editor
who loves telling the stories of businesses and great leaders. She is based in Kansas City.
right,” he said.
CONFERENCE REVIEW 10TH ANNUAL CONFERENCE HIGHLIGHTS E a c h ye a r, t h e A s s o c i a t i o n o f Pr i v a t e L e n d e r s h o s t s t h e p r i v a t e l e n d i n g
i n d u s t r y 's l a r g e s t c o n f e r e n c e. T h i s ye a r t h e c o n f e r e n c e w a s a l s o o u r 10 t h a n n i ve r s a r y c e l e b r a t i o n , s o i t p r o m i s e d t o b e o u r l a r g e s t — a n d b e s t — ye t . We f u l f i l l e d t h a t p r o m i s e i n s p a d e s .
"We are thrilled with the success of our 10th Annual Conference. Sixty sponsors and 550 guests came together to make this our best-attended event yet, and the largest the private lending
D AY S
industry has to offer. The feedback from everyone has been tremendous. It's exhilarating to see
build on this success for next year's conference."
how my team's work throughout the year has come to fruition. We look forward to continuing to LI N DA H Y D E | Managing Director, American Association of Private Lenders
SESSIONS & AC TIVITIES
553 AT T E N D E E S
23,776 W H OVA E V E N T APP INTER AC TIONS 60
T he AAPL team with former congressman Barney Frank. From left: Craig Johnson, Presidents’
Circle; Linda Hyde, managing director of AAPL; Kat Hungerford, project development manager at AAPL; Barney Frank, former congressman; Eddie Wilson, chairman and CEO of AAPL.
L eft: From left: Jacob Sacks and
Danielle Salber of Corefund Private Lending in front of our giant Cube Stack. Photo Courtesty of Danielle Salber, Corefund Private Lending.
Right: Ray Sturm, CEO and
co-founder of Title Sponsor
AlphaFlow, during his main stage session. Ray gave listeners
never-before-heard market insight pulled from AlphaFlow’s wealth
of data analytics in the residential bridge loan market.
OUR CONFERENCE- GOERS AGREE WITH US! “AAPL has been the most impactful for us
because the owners all show up. That creates
an opportunity to go beyond biz dev and talk about company-shifting partnerships, have
candid chats about industry challenges and form relationships that can ultimately make your career. If you’re in the industry and haven’t been before, make it happen!" R AY S T U R M | AlphaFlow, Title Sponsor 2018- 2020
“This conference is the one in which key
principals of every major institution show up.
Effectively, this is a room of #decisionmakers." N E M A DAG H BA N DA N | Geraci LLP, Platinum Sponsor 2015-2020
“The AAPL Annual Conference gives our
"Appraisal Nation has attended the AAPL
while staying up to speed on best practices,
and attendance just gets better and better.
technological breakthroughs. It has been fun
lenders that use our services and nearly
growing industry these past 10 years.”
What a great place to meet all your clients
team the chance to celebrate our industry
for over 8 years now. Every year its content
legislative updates, new tax initiatives and
Appraisal Nation has over 800 private
to see AAPL grow the conference around a
half of them attend this one conference.
PAU L JAC K SO N | Residential Capital Partners, Title Sponsor 2019-2020
in one spot."
M I K E T E D E SCO | Appraisal Nation, Sponsor 2014-2019
“I have been to all the big private money
conferences over the last six years, and AAPL is truly in a league of their own. Every
prominent company in the industry is there,
and the keynote speakers are always fantastic.” JAC K H E LFR I C H | Civic Financial Services, Sponsor 2015—2019
A APL’s packed exhibit hall, which featured 60 sponsors and hosted 550 attendees.
Sponsorship sold out for the third year in a row—this year more than eight weeks ahead of the event.
Power Networking hosted by AJ Poulin of
The Mortgage Office. Participants lined up
to give 30-second elevator speeches in this
highly energetic (and LOUD) activity, spurred on by AJ and the AAPL team.
Eddie Wilson, AAPL’s chairman & CEO, during the State of the
Association, where he announced AAPL’s new ownership, online
certification courses, legislative successes, the launch of the new resource directory and more.
Top: Paul Jackson, principal of Title Sponsor Residential Capital Partners, during his main stage session. In a riveting diversion from more commonly discussed topics, Paul outlined how the
core principals of golf can be applied to private lending to ‘tee listeners up for success.’
Bottom: Our Certified Private Lender Associate course,
Thursday, Nov. 15; taught by Melissa Martoralla, Geraci LLP (AAPL’s general counsel).
CONFERENCE REVIEW L ive-prepared omelet breakfast with
mimosas and bloody marys in the AAPL Conference Exhibit Hall.
A ttendees of the AAPL/Think Realty
Presidentsâ€™ Circle Exotic Car Race Experience at SpeedVegas. From left: Marco Santarelli, Norada Properties; Eddie Wilson, AAPL;
Tom Olsen, Good Success; Michael Tedesco, Appraisal Nation; Linda Hyde, AAPL;
Rollin Hyde; Nancy Wallace-Laabs, KBN
Homes LLC; Brian Laabs, KBN Homes LLC;
Aaron Norris, The Norris Group; Jeff Levin, Specialty Lending Group; Kevin Kim,
Geraci LLP; John Beacham, Toorak Capital Partners; Melissa Martorella, Geraci LLP;
Nema Daghbandan, Geraci LLP; Ruby Keys, Geraci LLP; Craig Johnson, Think Realty; Michael Tedesco, Appraisal Nation.
F ormer Congressman Barney
Frank during his keynote speech on the impacts and outcomes of his cornerstone legislation, the
Dodd-Frank Wall Street Reform & Consumer Protection Act.
L eft: AAPL/Think Realty
Presidentsâ€™ Circle members all
decked out for their Exotic Car
Race Experience at SpeedVegas.
From left: Nema Daghbandan, Geraci LLP (AAPLâ€™s general
counsel); Kevin Kim, Geraci LLP; John Beacham, Toorak Capital Partners; Melissa Martorella,
Geraci LLP. Photo courtesy of
Nema Daghbandan, Geraci LLP. Right: For its 10th Annual
Celebration, AAPL booked the OMNIA nightclub. The sold-out and overcapacity
VIP reception hosted 250+
people for cocktails and hors
d'oeuvres, all overlooking the stunning Las Vegas strip.
AWARD WINNERS C O N G R AT U L AT I O N S T O O U R 1 0 T H A N N U A L C O N F E R E N C E A W A R D W I N N E R S As the largest and first trade association for private lenders, we have pledged to champion the private lending industry as a viable alternative to conventional finance and to promote the industry’s reputation and future growth. We believe, as part of that mission, that it’s crucial to recognize those in the industry who look beyond their own businesses to elevate the private lending profession. Our Excellence Awards showcase peer-nominated members who have leveraged their resources to solve problems, advance the industry and professional performance, kick-start innovation and improve their communities. We announce the winners—by popular vote—at our Annual Conference. 2019 saw 12 nominees, narrowed to four winners.
During the single month that online voting was open, these winners earned a combined 631 votes and A APL’s Annual Excellence Awardees. From left: Michael Tedesco, Appraisal
Nation, Service Provider Member of the Year; Nathan Schinder, Peerstreet,
The 2019 awardees are below, but first: 2020 nominations
Noble Capital, Private Lender Member of the Year; Jacob Therrien, Bridge
awardees will also be featured on the nomination page
Community Impact; Linda Hyde, AAPL managing director; Chris Ragland,
are now open at aaplonline.com/awards. Our 2019
Loan Network, Rising Star; Eddie Wilson, AAPL chairman & CEO.
until 2020 voting opens on September 1.
R I S I N G S TA R From Jacob's nomination:
What Jacob had to say about it:
expansion and evolution in the private lending space
the American Association of Private Lenders and their
“Jacob has been a major factor in the company’s
this year—Bridge Loan Network now has 251 active
lenders and close to 2,000 active brokers. He’s worked diligently to ensure users understand everything the platform has to offer.” JACO B T H E R R I E N
Bridge Loan Network
— Erica Sikoski, RCN Capital
“When I first came to Bridge Loan Network, it was clear members were the gold standard in the industry. The
Annual AAPL Conference and The Excellence Awards shine a bright light on the amazing work done by lenders and
service providers in the space. Being awarded this year’s Rising Star at the 10th Annual AAPL Conference was
beyond humbling. The opportunity to stand on stage
amongst the leaders of our industry and be recognized for all our hard work was truly gratifying.”
MEMBER OF THE YEAR, LENDER From Chris's nomination:
What Chris had to say about it:
in getting its message out. Though credit is due to
by AAPL, but the credit goes to the amazing team of
“This year, more than ever, I have seen AAPL succeed the effectiveness of its leadership, this year Chris has
been one of those unique variables that has propelled AAPL’s value to its members, brand awareness and overall significance.” C H R I S R AG L A N D
— Romney Navarro, Noble Capital
“It was a true honor being named Member of the Year people at Noble Capital. Our team has worked with so
many of our peers and strategic partners to further the continuing education programs, advocacy of healthy legislation, and town hall meetings of AAPL. It’s an
exciting time to be contributing and involved, and I look forward to the years ahead.”
MEMBER OF THE YE AR, SERVICE PROVIDER From Michael's nomination:
What Michael had to say about it:
contagious. He’s at the forefront of what’s going on
of The Year. Appraisal Nation has spent the last decade
“Michael brings a passion and expertise that is
in the industry, bringing his one-step-ahead insight to his clients and colleagues and providing a much-needed service to private lenders and their business processes.” M I C H A E L T E D E SCO
“What a humbling honor being named Service Provider dedicating our service and process to making valuations
for private lenders more reliable with less risk. This award signifies that all of the hard work protecting our clients has not only been recognized but appreciated.”
— Valley Matlaga, Appraisal Nation
C O M M U N I T Y I M PAC T From Nathan's nomination:
What Nathan had to say about it:
product that has a direct impact on borrowers’
of PeerStreet's impact on communities across the country.
“Nathan led the charge in opening up a new loan ability to purchase and make more properties available for rent. The widespread impact in communities is palpable.”
— Rabekah Jack, PeerStreet N AT H A N S H I N D E R
“I was honored and humbled by AAPL's recognition AAPL's Excellence Awards highlight the meaningful
and lasting changes that an industry known for ‘fast
money' can—and should—have, with honest people
utilizing technology innovation to serve and improve our communities.”
2020: WHAT’S ON TAP FOR LENDERS The housing market holds its own amid economic and political challenges. by Robert Greenberg
continue to be challenges, just
As the nation’s economic
lackluster busiment, a volatile
equities market and politi-
cal uncertainty could create economic challenges in the
new year; however, the real estate industry—and the
lending market that supports it—remain on relatively firm footing.
as they were in 2019.
expansion enters its eleventh straight year, Fannie Mae
predicts real gross domestic
product growth to be around 1.9% in 2020, aided by the
return of accommodative fiscal policies, easing trade tensions and healthy consumer spending. In other words, decent
That’s not to say there won’t be
but not spectacular economic
lenders, real estate investors
the year ahead.
challenges in 2020 for private
growth appears to be on tap for
and others who make their
Volatility—be it in foreign
living supporting the real
estate investment market.
Indeed, constrained inventory
and affordability concerns will
trade or in the equity mar-
kets—was the norm during
much of 2019, but even with
such unsettledness, the hous-
ing market picked up strength during the second half of the year. In a late-year housing commentary, Fannie Mae noted that residential fixed investment grew in the third quarter of 2019 by a strong 5.1% annualized pace amid contributions from single-family housing construction, home improvements and brokers fees.
THE MORTGAGE MARKET For lenders, there’s stability, but not much growth expected in the mortgage market as the new year dawns. The Mortgage Bankers Association (MBA) expects total mortgage originations for 2019 to total about $2.06 trillion—the best since 2007 (which saw $2.31 trillion). Going forward, the MBA predicts a decline in total originations for 2020 to $1.89 trillion. The forecasted decline is attributed to an expected fall in refinances. A global economic slowdown coupled with political uncertainty kept mortgage rates in 2019 below experts’ forecasts, which gave refinances a big boost. Some of that refinance activity is expected to spill into the first half of 2020, according to Mike Fratantoni, MBA’s chief economist and
senior vice president for research and industry technology. Continued low mortgage interest rates will be good news for the real estate investors that private lenders count among their core clients. Should interest rates remain low, investors may be more inclined to continue using financing as opposed to all-cash purchases in the fix-and-flip and rent-to-hold segments of the housing market, especially in markets where home prices have reached new highs. This feels like really good news for private lenders. The most recent data available from ATTOM Data Solutions shows that for third quarter 2019, financing on investor residential real estate deals dipped to 41.5% compared to 46% in the year-ago period. Still, higher-cost cities showed higher rates of investor financing. San Jose, California, had the highest rate of investor financing (59.4%) followed by Providence, Rhode Island (56.9%), Seattle (56%), Boston (54.9%) and San Diego (53.4%). Profits in the home-flipping business are down. Investors reported a 40.6% return on investment in third quarter 2019 compared to the original acquisition price, down from a 41.1% percent gross flipping ROI in second quarter 2019 and
down from 43.5% in the third quarter of 2018.
REALTOR.COM FOREC A S T FOR KEY HOUSING INDIC ATORS Housing Indicator // Realtor.com 2020 Forecast Mortgage Rates // Average 3.85% throughout
the year, 3.88% by end of year
Existing Home Median Sales Price Appreciation // Up 0.8%
Existing Home Sales // Down 1.8% Single-Family Home Housing Starts // Up 6% Homeownership Rate // 64.6%
As projected and realized profits on home flipping dip, some real estate investors are turning more of their attention to the buy-and-hold rental market. Many private lenders are keenly aware of this and have scrambled to fine-tune their lending programs in order to better serve the buy-and-hold market.
The MBA’s mortgage credit availability index rose for three straight months from September to November 2019 (Decem-
ber statistics weren’t available at press time), an indication
that credit was loosening as the
year drew to a close. The jumbo index climbed to a record high,
as investors showed a penchant for buying purchase loans with lower credit scores and higher LTV ratios, the MBA said.
HOUSING PRICE INCREASES TO DECELERATE Affordability will continue to be a major issue for the
housing market throughout
home prices growing at a more
supply enters the pipeline via
2020. Single-family homes
modest rate. This should be
new construction but amid
and condos sold for a median
good news for housing afford-
tight inventory. Slowing price
price of $270,000 in the third
ability. Due to housing price
growth coupled with contin-
quarter of 2019, up 8.3% from
appreciation, tight inventory
ued low mortgage rates bode
2018 to a new high, according
and stiff competition with first-
well for the housing market,
to ATTOM Data Solutions.
time homebuyers, real estate
especially for millennial first-
Median home prices, the real
investors have faced acquisition
time homebuyers and investors
estate data company said, were
challenges, especially at the
operating in the affordable
not affordable for average wage
highly competitive affordable
earners in 74% of the counties
end of the housing market
Realtor.com predicts home
it studied nationwide.
where many real estate inves-
prices will fall in a quarter of the
Price acceleration wonâ€™t hit
the brakes entirely in 2020,
However, housing experts
kets, including Chicago, Dallas,
although experts expect a
expect modest price increases
Las Vegas, Miami, St. Louis,
tapping of the brakes with
in 2020 as additional housing
Detroit and San Francisco.
100 largest metropolitan mar-
HOME SALES TO DIP Realtor.com also predicts that sales of existing homes will dip by 1.8% in 2020. The shortage of homes for sale could become particularly acute, perhaps even the worst in U.S. history, once the nation hits the spring/summer home buying season when more millennials are expected to enter the market. Lack of inventory is expected to continue to be a significant challenge for real estate investors in 2020.
HOUSING AND INTERES T R ATE FOREC A S T, 12/03/2019 Housing Activity Total Housing Starts
New Single Family Sales
Existing Single-Family Home Sales
Federal Funds Rate
90 Day T Bill Rate
Treasury Yields: One Year Maturity
Ten Year Maturity
Freddie Mac Commitment Rates: Fixed Rate Mortgages
Data are averages of seasonally adjusted quarterly data and may not match annual data published elsewhere. Source: www.housingeconomics.com
ABOUT THE AUTHOR
ROBERT GREENBERG Robert Greenberg is Patch of
Land’s chief marketing officer.
The inventory challenge has
strong. That is good news for
homeowners who are staying
this market. Rental housing
means they aren’t putting
for millennials priced out of
also been exacerbated by
private lenders catering to
in their homes longer, which
will remain a good option
inventory into the first-time
the market or who desire to
homebuyer pipeline. The typ-
years in their home before sell-
HOUSING’S DOWNSIDE RISKS
ical homeowner now stays 13
ing or trading up, according to
Redfin. That number was eight years in 2010, Redfin reports. The growing phenomenon of “aging in place” has also had
the effect of reducing the number of homes for sale. Freddie
Mac says homeowners between the ages of 67 to 85 are remaining homeowners longer and
are causing a shortage of 1.6 million homes.
Besides homebuyer demand,
demand for rental housing of all types also remains very
The presidential election, meanwhile, is getting into full swing with a slew of Democratic
candidates campaigning. On the Republican side, the eventual election impacts of President Trump’s impeachment trial
acquittal remain uncertain. Besides political risks, consumer concerns about an
economic cycle long in the
tooth and consumer caution
that is inevitable in an election
year is a downside risk for the housing market. Although there isn’t a direct connection between a presidential election and the housing market, it is a potential wild card, realtor.com says in its Housing 2020 Forecast. “Business optimism and investments, along with consumer confidence and spending do influence economic output, and can also influence housing activity,” the report notes. “The 2020 elections will be closely watched by consumers and businesses for indications of potential changes.” Overall, it may be much of the same for the national housing market with supply-demand and affordability driving some housing markets to thrive and others to contract. ∞
His professional experience
includes more than 25 years in marketing working with
familiar consumer brands such
as Pepsi-Cola, Anheuser-Busch and Sara Lee as well as B2B
experience in retail, technology, finance and real estate.
Recently, Greenberg led the marketing efforts for B2R
Finance, where he helped
originate more than $1 billion
of real estate investor loans that led to the industry’s first-ever multi-borrower single-family
rental securitization. At B2R, he was responsible for branding, corporate communications,
lead generation and integrated marketing efforts. He was
responsible for leading the development and imple-
mentation of the marketing
automation and CRM platform that helped to deliver sales
management and operational efficiencies to enhance the
customer experience for real estate investors nationwide.
Combining strengths to bridge industries. DEEP INDUSTRY CONNECTIONS. Weâ€™re partnering to help you build relationships across the REI landscape. A WEALTH OF EXPERTISE. Looking for a leg up? We have the answers that will catapult your business. EXPANSIVE MARKET REACH. Step into the spotlight with media that reaches tens of thousands weekly.
Join today at aaplonline.com/presidents-circle.
Is Your Loan Enforceable in Bankruptcy Court? by Alexa Stephenson, Esq.
With bankruptcies on the rise, it is important for lenders to know the ins and outs to ensure full repayment.
former heavyweights such as
Barneys New York and Sugarf-
Forever 21, Payless Shoesource,
ina increase, the next economic
filings nationwide appear to have increased to a record high for the fifth year in
a row. Granted, the number
of bankruptcy filings in 2019
surpassed 2018 only by a nom-
inal 0.16%, with the American Bankruptcy Institute reporting 704,414 filings through
November 2019 compared to the 703,283 filings through
November 2018. Still, as the
number of Chapter 11 petitions and bankruptcy filings by 74
downturn may be just around the corner.
ruptcy filings, foreclosures and repossessions in 2019. Montana and Georgia had over 30% more foreclosures statewide in 2019. Foreclosures in San Antonio, Texas; Portland, Oregon; and
For some areas in the U.S., the
Tucson, Arizona, were up over
rather than later. While
foreclosed on one in every 500
downturn may come sooner
median real estate list prices are down a few percentage
points nationwide, 23 states
saw record increases in bank-
ruptcy filings in 2019. Arizona, California, Florida, Georgia,
21%; and lenders in Maryland housing units.
WHY SO MANY BANKRUPTCIES?
Illinois, Maryland, Michigan,
So, why are we experiencing
witnessed increased bank-
of bankruptcy filings and
Montana, Oregon and Texas all
the record-breaking number
foreclosures that are slowly inching their way up to Great Recession levels? The American Bankruptcy Institute reported that personal expenditures have steadily increased since 2010, rising over $13.4 trillion by the end of 2019. With these expenditures inevitably comes an increase in consumer debt. As more consumers accumulate debt and fall behind on their payments, bankruptcy can be seen as a way to delay repayment. Indeed, many experts speculate that the current economic climate can be seen as the
result of a combination of increased spending, reduced interest rates, less stringent credit lending requirements, reduced business investment spending and trade conflicts. While the true reason is up for debate, all experts seem to agree that bankruptcy filings are steadily increasing, with no end in sight.
WILL I GET REPAID?
(like the property you took as collateral for the loan).
that your lien will be stripped
the ins and outs of bankruptcy to ensure you are repaid in
Although borrowers have a
Generally, you can and will be
to choose from, there has been
ruptcy case. If the debtor or
than ever for lenders to know
full. It is no secret that filing bankruptcy is a tool that borrowers do not hesitate to use to temporarily drag out or halt a foreclosure sale. Borrowers flock to the bankruptcy court to take advantage of the automatic stay that requires creditors to maintain the status quo the minute the bankruptcy petition is filed. The automatic
With ever-increasing chances of defaulting borrowers filing bankruptcy to avoid repaying their loans, it is more important
stay prohibits the creditor from taking any action against the debtor (i.e., the borrower), the estate and the debtor’s property
range of bankruptcy chapters an unprecedented increase
in Chapter 11 filings, which
involve a more complex set of procedures for both borrow-
ers and creditors. As a result,
secured lenders like you must deal with a longer and more
expensive time period before
you will be repaid in full. But, the news is not all bad—con-
trary to popular myth, if your borrower files bankruptcy, it does not automatically mean
or discharged in its entirety. paid in full through a bank-
trustee don’t take any action, you will be able to collect
default interest, late fees, principal, attorney’s fees and other costs—provided, of course,
that these charges are included in your loan documents. Most secured liens can get through bankruptcy unscathed and
are paid in full by the collateral being sold in the bank-
ruptcy case or when the lender forecloses after getting relief WINTER 2020
from stay or the case being
“Another myth is that your lien will be stripped (i.e., reduced) any time your borrower files bankruptcy. This is untrue.”
dismissed. As always, however, there are some exceptions.
INTEREST RATES, ATTORNEY FEES AND LIEN STRIPPING It is important to note that the bankruptcy court will enforce whatever state law governs your loan documents. For example, high rates of default interest in California may be deemed an unenforceable penalty that
AUDIT, TAX & FUND ACCOUNTING Over 20 years of experience working with Private Lenders
A Strategic, Innovative & Responsive Partner Spiegel Accountancy Corp is a full-service CPA firm, specializing in real estate & private lending. spiegelcorp.com | (925) 977-4000 | firstname.lastname@example.org
cannot be charged on the loan under California state law. And, if you cannot charge high rates of default interest in state court, then you will not be able to charge that same default interest rate in the bankruptcy court either. If the debtor or trustee file a claim objection or adversary proceeding, you can find yourself fighting to keep the default interest and proving to the court that the default interest is rationally related to the damages you incurred when the borrower defaulted on the loan. Similarly, if your attorney’s fees provision in your note and deed of trust are not broad enough or are subject to a “reasonableness” requirement, the debtor may object to the inclusion of certain fees in your payoff demand in the bankruptcy court. As with most litigation, careful underwriting will prevent headaches in court later. Another myth is that your lien will be stripped (i.e., reduced) any time your borrower files bankruptcy. This is untrue. Debtors can strip or reduce your lien only in certain circumstances, which are by and large not the norm. For example, debtors can only strip a lien when the creditor is undersecured (i.e., the debt owed to the creditor exceeds the fair market value of the collateral). If the property securing your lien has
plenty of equity, you don’t need to worry about the debtor successfully stripping your lien. Furthermore, debtors are
prohibited from stripping
undersecured liens in Chapter 7 cases and cannot strip first
position liens secured by the
debtor’s primary residence in
a Chapter 11 or Chapter 13 case.
Also, in Chapter 11 and 13 cases, debtors cannot strip junior
liens secured by the debtor’s
primary residence unless the
junior lien is totally underwater. In other words, if there’s
some value in the property over and above the amount of any
lien senior to yours, you don’t
need to worry about the debtor
successfully stripping your lien. As you can see, the many exclusions on lien stripping prohibit your borrower from reducing
your lien balance as soon as a bankruptcy case is filed.
Overall, the general rule is that a secured creditor’s lien “rides through” bankruptcy unaffected. Nevertheless, you should still take affirmative steps to protect your claim, including, but not limited to, filing:
01 P roof of Claim to ensure the debtor, trustee and judge know how much you are owed as of the date the bankruptcy case was filed.
02 A n objection to the
debtor’s proposed plan to repay its debts if the plan does not propose to pay you in full.
03 A motion for relief from stay to allow you to continue to foreclose and/or collect against your borrower.
04 A n adversary proceeding complaint to deem
your debt nondischargeable so it will exist after the bankruptcy case is closed, especially if you are holding unsecured debt. Given that the average bankruptcy case (if the borrower is unsuccessful in reorganizing and repaying its debts per the proposed plan terms) is less than one year, having an appro-
priate strategy in place is crucial to ensuring you are repaid in full and as quickly as possible. Moreover, as bankruptcy
filings continue to increase nationwide, knowing the ins and outs of the bankruptcy court, your rights to be repaid in full per the terms of your loan documents and your procedural options are more important than ever. As Benjamin Frank-
ABOUT THE AUTHOR
ALEXA STEPHENSON Alexa Stephenson is an asso-
ciate attorney in the litigation and bankruptcy department
of Geraci LLP, AAPL’s general
counsel. Stephenson has more than three years of experience
helping investors, lenders, loan servicers, foreclosure trustees, brokers, real estate agents,
creditors, businesses, officers
and directors with a vast array
of legal and compliance issues in state, federal, bankruptcy and administrative actions.
lin said, “By failing to prepare, you are preparing to fail.” ∞
LETTER FROM THE EDITOR by Kat Hungerford
t’s officially been a year since we
launched the Gov-
Committee. With that launch, we added advocacy to our
pillars, becoming the private
lender association for educa-
tion, advocacy and ethics.
As we closed out our first year as an advocate for the industry, we looked at our successes and struggles, evaluated how we might shore up our weaknesses, and thought long and hard about our strategies. Of paramount importance was appraising the ROI of our grassroots methods and considering what we might achieve by adding a lobbyist to our strategy. I’d like to delve into that discussion more, but first, the spoiler: We will continue to grow our groundswell efforts and reserve lobbying efforts for select needs that grassroots initiatives cannot easily fill. That decision is largely because of you, our members. But it’s also due to the position the private lending community currently holds within the larger financial industry. In early 2019, we convened on Capitol Hill, meeting with the offices of several senators on the Committee on Banking, Housing and Urban Affairs
“When our private lender cohorts met on Capitol Hill and in Florida and told their stories, staffers and legislators alike began to lean in.”
lenders tell the story of who they are and what they do. Our membership is not made up of faceless and publicly held entities. Rather, it consists of small, privately held business owners who, through hard work and care, have grown the industry to the size it is today. We are people who care about the communities in which we operate and who see firsthand that our financing serves more than the immediate borrower
and the Committee on Finance to discuss the Dodd-Frank Act and HMDA reporting
requirements. At the state level, we met with several Florida
legislators during our fight to
A fter private lenders have
and property. It also buoys
fulfilled their purpose,
local jobs through the largely
are the end lienholder via
of the loans.
institutional lenders often
These are not narratives that
P rivate lenders, more so
come across as genuine when a
loans, a piece of legislation
blighted and distressed
our private lender cohorts met
have snowballed to other states.
short-term loans to fix-
and told their stories, staffers
term loans to landlords.
lean in. It’s a powerful—and
prevent mortgage licensing for residential business-purpose
than banks, help recover
lobbyist presents them. When
that, if passed, would likely
properties by financing
on Capitol Hill and in Florida
and-flippers and long-
and legislators alike began to
Through these conversations with policymakers, we
found that legislators do not understand the following about our industry:
B usiness-purpose loans
secured by real estate
are not the same as consumer mortgages.
T he scale of our
industry is in the
hundreds of billions. V ia the American Associ-
ation of Private Lenders, we are self-regulated.
positive—feedback loop. In the case of Florida, it’s why the mortgage licensing requirement for all residential loans remained absent in the governor-signed HB 7103 despite its presence in its Senate compan-
This educational hurdle sub-
ion bill, SB 1730.
P rivate lenders fill a mar-
stantively encompasses most
Beyond that, private lenders
lenders cannot—and will
found that surmounting it is
ket gap that institutional
of what our industry is. We’ve
most successful when private
can do something more than
share their own stories: We can bring our business-purpose
borrowers into the conversation with us. When it comes to keeping operational costs low and closings speedy, private lenders and real estate investors are usually on the same page. When our cost of doing business increases–and vice versa– so too does theirs. Licensing requirements, increased taxes, reporting to consumer loan regulators—all mean less money and opportunity available to do what we do. Not many institutional lenders can invite their clients into a
room and have those clients passionately and honestly argue for less governmental oversight. And again, it’s the kind of stance that only rings true when not repeated as hearsay. Outside of the in-person advantages of grassroots, there’s nothing like hundreds of calls and emails from people who vote or invest in a state to make a point. When legislators hear that local constituent votes, affordable housing improvements and both whiteand blue-collar jobs are on
Expand Your Investor Loan Business Residential Business Purpose Loans are serving a rapidly changing market. You need to align your lending business with a reliable investor partner. Verus is an experienced investor that will help you boost your Bridge, Renovation, Ground Up Construction and Term Rental loan business.
You keep the borrower relationship, Verus buys the loan.
Jeff Schaefer email@example.com Call: 202-534-1821
One note: Our Government Relations Committee is firmly entrenched in cause, rather than political, advocacy. We do not show support or lack thereof for individual legislators. We do not tell our members who to vote for. We do not send money to reelection campaigns. We support or oppose legislation based on whether it is advantageous to the private lending industry. Although our educational efforts on the impacts of a bill may influence how our members and allies later fill their election ballots, our role remains to educate on issues. Added to that, strategically speaking, causes are often more long-lived than legislators’ office terms. Supporting or opposing causes rather than people lets us maintain a relatively neutral position when
++++++++++ ++++++++++ ++++++++++ ++++++++++ ++++++++++ ++++++++++ ++++++++++ ++++++++++ ++++++++++
Contact Mark Dellovo or Jeff Schaefer Mark Dellovo firstname.lastname@example.org Call: 202-780-1093
the line, what we have to say suddenly falls on very attentive ears. Although private lenders finance loans across the nation, it’s important to remember that these loans are rooted in real property. The much-lauded “all politics is local” phrase is never truer than for the private lending and real estate investment industries.
speaking on behalf of those
causes or encouraging grass-
roots contact campaigns.
Contact campaign efforts pro-
vide similar education opportunities as in-person meetings do. It’s not just the implication of
callers perhaps voting or donating to a legislators’ reelection
opponent or the stagnation of
private lender money into local economies; it’s the ability to share our story.
Despite the black-hat reputation of the lending industry, private lenders truly have
hero stories to tell— stories
that pass muster on both sides of the partisan aisle. It bears
repeating, but our challenge is
not necessarily that legislators
oppose us, but that they do not know about or understand us.
A groundswell of people shar-
ing the impact of the good that they do puts truth in numbers
behind the efforts of individual
sion on whether private lenders
As the largest trade association
reactive or proactive approach
tioned to quickly get the word
Throughout 2019 and fore-
lenders’ voices are heard. It’s
primarily reactive. We monitor
ate about because, above all,
eral and state levels, then mobi-
safeguard the private lending
bills applicable to member and
to conventional finance.
It’s a position that served us
in-person meetings. for our industry, we’re posi-
would be better served by a to advocacy.
out and ensure that private
casting into 2020, our focus is
a role we are fiercely passion-
proposed legislation at the fed-
our goal is to promote and
lize grassroots efforts when
industry as a viable alternative
industry interests surface.
While all this is the reason our Government Relations Committee and legislative advocacy
well as we built the Government Relations Committee, created relationships with
efforts have seen success in
potential ally organizations to
strategy (we even have a
the best methods for reaching
our ever-developing grassroots petition platform now at aaplonline.com/petitions!), we recognize that lobbyist efforts will likely hold a very carefully evaluated role in select future initiatives.
extend our efforts and learned and working with legislators— all while avoiding biting off more than we can chew.
Strategically, it sends a message to legislators and the pub-
lic that our first forays into
advocacy have been successful. We can’t afford to make a big show backed by weak effort if we want to enter this new arena on the right foot. As a trade association and industry we want a reputation of choosing our battles well—and when it really matters.
Washington, D.C., for our second annual Day on the Hill, along with our fight on New York Senate Bill S3060E (check out the special section on page 7 if you haven’t already), and the likelihood of Florida mortgage licensing regulation raising its head again.
Proposing new legislation proactively is an entirely different kind of effort. It’s one that, to be truly successful, requires deep knowledge of the internal workings and politics at play in state and federal capitals. Known quantities get further, with less time, hassle and money required.
Stay in the loop with everything we’re up to—and how you can help—by signing up for email updates at aaplonline.com/gov. ∞
Turning to lobbyist organizations is a good strategy when it comes to bill-proposal efforts. However, lobbyists do not come cheap, and our association has more activities than just advocacy to complete on behalf of our members. Over the next few years, we’ll be exploring the specific legislative action we want to take, along with the best outfit with which to work. As with our grassroots efforts, we will take a cautious approach to ensure that our first forays find fruition rather than failure. This year, our advocacy efforts are already well underway, with plans to reconvene in
ABOUT THE AUTHOR
KAT HUNGERFORD Kat Hungerford is executive
editor of Private Lender and
project development manager at the American Association of Private Lenders. She spe-
cializes in operations, project management and market-
ing. Hungerford also acts as
secretary for the association’s Government Relations Com-
mittee, which serves as AAPL’s advocacy arm in state and federal legislatures.
This role specifically harkens back to the ever-present discusWINTER 2020
MARKETING & SALES
12 Company Brochure Writing Tips
prospects to your website, but a brochure consolidates all your important sales information in one place. Brochures also
support other advertising and
online promotions and can be used as a sales tool by other
team members or associates. With that in mind, here are
12 tips for writing an effective
by Ruby Keys
01 K now Your Audience // Write your brochure
from the reader’s point
The best marketing strategies are multichannel strategies, meaning they incorporate both digital and physical tactics. Multichannel marketing can help you attract and keep consumers by giving them consistent, valuable information wherever they’re interacting with your company—online or in person.
of view. This means the
information must unfold in a way that makes
sense even to someone
who has just been introduced to your business. Analyze what your
reader wants to know
by assessing the order in which your reader’s
questions will flow and
organize your brochure You know the value of your private money lending business, but others may not. Physical marketing collateral like brochures can help communicate that value to customers
First, it’s to establish credibility. People expect legitimate
businesses to have printed sales literature. Anyone can print
business cards and a letterhead, but if you want to look profes-
and business partners. Custom-
sional, you need a brochure.
ers, particularly in the lending
Second, printed marketing
industry, are cautious about who they trust to do important business with. A company needs printed marketing materials for two main reasons. 82
materials save time. People
want printed material they can take home or to their offices
and read and review in their
own time. Yes, you can direct
in a logical sequence
following the reader’s train of thought. For
example, imagine you’re working with a real
estate investor who is
new to the business and has never worked with
a private lender before. You want to push your readers to schedule a
meeting, but given the nature of the business, your reader will need
rough price points answered before they sit down with you. Your brochure can answer those questions and give them information that is enough to get going and take an in-person meeting or call.
02 P ut Your Best Foot
Forward // The first page your reader will see is the front cover. You want it to motivate the reader to look inside. Avoid technical jargon. Instead choose benefits-oriented, thought-provoking statements that make the reader want to know more. Grab your reader’s attention by teasing special features like exclusive invitations or free reports. Don’t be tempted to just put your company logo on the front. Although it seems like a clean design idea, it won’t catch your audience’s attention.
03 I nclude a Contents
Page // When brochures are eight pages or more, a table of contents is useful. Your list should be bold and separate from the rest of your text. Use it to sell the brochure. Rather than
naming sections of the
brochure with titles like
“introduction,” pick your most important sales point and use that in your heading.
04 Describe Your Services //
To write an effective service description, begin by listing your product features and adding the words “which define that…” after each point. Remember that
the reader may not be familiar with your services or industry.
05 M ake it last // Putting
helpful information in your brochure will encourage your reader to keep it or share it with others. For example, lenders in the real estate industry can provide a list of investment incentives for specific neighborhoods.
06 G et Creative with the
Shape // There is no law stating all brochures must be A4. Using your imagination to design your brochure can help you see better results.
According to Direct
Magazine, a recent
mailing by a company
that conducts customer satisfaction surveys for
car insurance firms and repair shops saw an
above-average response rate of 15% with a brochure delivered in a 32-ounce sports water bottle. The headline read: “Thirsty for more repair orders?” Don’t be afraid to think beyond the trifold.
07 A dd a Personal Touch // Experienced speakers choose a face in the crowd and speak to that face. Establishing WINTER 2020
MARKETING & SALES
a connection with one
your world by painting
love investing. Don’t
to make their talk more
brochure for a wood-
them things that don’t
person allows a speaker personal than if they
were addressing a mass of faces. In the same
way, the words in your brochure should use this technique and
speak to one single imaginary person.
a picture for them. A
burning stove doesn’t need to describe how
the stove works. Tell your reader about chilly, rainy afternoons and let them
picture how happy they’ll be when they purchase one of your stoves.
08 S et the Scene // Don’t
09 G et to the Point // Most
too technical. Instead,
know the history of your
let your brochure sound invite your readers into
people don’t need to company, or why you
waste their time telling convey a benefit.
10 F ocus on Your Reader // Similarly, don’t get
caught up in your interests. Stay focused on your reader.
For example, here is an excerpt from an
is a complicated busi-
ness. Our company was formed in 1975 to help
our clients deal with the
looking for. Provide clear headlines throughout the brochure that catch your readers’ eyes.
12 C all to Action // Regard-
less of how you organize or design your brochure, it must end in a call to action. If you want your reader to contact you, include a phone number, email address and your website URL. To increase your brochure’s effectiveness, you should have this information on every page. ∞
process of finding the right insurance to suit
their needs. In the last
20 years, we have been selling insurance to a
ABOUT THE AUTHOR
wide range of custom-
ers from many different
walks of life. Our company’s reputation is unsur-
passed in the industry...” Bad. This insurance
company isn’t telling
their readers how they can solve their prob-
lems; they’re just talking about themselves.
11 D irect Your Reader // A brochure should be organized so readers can flip through the
pages and easily identify the information they’re 84
RUBY KEYS Ruby Keys joined Geraci LLP,
AAPL’s general counsel in 2015 as the marketing coordinator for Geraci Law Firm. As
she enters her fifth year with Geraci, she is now the vice
president of Geraci Media, a
full-service marketing agency, which caters to the non-
conventional lending space.
The Â® Your Ultimate Lending Platform
LENDERS TO FACE MORE TECHNOLOGY-DRIVEN CHALLENGES IN 2020 These external threats demand that companies invest significant resources to protect their customers and their businesses. by Marty Coyne
The list of challenges private lenders will face in 2020 is daunting. No longer will having a competitive product, the lowest rates or fastest turnaround time be enough. No longer will hiring the right sales manager, getting the LOS/CRM customized correctly or solving the lead flow dilemma equate to “being done.”
TRANSACTIONAL BEHAVIORS AND EXPECTATIONS It’s true that lenders have always had to adjust to changing economic environments. But the continued evolution of borrowers to online consumers is clearly the biggest driver changing the entire financial sector. Personal relationships and
Those internal decisions are
focus externally too. And
core to the ultimate success
those external threats will
of the business, but private
require more resources and
lenders in 2020 will need to
focus than ever before.
loyalty, face-to-face conversations and trusted sources are being largely replaced by online forms and chats with some faceless entity in the
cloud. Clunky processes, delays and paperwork are just not acceptable to today’s consumer seeking instant gratification. Amazon has changed retail profoundly. It has also redefined speed and convenience and removed the need for being local. Every business, including private lenders, must come to terms with this new reality. A flawless online presence, offering a seamless, convenient and hassle-free user experience and the ability to deliver on-demand information—whenever, wherever and on whatever device the consumer chooses—
is the expectation, not the exception. Borrowers make decisions, evaluate credibility, judge viability and even trustworthiness based on a brand’s online presence and functionality. It’s also worth noting that consumers are not quiet about their interactions with companies. In the past, they would have just gone elsewhere if they’d had a subpar experience. Today, consumers often want to take the “offender” down, as if that is some badge of honor. Lenders who do not pay attention to
brand reputation, online forums, social comments, ratings sites and reviews create a gaping hole in their sales funnel.
ENTER GOVERNMENT CONTROLS The changing paradigm of this consumer migration online has profound effects downstream. As more and more business is conducted online, it’s not surprising that government has jumped in to secure tax revenue.
It also follows that where government goes, regulation is sure to follow. More revenue, more consumers, more regulation. Lenders understand quite well what government oversight and regulation can mean under the name of consumer protection. 2020 is an election year, so the dialog on this subject will be front and center as the campaigns heat up. Meanwhile, regulation focusing on privacy, online consumer data and protected personal information has taken the next
step in the U.S. with the implementation of the California Consumer Privacy Act (CCPA). All businesses, regardless of location, need to understand this law, as many states are in the process of adopting similar legislation. Lenders need to make sure their privacy disclosures, terms of service, technology and processes are aligned to ensure compliance. There are a number of resources available online to get up to speed.
“As more and more business is conducted online, it’s not surprising that government has jumped in to secure tax revenue.”
We’re Picky Too. Originating Only High Quality Loans
Call For Investment Opportunities Call For Investment Opportunities 703-260-9620
BAD ACTORS As government chases the unprecedented influx of capital into this brave young online world, bad actors have too. They are outpacing would-be legislation, and they are hitting e-tailers, financial institutions (including private lenders) and even tech companies by attacking gaps and a lack of readiness. Data breaches are common, and almost expected. No company, it seems, is immune. From Yahoo to Marriott and Equifax to the federal government even the most sophisticated and secured systems have been compromised. Wherever there is money, bad actors are sure to be attracted. Protecting infrastructure and following best practices related to data security must become a priority, regardless of the size of your enterprise. While CEOs may not understand the technical details, they can certainly ask their teams about risk, preparation and where their efforts are reflected in the budget. Perhaps the most sinister threat to lenders comes from scammers. Scammers impact private lenders in several ways.
The direct crime against borrowers is obvious, but beyond that, scammers drown out and dilute marketing efforts by flooding email boxes, texting and calling borrowers incessantly. Worse yet, they attack the entire private lender marketplace by eroding confidence in these alternative capital sources as more victims come forward. Lenders must educate themselves about how scammers operate. They need to understand romance scams, phishing and tech support scams. And, they need to help educate borrowers. FINRA’s Investor Education Foundation, the BBB Institute for Marketplace Trust, and the Stanford Center on Longevity published a study suggesting that people are much less likely to lose money on a scam they encounter if they’ve heard about it before. So, lenders must spread the word about scams. Some of the tools they can use in this educational campaign are email, blogs and podcasts. These efforts serve the public and establish brand trust. In fact, reducing scams extends beyond consumer protection; doing so reinforces consumer confidence in alternative capital sources.
www.walnutstreetfinance.com WINTER 2020
ABOUT THE AUTHOR
MARTY COYNE Marty Coyne is the CTO at
PROTECT RELATIONSHIPS AND ASSETS There’s one final threat to highlight: ex-employees.
Clients, prospects, leads and marketing lists are all assets
that firms spend years devel-
oping and cultivating. A highly motivated, active real estate
investor is the gift that keeps on giving for a lender.
These relationships, lists and contact information are the
lifeblood of a sales funnel. And yet when loan officers leave,
often those assets go with them. Lenders need to be proactive
they set up forwarding rules in email that send leads to their personal email? Many lenders have a documented onboarding process for employees, but most do not have a process to verify a clean exit. Could there be anything more upsetting than losing a deal to a former employee who continued to receive leads after being let go? The external threats raised here are not new; however, they are topics that many private lenders undervalue and do not give the appropriate level of attention. Don’t get caught asleep on these issues.
and take intentional steps
Start by educating yourself and
Turning off access is likely not
team. Ensure the executive
loan officer set up notifications
are understood and carried out
to protect this information.
other members of the executive
enough. For example, did the
team sets proper priorities that
to go to their cellphone? Did
throughout the organization.
These external threats demand that companies invest significant resources (read: capital, people and time) in order to protect their customers and their businesses. Ignorance is no excuse. Laser focus and an investment in security are not optional. Speed to market is not an acceptable reason to leave a door unlocked. Consumers demand convenience and speed, but they will also hold businesses accountable for security and privacy. How a private lender deals with these issues can also create opportunity. An enterprise that can successfully maneuver through these issues, communicate their plans externally and execute can set itself apart and establish a strong brand of trust and loyalty—even in this new online consumerism. The companies that learn fastest will come out on top. ∞
Connected Investors, an online community and
marketplace of nearly a
million real estate investors. Coyne has been instrumental in the explosive growth at CI, including building the
largest online marketplace
for real estate funding, CIX, which generates more than
$5 billion per month in funding requests for its network of private lenders.
A technology industry
veteran of 30 years, Coyne
has specialized in identifying disruptive technologies and helping to bring them to
market, driving more than $1 billion in new business
revenue for his companies and partners.
M A K E WAV E S AT
FEBRUARY 20-21, 2020 NEWPORT BEACH, CA Interested in attending or sponsoring? Contact Alicia Carter at A.Carter@GeraciLLP.com Balboa Bay Resort 1221 West Coast Hwy, Newport Beach, CA 92663 949.379.2600 | www.geracicon.com
INVITED Join us for the 11th year at the largest national private lender event from the industry’s oldest and largest association. 2020 will bring you 2 days of packed sessions, 60+ exhibitors and 500+ attendees with whom to network and learn. 2020 CONFERENCE ACTIVITIES AAPL Certification Courses • VIP Nightclub Reception Catered Networking Breakfasts • 15+ Sessions & Panels Crowded Vendor Hall • Speed Networking Networking Reception • AAPL Official After Party
NOVEMBER 15 - 17, 2020
LAS VEGAS EARLY-BIRD REGISTRATION NOW OPEN
RESOURCE GUIDE ”Do you know any attorneys who specialize in working with private lenders? And not just people who work with financial institutions, but actual private lenders. The last guy I talked to was so confused.”
Replace “attorneys” with
businesses, we are building this
If one of those specialties sounds
guide to be a complete service
like you, you can nominate your-
provider resource (hence, you
we at your friendly Ameri-
self for inclusion in future issues at
know … the name).
Each issue we’ll publish a new
nominations. Because our goal is
“loan servicers,” etc., and
can Association of Private
Lenders get this question on a near-daily basis. We always have an answer in the form of one of our service provider
cross-section of service provider specialties: W inter (this issue!):
Accounting, Legal, Default
members, but it got us thinking:
& Loss Mitigation
could we be doing more? Why, yes. Yes, we could.
S pring: Property Insurance, Valuations, Development
Enter our brainchild, the Pri-
vate Lender Resource Guide. Whether you’re looking to
S ummer: Appraisals, Lead
Generation, Raising Money,
compare service providers or
just interested in knowing who’s out there who actually knows a thing or two about what pri-
Fall: Loan Origination
vate lenders need to run their
Software, Loan Servicing, Investor Reporting
building a complete list, rather than creating a money-making opportunity, there is no charge to be included, although as you’ll notice below, we give priority placement to AAPL members (*cough* hint *cough*). Oh, and one more thing before you dive in: We make the live, 24/7 list of all categories available online to AAPL members at aaplonline.com/resource-guide. So, members: You don’t have to wait for the print issue to find the latest updates!
Private Lender Executive Editor
ACCOUNTING ATM PROFESSIONAL SERVICES
a tmcpas.com (301) 947-2860 S econdary Specialty // Valuations S ervices // Governance, Risk & Compliance,
Business Services and Tax Services, including planning, preparation and resolution.
c ohnreznick.com (818) 205-2622 S ervices // Advisory, Accounting and Tax Services for Private Lenders
SPIEGEL ACCOUNTANCY CORP
s piegelcorp.com (925) 949-5687 S ervices // Accounting, Tax, Fund Administration, Consulting Services for Mortgage Lenders, Small Businesses, and Individuals.
DEFAULT & LOSS MITIGATION NOBLE CAPITAL
n oblecapital.com (512) 492-3818 S econdary Specialties // Loan Servicing, Note Buyer/Seller
S.B.S. TRUST DEED NETWORK
s bstrustdeed.com (818) 991-4600 S ervices // Non-Judicial Foreclosures, Bankruptcy, Post
Foreclosure Options for Lenders, Deed in Lieu of Foreclosure
TOTAL LENDER SOLUTIONS
TotalLenderSolutions.com (866) 535-3736 S ervices // Non-Judicial Foreclosures, UCC Sales, Reconveyances, Education
LEGAL ACTIVIST LEGAL
a ctivistlegal.com (202) 869-0804 S ervices // Legal services in the areas of real estate,
mortgage, banking and private investor transactions for non-performing loans and assets.
CABALLERO LENDER SERVICES
S ervices // Foreclosures, Bankruptcies and Real Estate Closing representation for lenders and investors.
(949) 379-2600 S ervices // Foreclosures, Real Estate, Corporate,
Securities, Litigation, Banking & Finance, Bankruptcy, Consulting, Asset Protection
HARTMANN DOHERTY ROSA BERMAN BULBULIA LLC
h drbb.com (917) 902-9617 S ervices // Legal representation of private lenders in multiple states
LAW OFFICES OF LAWRENCE ANDELSMAN PC
a ndelsmanlaw.com (516) 625-9200 S ervices // Real Estate Transactions for Lenders, Developers and Individuals
PRIVATE LENDER LAW/LAROCCA HORNIK ROSEN & GREENBERG
p rivatelenderlaw.com (212) 536-3529 Services // Legal Services for the Private Commercial Real Estate Lending Industry
SCHEER LAW GROUP, LLP
s cheerlawgroup.com (949) 263-8757 S ervices // Private Lender representation in Litigation,
Bankruptcy, Transactional, and Compliance Matters with offices in both Northern and Southern California.
HAJJAR PETERS LLP
l egalstrategy.com (512) 637-4956
L AST CALL WITH JON HORNIK
TROUBLE IS OPPORTUNITY by Jon Hornik, Esq.
he time was 2008. The Great Recession had just hit, the markets were failing and it felt like the end of the financial world as we knew it.
Lehman gone; Bear Stearns finished. When all was said and done, it was ranked as one of the largest economic downturns since the Great Depression of the 1930s. By 2009, the U.S. gross domestic product dropped by 2.8% and unemployment hovered at around 10%. The entire country had a severe case of risk aversion. During this time, I had just been elected Mayor of Marlboro, New Jersey (a city of approximately 50,000 residents). Soon after, my partners and I launched LHR&G (LaRocca Hornik Rosen & Greenberg). We recognized the opportunity these troubled times presented. You see, America was trying desperately to lift itself out of economic turmoil. Right away, the government had approved the Emergency Economic Stabilization Act of 2008 (i.e., bank bailout money). They also 98
passed the Economic Stimulus Act of 2008 to boost the economy and investors. While times were certainly tough, we knew the government was doing everything in its power to spur this economy back to life, which to us, represented a golden opportunity.
business model, which eventually allowed us to be the first to come up with fixed pricing based on product and loan size. It was a complete success and launched LHR&G into the next stratosphere of private lending.
I immediately focused my department at LHR&G on representing private lenders. I had a history at large New York law firms and with working with the largest private lending firm in the country, where I served as in-house council and sat on the firm’s credit committee. Post-housing crash, we saw the inception of a new era in lending—particularly in the area of fix-and-flip loans and short-term bridge financing.
Today, we are one of the top recognized leaders within the private lending industry. Our nationwide practice group, the Private Lender Group of LaRocca Hornik Rosen & Greenberg, focuses on real estate finance. We are fortunate to be actively representing more than 60 lenders nationwide.
These were opportunities that helped us land our first major client in 2011: RCN Capital. Back then, it was known as Entertainment Financial. The company is led by Jeff Tesch. At the time, they had three employees. Tesch had set his sights on taking his private lending brand to a national scale. He looked to us to help grow this vision. We did this by understanding the needs of the marketplace with ever-changing lending policies. We took the initiative, stepping in to help lead the way with our own ideas on deal structure. The catalyst for our innovation dealt with the small balance nature of loans. It was time to get creative. So, I drew from my experience—particularly from my previous stints at the top New York corporate law firms. The type of law I practiced helped me to recraft my
I also try to give back to the private lending industry by serving as an advisor to public and private companies in regard to secured and unsecured loan and equity transactions throughout the nation. Currently, we have more than $1 billion in closed deals and have no plans of taking a breather. Again, looking back, it’s crazy to even think about attempting to do what we did during one of the worst times in our country’s economic history. But as I always say, trouble is opportunity. Great reward comes with the ability to look at those problematic moments and realize that success can be found if you think differently and allow yourself to see the opportunity. Use your experience to take full advantage of what’s to come. I am looking forward to the challenges of 2020. We will adapt to meet them and hopefully continue down the road to success. ∞
OPPORTUNITY UNLEASHED. Whether you’re an experienced investor or a first-time borrower, we are here to help you break through traditional lending barriers to unleash ever-increasing success.
� Fix & Flip / Bridge solutions
� Stabilized Rental Program (1-4 units)
� 75-80% LTV
� 5/1, 7/1, 10/1 ARM
� Up to 100% of rehab
� Single asset or portfolio
� No pre-payment penalty on one year loans
� Minimal DSCR requirements
� Closing as fast as 5-10 days
� Speed & leverage
� 1 & 2 year terms
CORRESPONDENT � Back-end revenue opportunity � Warehouse lines provided - $7MM, $10MM, $25MM � Expand your book of business with a new investor product � Originate and close loans in your name � CIVIC prior approval required
Our Money’s On You. (877) 47-CIVIC www.civicfs.com WINTER 2020
MEANS SOMETHING. Join the oldest national association representing the private lending industry as a viable alternative for borrowing and investing. As a member, youâ€™ll gain prestige through our:
CODE OF ETHICS
JOIN TODAY! AAPLONLINE.COM 913.888.1250
2020 Winter (Q1)