How to Fund Your Deals with RealtyMogul.com

Mike: Hey, everyone. It’s Mike Hambright with FlipNerd.com, and today we have a special feature show, we’ve never done one of these before, with Jilliene Helman who is the CEO of RealtyMogul.com, which is the top online marketplace for connecting borrowers and capital. Realty Mogul is actually one of our Platinum sponsors of this show. Today, Jilliene is going to share with us a number of things, including really what crowdfunding is and how real estate investors can benefit from platforms like Realty Mogul, and specifically, how Realty Mogul can benefit members of FlipNerd.com.
So Jilliene, welcome to the show.
Jilliene: Thanks for having me, Mike. Excited to be here.
Mike: Yeah, and thank you for being one of our valued sponsors.
Jilliene: Absolutely. Happy to do it.
Mike: Yeah. As you know, one of the biggest challenges that real estate investors always face is having money to do deals. That’s always been one of the bottlenecks, and the landscape is kind of changing with crowdfunding platforms like yours, right?
Jilliene: Yeah, I think that you’re spot-on. Finding transactions is hard, and then finding money to get it done is hard as well. For borrowers and real estate entrepreneurs, they’re always running against this uphill battle.
Our vision at RealtyMogul.com is to make that capital piece just a little bit easier, and supplying these real estate borrowers with capital that is much easier to source than it has been historically.
Mike: So talk a little bit about, just give us an overview, maybe, of crowdfunding and what that is. That name is thrown around a lot, there’s different flavors of it, we know, and a lot of people hear that but they don’t necessarily know what does that mean for them, why is it different?
Jilliene: I think in its most basic form, crowdfunding is pooling capital together on the Internet. You could be pulling capital together for anything. You think about Kickstarter, you think about Indiegogo, those are examples of crowdfunding. In our case, we’re raising capital on the Internet for real estate transactions for borrowers, like the borrowers that are on FlipNerd.com.
I think that crowdfunding has gotten a little bit of a misnomer. When people think about RealtyMogul.com, we’re much more than just a crowdfunding website. We’re crowdfunding in the sense that we have nearly 20,000 high net worth accredited investors that want to make passive investments in real estate and want to finance loans for borrowers that are on your website.
But in addition to having the “crowd,” we also have a lot of institutional capital, so where a lot of these businesses, ours included, started with retail financing only, we’ve now augmented that with a lot of institutional capital which provides hundreds of millions of dollars really at the fingertips of borrowers who are doing fix and flips or longer term renovations or buy and hold. But who are really looking for capital for real estate.
Mike: I know there’s still some kind of crowdfunding platforms and early on there were a bunch that they had to go out and try to . . . your deal couldn’t get funded until they found, basically, a bunch of shares, of people that were willing to participate in that. And because you have so many people behind you, you have so much capital behind you, it’s never a question of whether you can fund the deals, it’s just a matter of whether it fits your criteria, right?
Jilliene: Yeah, exactly. The speed at which these transactions get funded is just incredible. We funded over a million dollars in transactions in a couple of minutes last week, and it’s amazing the demand that there is for passive capital in real estate. There’s hoards of borrowers that are looking for loans to do their fix and flip or to do their buy and hold. Similarly, there’s hoards of investors that really want access to this as a class because it’s a secure transaction. When you’re investing in a loan secured by real estate, it’s very different than investing in something unsecured. We’ve seen just a tremendous demand for this product on the capital side of the market.
Mike: And for those that are borrowing money from you, they’re really agnostic to where you get your funds from at this point, right?
Jilliene: Yeah. Everything is done through RealtyMogul.com. The loan documents are going to be in Realty Mogul’s name, the closing is going to be in Realty Mogul’s name, your account executive is going to be a Realty Mogul employee. For the life of the transaction Realty Mogul stays involved, so it’s really important to us that we’re involved, and we are creating the user experience for that borrower.
Mike: Yeah. Talk about that a little bit because I think some people think there’s a difference, and there are some differences, obviously, between a local lender and a national lender in terms of the level of support. I know based on our conversations before that support is obviously a huge issue for you guys.
Jilliene: Right. Yeah, I mean, a lot of local lenders don’t have the size and scale of online platforms. I mean, if you look at a local lender in the fix and flip space or in the hard money space or the private money space, it’s anywhere from two to ten folks that are originating and servicing and working with borrowers.
At RealtyMogul.com we have over 80 employees. We have a national infrastructure, we’ve got a lot of processes, a lot of policies and a lot of technology to help support not only our originations but also our servicing, our draws, if we have a rehab where we’re financing the renovations and we have draw requests from borrowers. So it’s much more process-driven.
I think when you think about underwriting as well, it’s much less off the cuff and much more driven alongside underwriting guidelines. What that allows us to do is make really fast decisions. When you’ve got standardized underwriting guidelines by state or by geography or by market, it allows folks that work for us to have decentralized authority to make quick decisions. Also a [inaudible 00:05:27] support of a larger company where the capital is going to be there if you need the capital to be there, the servicing mechanisms and the servicing support is going to be there when you need it.
We can also finance in multiple states. We’ll see borrowers that will, maybe they’re doing business in California and then they decide to do a transaction in Washington or in Portland, Oregon, or in another market, they don’t want to have to go out and find another lender. The beauty of working with someone like us is we’re very flexible and we’ve got a good presence in a lot of different markets.
Mike: Yeah. So the borrowers, effectively, are they assigned a relationship manager that they work with on multiple deals, or is that deal-to-deal specific?
Jilliene: They are assigned a relationship manager. They can work with the same account executive for multiple transactions, so there’s continuity there.
Mike: That’s great. So talk a little bit about . . . I know you said you lend in multiple states. Where do you not lend right now?
Jilliene: Right now we’re not lending in Nevada. We’re waiting on licensing in Nevada that should be in fairly short order, but we’re not lending in Nevada. And then there’s a couple of other smaller states. We’re not lending in Wyoming, we’re not lending in Tennessee. But the big markets where you see a lot of borrowers are California, Texas, Florida, New Jersey, New York, all those big markets, we are lending in.
Mike: Okay. And then talk about what’s typical of the experience for people for a turnaround time. How fast can you fund deals? Maybe get into the process of lenders and how they get preapproved or get whatever they need to get done up front to even be considered as possible to work with you.
Jilliene: Right. Our average fix and flip loan right now is funding in ten days or less. We just financed a three-unit apartment building in Brooklyn, New York, in five days, so it can be as fast as five days assuming we get the information from the borrower. The interesting thing is that the bottleneck is typically on the borrower collecting all of their data, and then once we’ve got all the information we can move really quickly, and we pride ourselves on speed.
We pride ourselves on speed, we pride ourselves on user experience. The way the process works is that an investor, a borrower would go to www.realtymogul.com, they would type in some basic information, so name, email, phone number, property address, what they’re acquiring the property for, and we would generate an automated letter of intent literally in seconds. You can get a letter of intent from us in about ten seconds, assuming that it’s a piece of real estate and a borrower that meet our minimum requirements.
So it’s very different than an offline lender. A borrower will know very quickly if it’s within our underwriting criteria. From there, they can go directly through an online application. So they’re submitting all of their information directly online, very quick, very easy, different than a traditional offline lender, so that we can have . . . all of our systems that are integrated. That’s one of the things that allows us to close so quickly, is we’ve integrated our origination system with our underwriting system with our servicing system with our front-end portal for our investors.
So that borrower is going to go through our online application. At the end of that online application they’re going to put up a small deposit for an appraisal or a BPO, broker price opinion, depending on the size of the transaction, and then we’re going to start ordering all of the third-party. So we’ll order either the broker price opinion or the appraisal. As soon as we’ve got that back we’ll finalize underwriting and we’ll be ready to close in as quick as ten days, assuming that the underwriting checks out.
Mike: That’s awesome. And I assume after the person’s been validated, you have all their information, deal to forward is even faster.
Jilliene: Correct. Much, much faster. Then we’re only doing property level [inaudible 00:09:01] so we’ll get a broker price opinion or an appraisal, we’ve already approved the borrower, and it’s very, very fast. Interestingly, the deal in Brooklyn that closed in five days was actually a new borrower, so it’s possible for us to do something that quick if someone’s in a bind and it’s a good deal and a strong borrower. But subsequent transactions with the same borrower, it could be a couple of days. It’s funny, most people don’t even need it to move that quickly depending on when their purchase and sale agreement calls for, but we really pride ourselves on speed and using technology allows us to be very, very quick.
Mike: Now the lenders, they typically have . . . do they get a line of credit with you, or it’s just a case-by-case basis? You’re only looking at the assets, so there’s no real limit that a line, a so-called line that any specific borrower can have, or how does that work?
Jilliene: We don’t have a hard and fast limit. We don’t structure the midline, so we do true loans for each different transaction. But the beauty of our marketplace is that we’re a broad-based capital marketplace. So we have hundreds of millions of dollars for fix and flip across, high net worth accredited investors and institutional investors. So where some traditional lenders or local lenders might run into concentration limits, we have the ability to work with a variety of different investors to spread that risk around, so we don’t run into those same concentration limits that you’d have in other fund structures or other lenders.
Mike: Right. So why don’t you tell us a little bit of what you’re looking for in the person? And I’m not saying credit scores and stuff like that, but in terms of their experience level. How much of a factor is that?
Jilliene: Sure, it’s definitely a factor, but it’s not always a deal-breaker. We’re typically looking for someone who’s done at least one transaction. Depending on how many transactions that they have done, we will or will not ask if they work with a licensed contractor. A lot of times we’ll have folks that have great liquidity but maybe just haven’t done a lot of transactions, but they can bring in a licensed contractor alongside them who’s done 20, 30, 100, 200 flips, and that really gives us the ability to get comfortable with the contractor’s experience and maybe not even the borrower’s experience.
The more experience, the better, but it’s not a quick “no” if the borrower has only done one or two transactions. We really look at it holistically, so what’s the experience of the borrower, what’s the experience of the contractor, and also the asset itself. Where is the asset located, what kind of renovations need to happen on the asset? If you’ve got a borrower who’s only done one transaction, and now on their next transaction they want to do paint and carpet, well, that’s a very easy renovation. That’s very different than adding a third story and adding a balcony and ripping out all the plumbing and electricity. We really look at it within the context of what needs to be done, what’s the experience of the borrower, and what’s the experience of the contractor.
Mike: That’s awesome. So in terms of how you could benefit members of FlipNerd.com, I think I told you right before we started, we have around 300 active listings on the site right now, so that’s actually going pretty rapidly. At some point we’ll have 1000+ at any time. So we talked about up front how the hardest two things in this business are finding the deal and finding the money. So if we’ve helped them find the deal, how can you help them find the money?
Jilliene: So if you help them find the deal, we’ll help them find the money. I think that that’s the beauty of partnerships with different companies and the ability to work together. We are actively looking to lend hundreds of millions of dollars across our platform. That’s really our mandate from our investors and our institutional investors, assuming the transactions meet our underwriting criteria, of course.
One of the things that we can do is arrange financing for a variety of different transactions, so not only do we do lending on single family or duplexes or triplexes, but we also do commercial transactions. So if you start to post new kinds of transaction types on the website, whether it’s a 10-unit multi-family building or a small retail building, we can provide financing not only for single family but also commercial. That’s also that ability to work with one lender for kind of the life of your transactions that is a national lender where you can be in multiple states and multiple property types. We’re actively lending in commercial and residential.
And I think the other thing, too, is that we have flexible capital. So depending on the structure, depending on the type of transaction that someone is looking to finance, we can get creative on structuring because we have so many different investors that want different things. Some of them want more risk and want to be paid a higher return for that; some of them want less risk and want a lower return for that. So given that flexibility in capital we can be really flexible for borrowers who are acquiring real estate on FlipNerd.
Mike: Okay. That’s fantastic. Do you do financing for long-term buy and hold as well, or is it primarily project-based, bridge aligned type stuff?
Jilliene: It’s predominantly bridge loans. We’ve toyed with a couple of buy and hold transactions, but we’re probably going to be more competitive in the bridge space than we are in the buy and hold space.
Mike: Okay. So what are we missing here, Jilliene? What have we not talked about yet?
Jilliene: I think that when you think about getting financing from a company like RealtyMogul.com or any online marketplace, as a borrower you should really come prepared with what you’re looking to optimize. Sometimes we have borrowers come to us that say, “I want the best rate. How do you get me the best rate?” or they say, “I want the best leverage. How do you get me the best leverage?” or they say, “I want the most flexibility. How do I have the most flexibility?” And I think what’s really helpful for borrowers to understand is I can’t give you all three. I can’t give you rate, leverage and flexibility, but I can give you one, maybe two of the three.
When borrowers come to the table with really clear guidance on what they actually want, are they trying to maximize debt proceeds where they’ve got really high leverage, and we’ll lend up to 90% loan to cost. So we can finance 90% of the purchase, 90% of the renovation, which is very high leverage in today’s market. So there are some borrowers that really want leverage.
You have other borrowers that say, “I don’t want to pay a 10, 11, 12% rate, which is typical private money rates. I really want to do a loan at 8%.” And we say, “Okay, we can do a loan at 8%, but then we need to drop leverage.” We need to drop debt proceeds so that it’s a less risky transaction so that we can sell that loan.
I think it’s really important for borrowers to think about what am I really trying to optimize, and if they come to the table with a really clear understanding of what they’re trying to optimize, we can optimize it for them. And that’s something that I think we’re really, really proud of.
Mike: Awesome. Well, we’re going to add a link down below the video here for folks to get to RealtyMogul.com. It’s obviously RealtyMogul.com, and if you go work with these folks, please tell them that you came to FlipNerd, that you’re a FlipNerd member as well.
Anything I’m missing, Jilliene? Anything else that you want to add today?
Jilliene: I think that’s the majority of it. I mean, the big thing I’d keep in mind is optimize for what you’re looking for and don’t think of crowdfunding as just a crowd. Think of crowdfunding also as access to hundreds of millions of dollars in institutional capital for fix and flip.
Mike: Yeah, and you wouldn’t . . . give us some guidance on, you wouldn’t recommend people waiting necessarily until they have a deal to contact you, right? They have the ability to start talking to you beforehand so that they can go buy with confidence. Is that right?
Jilliene: Absolutely. Absolutely. You can even get a letter of intent on a property that you don’t have under contract yet. So if you need a letter of intent to show the seller that you’re really serious and that you’re going to have the capital behind you, you can go right onto our website and get a letter of intent so long as you have the property address.
Mike: Fantastic. Well, for those that are listening out there, Realty Mogul and Jilliene have been great partners for us, and we wouldn’t work with them unless we thought they could be great partners for you, so please check out RealtyMogul.com. We’ll add a link down below and some additional information.
Jilliene, thanks for spending some time with us today.
Jilliene: Thank you. A pleasure.
Mike: All right. Have a great day.
Jilliene: Take care.
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