Private Lending Insights

[00:00:00] Rocky Butani: Welcome to Private Lending Insights. I'm your host, Rocky Butani. In this episode, I interviewed Alesondra Mora and Kayla Pelland from FlipCo Financial. FlipCo is a direct private lending firm based in Houston, Texas. They lend in most of the South, the Southeast, and select parts of the Midwest, focusing on residential fix-and-flip and rehab-to-rent projects.

[00:00:23] Their unique capital structure allows them to offer some unique features within their loan programs, and it's enabled them to grow significantly over the last few years. I hope you find this episode to be insightful. Here's my interview with FlipCo Financial All right, ladies. Thank you for joining me for this episode of Private Lending Insights.

[00:00:41] Tell us a little bit about yourselves and your roles at FlipCo Financial.

[00:00:46] Kayla Pelland: Thank you for having us, Rocky. I'm Kayla Pelland. I'm the executive vice president with, uh, Realty Co Partners and FlipCo Financial.

[00:00:54] Alesondra Mora: I am Alesondra Mora. I am the senior director of growth strategy with FlipCo, and I've been with the company since fall of 2021, in the space since 2015.

[00:01:05] So definitely excited to dive in here on a few topics.

[00:01:09] Rocky Butani: Great. And tell us a little bit about the company, its history, when it was established, and where you're located.

[00:01:16] Kayla Pelland: Sure. So FlipCo started in the fall of 2020. I joined the company that spring, and we were really a small group of five people. We operate out of a family office with the background in retail energy, actually, so it's a little bit unique.

[00:01:30] Our, our owners and operators didn't have a background in finance like many of our counterparts do, but they really understood the concept of wholesaling something and had applied that to energy and found out that there was a need to be able to apply that in the real estate lending space, and that's how FlipCo started.

[00:01:47] We operate out of Houston, Texas. We're in about 16 to 18 states now actively, but we're predominantly an office environment here in Houston.

[00:01:57] Rocky Butani: And you said that the, the, the family that started the, the... or the owners of the company were, were in the energy business. Um, how, how did they end up getting into this business?

[00:02:09] Were they investing in, in the loans and, and then decided to start an origination company?

[00:02:15] Kayla Pelland: No. Um, it was a fairly unique story. But, uh, they had actually just heard about the concept through somebody that was an AE. So friends of friends ran into each other actually in Las Vegas. So it was on a... There was a boys trip and a girls trip, and one of the ladies that was in the other group was talking about what she does and started to explain the concept to our owner.

[00:02:36] And the, the best part of the story is there was actually a receipt where the president of the family office just sort of back of a napkin, if you will, ran the numbers. And they were looking at each other thinking, like, with our banking relationships which had been established over 25-plus years, they knew that they would be able to bring in the capital that they needed to be able to lever bank lines to lend.

[00:02:59] And so they met up with that same individual a couple weeks later when they got back to Houston and said, "Hey, we're entrepreneurial and super innovative, and we don't know how to do this, but you're- doing it right now? Do you wanna start this company?" And so, uh, ironically, that person's name was also Kayla.

[00:03:15] So there was at one point two Kaylas within the family office working in the real estate division. But, uh, that's how the company started. And she had been working as an account executive somewhere else, uh, a non-local lender, and was my AE. I was, my background was in investing in real estate as a flipper and a buy-and-hold investor, and so that's how I actually came to know about FlipCo, and her, and what they were building.

[00:03:40] And was crazy enough to jump on board when seemingly none of us really knew exactly where we were going or what we were gonna do with this. But we really had some unique resources because of the vertical integration of the family office that's allowed us to bring people like Alesondra on board, and some of our other team members over the last five years, and scale the company as quickly as we have.

[00:04:01] Alesondra Mora: I'd say it's like one of the rare cases of, you know, what happens in Vegas didn't stay in Vegas. And-

[00:04:08] Kayla Pelland: I'm sure there's some

[00:04:08] det-

[00:04:09] some details

[00:04:10] we leave out,

[00:04:10] perhaps.

[00:04:11] Alesondra Mora: I think it's still very intriguing to us all still just how sometimes we actively meet so many people who don't know a lot about our space.

[00:04:18] And like, this is literally all we breathe and do.

[00:04:20] Kayla Pelland: Mm. Mm.

[00:04:21] Alesondra Mora: And so definitely welcome any opportunity to lean in and kind of talk about it a little bit more, 'cause there's still

[00:04:26] a lot of people who have no idea about our world.

[00:04:29] Kayla Pelland: It's very fun when you see somebody's mind just get blown when you start to explain what hard money is, and it's wild to think that our owner was one of those people- Mm

[00:04:38] almost six years ago now.

[00:04:40] Rocky Butani: ------------

[00:04:40] Yeah, I tend to have those conversations a lot, uh, when people ask me what I do, and they've never heard of this, and, and they, and they think it's consumer mortgage lending. But, uh, it, it is, it is a fun topic, but everyone seems to be interested and, and intrigued. Um, and, uh, so

[00:04:53] You've come a long way from, from when you started to now from the data I see on Forecasa and Elementix, it looks like you're funding a few hundred loans per year, and, uh, and- Mm

[00:05:03] and you've grown since last year. Um,

[00:05:07] Tell us a little bit about the, the recent lending activity in the last 12 months, and how you've been able to navigate, uh, all the challenges that most lenders are going through at, at this time.

[00:05:18] Kayla Pelland: You can do sort of your data deep dive through that if you want, Alesondra

[00:05:21] Alesondra Mora: Uh, I would say it's just, it's always gonna be there's a different asset, a different product for every single market.

[00:05:27] And we've all seen kind of what happened after 2020 and COVID in just some of the states. And the, one of the founding premises of FlipCo is more or less, and this is where the entrepreneurial part of our owner comes in, of what are the pain points, and not necessarily let's do the opposite or remove them.

[00:05:44] But again, of having the capital stack to be able to kind of create your own buy box risk tolerance. So a lot of the things that have allowed FlipCo to scale at the velocity that they have has been what Kaila discussed of having the integrations and the internal systems and teams- Mm ... that were already in place from a business that's been in practice for 20 years.

[00:06:04] So that kind of launched FlipCo hyperspeed, um, and having access to a lot of things where startups wouldn't have access to that capital or those bank lines or, or things like that. And of also having the mindset of go after all the people, quite frankly, in the sense of there's... Everyone on our team is actively looking for people who know more, more experience, what can they bring to the table, what's a different perspective.

[00:06:28] This is very much a collective of, like, how can you bring not necessarily, like, the baddest and the brightest, but almost, like, the most disruptive into one team- Mm-hmm ... and what can you kind of mix up in that time. Um, but FlipCo kind of being on the fringe, obviously a lot of people's eyes bug out with our, you know, no credit minimum.

[00:06:45] We go under 100,000. But also I'd say a big part of the scalability within FlipCo and their success has been everything being in-house. We have a pulse-

[00:06:55] Mm-hmm ...

[00:06:55] from quote to payoff. Um, it's a very telling time to know exactly where something went awry. Um, but because we do control the full process, it's easy to make adjustments.

[00:07:06] Granted, it's on a trailing six, nine, 12-month scale, but we can implement change much faster. We can see out of full access. We aren't having to go to multiple third parties to kind of get the buttered version of what's happening in our portfolio. So I think just even the plain visibility within it. And I'll be frank of even when I joined the FlipCo team, some of their naivety.

[00:07:28] A little bit of like, "What do you mean this isn't how people do it?" Yeah. It's just like, "No, that's not how the rest of the industry does that." So it's kind of going back to that disruptor of almost sometimes just not even knowing any different- Mm ... because you haven't been biased by 10 or 15, 20 years within the space of like, "No, this is how everyone else does it."

[00:07:46] But that's also what makes you stand out.

[00:07:48] Rocky Butani: ------------

[00:07:48] And, uh,

[00:07:49] What are some of the other trends that you've seen in the industry as, as you fund a, a lot of loans, a- as you're growing? Um, you know, the, the interest rates have started to, to go up in 2026. Tell us a little bit about what you're seeing in the market at this time.

[00:08:06] Kayla Pelland: I would definitely say the biggest indicator of where our markets are at right now are the days outstanding for listings. And then we're seeing that internally even within our own portfolio. As Alesondra explained, we're balance sheeting everything. So even after we lend on that loan, we're still tracking it all the way to a payoff.

[00:08:23] And we have seen even as early as this spring where month over month those days outstanding have continued to creep up. And that's something that we're watching really closely and trying to partner closer than ever with our investors if they need help in their project, if they're running into roadblocks.

[00:08:40] Y- you know, you don't want to necessarily prod them and push them too hard through the project, but we're also cognizant of the fact that every single day that their loan is outstanding, they're incurring additional costs. So we're following up and kind of, you know, pushing them along the way. Sometimes that's something as simple as seeing that they've got their property on the market, they've got it listed, but it could really use some interior staging, or the lighting of the photos isn't painting it in the best light.

[00:09:05] And we'll go out of our way and actually reach out to the borrower. I mean, we've gone as far as introducing them to local photographers to help them with their, their photos or staging. We're really invested in seeing them get across the finish line, but I know that's something that on a grander scale they're seeing across all housing markets.

[00:09:21] I mean, I, I'd be hard-pressed to find any city where days on market has not continued to creep up over the last six months. So that's, that's definitely the biggest thing I'm seeing in the markets right now.

[00:09:34] Alesondra Mora: I'd say it's like I can- multiple people have heard me go on TED Talks about this, and I'm not to diminish the American dream of home ownership and things like that, but we- it's been in the headlines for quite some time.

[00:09:45] It's gonna continue to be of just the shift from home ownership to more of a rental market that we're having. Um, and what does that mean now for new norms for us? So I think a lot of shops that are definitely for the long haul and they've seen a lot of seasons, we kind of have to recalibrate what the new norm is.

[00:10:04] Like, if we're judging our outstanding days from the market from last year, it, it's not fair. Um, we're kind of setting ourselves up for disappointment. So it's having the confidence, I think, whether it's FlipCo, another lender, of what is your data, what is your reporting, what's your pulse, what's your control on the levers that you can pull?

[00:10:23] 'Cause you could have the greatest investment, best borrower on paper, but we know it's not if something goes wrong, it's when. Jinx. Um, but of, of seeing that of I think we're all adjusting to a new norm. There are a lot of question marks. And, you know, obviously politics play a role in that, other things.

[00:10:41] There's always mitigating factors that we all can't control. So I think a lot of shops, I'm seeing it in just, um, I'm big on marketing. What are people openly saying and promoting about their products? You're seeing some of the stuff of, like, they're thinking the value add. So I always pay attention to that.

[00:10:55] What kind of is what everybody else is advertising, 'cause obviously, you know, if some of these larger aggregators are feeling that that's newsworthy enough to be promoting or developing a product around it, that should be a signal that you should be paying attention to.

[00:11:09] Kayla Pelland: That's a good point. That's, like, such a, a forward indicator actually.

[00:11:12] Mm-hmm. That's a good idea.

[00:11:14] Rocky Butani: Yeah. And So it sounds like there's a lot of loans that you're, um, where you're, you're having to extend because the borrowers need more time. Is that correct?

[00:11:23] Kayla Pelland: That's, that's an honest answer for us. We also do do six-month terms out the gate, whereas a lot of our counterparties will do 12, so they may not be seeing as much of an increase in modifications.

[00:11:35] We've always stayed on that six-month term from the jump because we want to have that increased visibility at the six-month mark versus waiting until 12 months down the road to really get eyes on a property if they haven't done draws or, you know, what have you. So d- I look at that as a check-in point.

[00:11:51] But the average loan that we have right now is paying off between the 12 and nine-month mark. So we have seen that, that, that timeframe has pushed out. Our average loan size is a little bit on the lower scale as well, so we're sitting around anywhere from 200 to 220 for our average loan size. So it means smaller rehabs, quicker turns.

[00:12:12] You know, so each shop is gonna look a little bit different. And the markets that we're predominantly active in do not have those really large projects or property values. We've noticed that there's a really, a skewed number of days outstanding for the lower priced properties. Those are still moving with some velocity versus other markets where you're seeing properties in the, let's say, 700 to a million price range, and they're really, really stagnant.

[00:12:41] Rocky Butani: ---

[00:12:41] That makes sense. And let,

[00:12:42] let's talk a little bit about geography since you mentioned markets. Um, you know, from the data I see, it looks like your, the majority of your loans, maybe 50 to 60%, are in Texas. Um, but, uh, talk about some of the other states and, and metro areas throughout the country that, uh, that you're doing a lot of lending in and that, yeah, ones that you're excited about doing more in.

[00:13:03] Kayla Pelland: I can give you sort of a bit of a high picture of the states as we moved through them because that's, a lot of that happened at the beginning of FlipCo's genesis. And then Alesondra with, especially with her data and marketing background, has helped us move into some of the other states over time. But when we first started, as I mentioned, we are in Texas.

[00:13:21] It was the most comfortable for us to really grow our roots here. But something that our owner was always big on in those first couple years was diversifying our footprint. I think that's made a huge difference in terms of FlipCo's ability to perform and pivot during times that have been a little bit wonky.

[00:13:39] And so over the years, we've moved... I mean, at one point, we've lent, probably if you were to count every state we've ever lent in, it's probably closer to 20 different states. Some states we'll probably never lend in again. Uh, you know, like a one and done. Yeah, that one. That was a fun day. That was a fun day.

[00:13:55] Uh, and so we've, we've tried different states. We've diversified. As some states have gotten slower or tighter or a little bit more nuanced, it's made us more agile in terms of pivoting throughout those.

[00:14:08] Alesondra Mora: I would say, and this goes back to, again, like what's the shift in the market now, and I think this will continue to be a trend because I don't foresee affordability ever going away as a topic, quite frankly.

[00:14:19] So we're seeing a lot of shift, at least especially on our end, again, going back to like what kind of borrowers, products, inquiries are you going to attract. So since FlipCo doesn't have a loan minimum, we're very attractive to these tertiary markets, you know, in the Midwest, you know, where a lot of these homes, you could pick them up for 75, 60,000.

[00:14:36] You know, put under 50K into them, and then they're at least hitting that, you know, 100K- Mm-hmm ... 120 mark. So not a lot of people have appetite for that because they're looking at, well, what's the revenue I make off of that 120K loan? That's still the same amount of time, same amount of docs, everything. So it's like ROI for time and, and I understand that.

[00:14:55] But we've definitely seen that shift and especially that being more affordability, again, back to the rental market. So that's the biggest thing I'm seeing, but kind of a, a flag of sorts that... And I'm always open to this conversation with any DSCR or lenders that we meet or even our peers of when you're having large amounts of properties just go straight into rental.

[00:15:16] It's a heavily dominant, um, product in that area. You then Get a little tricky on being able to find those comps, 'cause stuff aren't going on the market. Mm-hmm. So if you have these areas or these hubs where you have demand in kind of one part of the transaction, but you don't have the other that you traditionally needed for your due diligence or your check- your checklist, we're getting, I'd say, most of the industry a little creative of how to navigate this new nuance of it's not that there isn't movement in the space, it just looks different on paper right now as far as what we traditionally have qualified deals for.

[00:15:51] Kayla Pelland: That's a really good point. It makes me think of, like, the idea that you can see that deeds are being recorded, so you know the properties are moving, but because they're not moving with an actual recorded sale from MLS necessarily, if assuming it was sold off-market is what we're thinking, right? It's not like we can go back and see...

[00:16:09] We can't see that appraisal.

[00:16:11] Alesondra Mora: Or you have people building their rental portfolios. Like, I'm not even putting it on the market. I'll list it for rent. Like- Right, right ... I, you know, there, there isn't a sale. It's a refinance. It's, you know-

[00:16:20] Kayla Pelland: That's, yeah, I'm

[00:16:20] thinking from refis ...

[00:16:21] Alesondra Mora: whatever it is from there. Mm. So it's, I think we're all getting, uh, so now you're having adjustments on the DSCR takeout of what- Right

[00:16:28] they'll look at more, not necessarily. They'll expand their, um, guidelines for appraisers. They'll look more heavily on the rental income. But then that also opens up a new door of kind of our favorite F-word, fraud- ... um, uh, inflated-

[00:16:42] Kayla Pelland: Flip, flip ... flip it. Flip it, flip, flip. Yeah. That's our favorite F-word.

[00:16:45] Alesondra Mora: Those are our favorite F-word.

[00:16:47] Down fund. Down fund.

[00:16:48] Kayla Pelland: Down fund.

[00:16:49] Alesondra Mora: Um, but you know, sitting on the AAPL Fraud Steering Committee, uh, that's definitely something that gets talked about a lot, of when you don't have those sales and you can have these private sales in a short period of time where they can have those artificial inflations.

[00:17:02] That's, you know, again, that's a new development of this market. So each market has a pivot in some sort, even in our risk tolerance and things that we're looking at.

[00:17:12] Rocky Butani: -----------

[00:17:12] Well, let's talk specifically about some of the states that, that you lend in. You mentioned there's a few that you don't want to lend in again, but

[00:17:18] Let's talk about the Midwest, for example, since you mentioned that.

[00:17:21] Wh- which states specifically in the Midwest are you lending in at this time?

[00:17:26] Alesondra Mora: Um, so we, we definitely had, I, I don't want to call it, um, an explosion necessarily, but again, having those loan products of under 100K. So Ohio, Kansas, Missouri, Indiana, um, that's where we're seeing a lot of traction within our pipeline.

[00:17:40] Um, I mean, like you mentioned in Forecasa, like we regularly kind of pop up for lender loyalty- Sure ... and our continued business there. So a lot of it, again, just is being open to those smaller loan amounts. That has just made us more of a preferred selection for that. And again, we're seeing a lot of more of just the rental, um, the, the sale in those areas, I would say.

[00:18:02] Kayla Pelland: One thing that really fascinated me when we moved into those markets and there was such an appetite for our product given those, the lower loan amounts, is that even though we, you know, yes, from a dollar-to-dollar factor, we're not making as much money on those loans, but there's so much more volume.

[00:18:20] Most of the investors that are in the, the Ohios and that are picking up these 60 or 70K properties, they're doing them multiple times a month, at least half a dozen a year. And so when I think about, yes, there's still the work and the due diligence of having to underwrite six properties versus maybe two properties in Dallas, but if we have the ability to also see a property that has multiple exit strategies, there's the affordability factor even as a resale opportunity.

[00:18:51] But knowing that there's gonna always be an appetite for that price range for other investors makes us really comfortable in a market where being agile is so important. So those... We're, we're big on Midwest, for sure, and those small loan amounts don't freak us out at all.

[00:19:07] Alesondra Mora: -----

[00:19:07] And I would say that's even something which we hadn't touched on as far as the trajectory of FlipCo over the last couple of years and, and even the industry as a whole,

[00:19:15] I would say, in some of our recent partnerships of this shift from direct to borrower to broker.

[00:19:20] Kayla Pelland: Mm.

[00:19:20] Alesondra Mora: And then so I, I would say that's just a general trend that we're also seeing, especially in these smaller markets, heavy, heavy broker submissions on that because I think a, a lot of people just know they don't necessarily have a lot of options. So it's more of that leaning towards, I think, almost the professionalization a little bit of selecting your lender, of having the more normalized, um, benefit of a broker.

[00:19:43] Where I think, you know, maybe even two years ago, people kind of looked at it with a little bit of like, "Hmm," like- Sure ... why do you have this intermediary?

[00:19:51] Kayla Pelland: It's definitely stigmatized at one point.

[00:19:52] Alesondra Mora: The stigma has definitely shifted, I think, as a whole in, within the industry of kind of weeding out some bad actors, even from just- Other peers in conferences, like I think we've all gotten a lot more comfortable talking with each other and sharing our experiences.

[00:20:08] That's just elevated all of us as a whole. So, you know, all, all ships rise.

[00:20:14] Rocky Butani: Another state that I see that you've done a lot of loans in is, uh, is Pennsylvania, uh, which is, which is, looks like the only state in the Northeast that, that you're really lending in. What, what is it about Pennsylvania that you like and, and what parts of Pennsylvania are you lending in?

[00:20:30] Alesondra Mora: So I will take that one since I have predominantly been the leader within that. Um, so just to be frank, it, a lot of the volume there was driven by a portfolio investor. So this again goes back to kind of FlipCo's mantra, if you will, of being able by investor, for investor, of being open to a new state. Uh, prior to this portfolio investor, we hadn't predominantly gone into Pennsylvania.

[00:20:56] It wasn't something on our radar per se. We, we don't have a foothold really in the East Coast-

[00:20:59] Kayla Pelland: Right ...

[00:20:59] Alesondra Mora: as you said, that really is the one state that have that volume in. Um, but our willingness to look at the market, look at how they underwrite, them willing to learn about us, that's what opened that door.

[00:21:12] Rocky Butani: Right.

[00:21:12] Alesondra Mora: And that's again going back to high rental, lower purchase prices, I'm talking like 54K, and multiple exit strategies. So that was success to that portfolio and our loan origination there, was that they had the multiple exits, the lower purchase prices that we're able to, um, achieve within there, and of either having a sale or the rent, um, that could come in from there.

[00:21:38] Kayla Pelland: So that was a refi ...

[00:21:39] Alesondra Mora: I mean, shocker that we're gonna repeatedly talk about when there's multiple exit strategies, it kind of seems like a win-win. Obviously anything can happen. But our success there just came from having a good partner, um, that was willing to kind of walk us through their process. And I think as long as somebody's willing to show you the receipts, if you will, of how a process works, you can collaborate and kind of get there in the end.

[00:22:03] Kayla Pelland: I think that's something though that does make FlipCo unique, and we've said from the beginning that we re- really pride ourselves on a common sense by investor, for investor approach, as you mentioned. And we, with the backing of our family office and having this really entrepreneurial owner, it's been a blessing for us to be able to go to him and say, "Hey, I realize Pennsylvania was not on our bingo card this month, but, uh, we went to a conference, met somebody there who we are really impressed from an operator perspective.

[00:22:35] This is what his playbook is. This is where we think our product can really shine. We'd like to give this a shot." And it's only because those pieces made sense that we were willing to do it. But on the other side of the coin, there's instances where an originator may see all of those pieces, know they make sense, and still have their hands tied by the type of capital that they're working with.

[00:22:56] And so we've been able to, to be able to kind of ebb and flow or follow our investors or our relationships to places that they're taking us even though we didn't necessarily think that our product was needed there. But, um, it's, I mean, we'll still, we'll still happily lend in Pennsylvania even to other investors now.

[00:23:12] So it's good. You opened the door for us. We appreciate it.

[00:23:16] Rocky Butani: ----

[00:23:16] Right. And then moving on south, uh, seems like you do a lot of loans in the, in the southeast states, the Carolinas, Georgia, Tennessee, and a lot in Florida. Uh,

[00:23:27] Tell us a little bit about, uh, let's say Florida, f- because that's one state that a lot of lenders want to lend in.

[00:23:33] It's, it's competitive. It's the, the next largest state after Texas. So, um, uh, what are... Tell us a little bit about your lending activity in Florida lately and what parts of the state you're lending in and, and how you feel about the state moving forward.

[00:23:49] Kayla Pelland: Florida's actually the second state that we moved into, and I'll be the first to admit, it was the closest and felt the most familiar to home in Texas.

[00:23:58] We also had team members that were familiar with some of those Florida markets, so it felt like a really easy leap when we were just learning how to underwrite in a different state, let alone different cities. When we first stepped foot in Florida, it, our product took off like wildfire. I would say still to date, of all of the states that we've moved into outside of Texas, it was by far the easiest one to really build rapport and to get brand recognition.

[00:24:26] And so that's m- maintained really, really well. Where our product is helpful there is that we do work with first-time investors, and obviously T- uh, F- Texas and Florida, it's a huge pull for out-of-state investors, for example, or people that are moving to the US or moving for investment purposes. Florida still has a huge draw for those investors, and we're quite friendly with them.

[00:24:49] We also are really particular about how we lean in with making sure that their rehab budget makes sense, that they're gonna be a hands-on investor, that they're using proper GCs. We've been able to learn all of that through reps. We've, as a, a family office, have taken on some assets there that we've even, uh, finished and flipped and brought through fruition.

[00:25:08] So we really have an understanding of what that market takes to be successful. That also means sometimes we turn loans down there because we don't believe in them. But generally speaking, we're quite bullish on, on Florida, even while people are worried about it. I think a big part of it as well is if you're not used to a coastal state, some of the weather events can be intimidating, and so, and I completely understand that.

[00:25:30] Again, people tend to lean in where they're familiar, and living in Houston, having to deal with weather events like hurricanes, while it's no joke, we also, we, we kinda understand what that looks like and feels like and what the risk tolerance is there. So that's really, really helped with us to remain focused on that state.

[00:25:48] Alesondra Mora: I would say also, I mean, this predates when I joined the team, but I understand the value of it now, and I've seen it as we've continued to maintain that status in Florida, is also key of having bilingual team members. Mm. That's also of, like, of looking at the kind of cultural dynamics of any area that you are leaning into, of just, like, what are the needs of the buyers there.

[00:26:07] Like, what's kind of their preference? So I definitely think that's assisted in some of the growth within FlipCo, and then even Florida being highly attractive to even, like, foreign nationals, that's something that FlipCo definitely is open to a lot more than I'd say a lot of other shops. Mm-hmm. So kind of those two factors definitely helped as a catalyst as well.

[00:26:26] Kayla Pelland: We have to be foreign national friendly, right, Rocky? It'd be pretty hypocritical of us.

[00:26:31] Rocky Butani: Yes, absolutely.

[00:26:33] Alesondra Mora: For anyone who doesn't know, Kayla's from Canada.

[00:26:35] Rocky Butani: Yes, I know.

[00:26:37] And, um, a- a- any particular parts of Florida that, that you like lending in? Like, do you like the South Florida, Miami area, or do you tend to like more the west side or, or, or the north?

[00:26:50] Kayla Pelland: Tampa, Orlando, I would say those are the two biggest areas. We're not against Miami, but we do have a preference for those lower loan amounts, and it's a little bit difficult to find something in Miami that fits that box. But definitely, uh, Tampa and Orlando are the two biggest cities that I would say we, we find the majority of our traction in.

[00:27:09] Alesondra Mora: Yeah, and we don't lend on condos. So if you're- Gotcha. Yeah ... if you're looking at some of the Florida cities that are much more traditional and high-rises and other things, like we just won't have a footprint there. It doesn't make sense for our product.

[00:27:21] Rocky Butani: ----

[00:27:21] Okay. And, uh,

[00:27:22] let's talk a little bit about Texas. Um, so Texas is your home state.

[00:27:27] It's where you do the most loans. Um, are you mainly focused on the four big metro areas in Texas?

[00:27:34] Kayla Pelland: We are, but I would definitely say we're far more comfortable in Dallas and Houston. That's where we've had the most success. San Antonio is a tricky city for us. It's, you know, not unlike many others, but we have found that trying to pull comps without being really familiar with one street to the next has made our valuation process a little bit difficult.

[00:27:58] And I hate to bring up Austin, 'cause it's obviously been a hot topic for a year or so now, but just trying to catch values in what seems to still feel like a depreciating market is, is tricky, right? So FlipCo... I'm sorry, Alesondra has a property in Austin, so we try not to talk about it. But, you know, for those who don't know, FlipCo still relies all on in-house valuations.

[00:28:20] So while we say we don't require a third-party appraisal, we're still running valuations for as-is and after-repair values on everything. And in these more volatile markets, it's always tricky, right? We're looking six months back trying to predict what an asset is gonna be worth nine months down the road.

[00:28:38] And when, you know, in a very even-keel market, you can make some assumptions. But if there's an area that we're looking at where you're seeing prices doing a lot of- whether they're hyperbolic and increasing or decreasing, it just makes it hard to be really certain about where we think that's gonna land by the time the rehab's done, and it gets on the market, and there's a buyer.

[00:29:00] So there's just certain cities that... And it, none of those, none of the four are off, you know, off limits, but there's definitely, um, pockets, especially around Dallas and around Houston, that are far more stable and more suitable to fix and flip loans especially.

[00:29:17] Alesondra Mora: I think it's also, um, it's part of the nuances of each city.

[00:29:22] Mm-hmm. So, you know, there, there are some lenders who they won't lend anywhere where they don't have boots on the ground. Right. So we're, like Kayla said, we're predominantly an office, so we don't have boots in, in every area that we lend by any means. But I always kind of joke around and what I think some shops have had some issues with Houston primarily, it's if you don't know this area, the zoning is the Wild West.

[00:29:43] Yeah.

[00:29:43] Kayla Pelland: Mm-hmm.

[00:29:43] Alesondra Mora: You could have a daycare next to a- gentleman's establishment, if

[00:29:48] you will Yeah.

[00:29:49] Oh, my goodness. Um, next to a $5 million house, next to a house that could m- maybe be worth 30,000 after a lot of... Like, it's so, not even block by block, it's like every-

[00:30:02] Kayla Pelland: That's one street ...

[00:30:03] Alesondra Mora: ...square feet kind of a thing. And so it's like if you don't know some of the little nuances, like San Antonio is one of those as well. You have the whole strike team thing that happened a couple years ago. It's just, like, there are things, if you just look at the data, you're like, yeah, it checks the boxes. But there are just kind of some high level of when you're getting to know, like, the local lay of the land, that you kind of have to keep in mind these little odd things.

[00:30:25] I remember when I lived in Austin years ago, they were the second-highest permitting cost in the country- Wow ... only to DC, when it was having that blow-up. And, and that was such a delay for so many-

[00:30:36] Kayla Pelland: Hmm ...

[00:30:36] Alesondra Mora: investors and ground-up. And it's like, but if you didn't know that, like kind of going into your loan term and your carrying costs, like, the numbers looked astronomically great.

[00:30:44] But it's just, like-

[00:30:45] Kayla Pelland: Until you factor in your soft costs.

[00:30:47] Alesondra Mora: The details is in the, in the fine print- Right ... as we all know, so.

[00:30:50] Kayla Pelland: I think the interesting part of all of this is that I mentioned earlier that we're so focused on common sense underwriting, and the majority of the time, that serves our borrowers really, really well.

[00:31:02] Because there's instances where maybe not all the boxes are checked, but you can get there. Like, it makes sense. You can see what's going on in that market or with that borrower, their experience, so that you can put the pieces together. What we also see, though, is that using common sense can sometimes show us that a deal doesn't make sense.

[00:31:20] So the opposite can be true. We can check all of the boxes, but even with the boxes checked and the full story, if we're not setting our borrowers up for success, then we are all going to fail. And so that, again, from a, a partnership perspective when we're lending to people, we're really thinking about what is their ex- exit strategy and what is their ability to perform.

[00:31:42] We're not looking at ability to repay like a, a conventional lender might be, but we're looking at what's their ability to perform and be successful in this project.

[00:31:50] Alesondra Mora: And I think that's something that any borrower, broker, kind of who you're working with, understand the capital stack behind- Sure ... a shop, because that's gonna also lean into how they look at deals.

[00:32:00] Mm-hmm. So as a balance sheet lender, it's our problem to deal with after the fact. We're, we're not selling this note off, so there's definitely a little bit more skin in the game as far as how we're looking at it. And of course, several people have heard my running joke. My mother's an appraiser back in Chicago, Indiana area.

[00:32:14] Her name is also Karen, so like I get to own- ... all the jokes, um, as far as that. But I said it's like she has to stay within the licensing metrics of what an appraiser can and cannot deduct, how much they can deduct. It's very calculated and very finite. Um, she cannot deduct for an absolute atrocious floor plan and bedrooms that could barely fit a twin bed.

[00:32:38] You know, she can make notes necessarily on sizing variations, but having the desktop BPOs or having the control on the underwriting, like our team will deduct kind of for that common sense.

[00:32:49] Kayla Pelland: Right.

[00:32:50] Alesondra Mora: We all know, we, we become, you know, HGTV experts. We're driving down River Oaks Drive, ugh, that van- like, I can't believe that lawn on that five-acre home, not big enough for me.

[00:33:00] All of a sudden it's like there's the piece of paper that says, yes, this, this asset could sell for that, and then there's what the market's actually- Sure ... gonna absorb, what somebody's actually gonna pay for. And obviously, depending on the price point, somebody who's in a $300,000, they can't come up with the 30K extra-

[00:33:15] Kayla Pelland: Right

[00:33:16] Alesondra Mora: if we can't get there on the appraisal. Right. You know, but when you're 750, a million up, yeah, probably no skin off their back. But so it's just, I think, of looking at that, that's been the biggest dif- differentiator for FlipCo, is adjusting those numbers for like let's get realistic of yes, it could sell for this, but what do we think it's actually gonna go for based on looking at this as a true property?

[00:33:41] Rocky Butani: -------------------------

[00:33:41] Okay. Nice. Uh, uh, next I wanna talk about your loan program and get into some of the details of the guidelines and the features of the programs. But let's take a quick break, and we'll be right back.

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[00:34:41] Rocky Butani: And we're back with FlipCo Financial.

[00:34:43] Um, so

[00:34:44] Let's talk about your loan programs. Uh, your, the c- name of your company is FlipCo, so I assume that most of the loans that you're doing are, uh, a rehab, a fix and flip, uh, of a, of a residential property. So why don't we start with that? Uh, tell us a little bit about the program, high level, the leverage, um, borrower requirements, uh, loan amounts, and, uh, and then we'll go from there

[00:35:08] Kayla Pelland: so you're right, the majority of our, our portfolio is fix and flip loans.

[00:35:13] We do do bridge loans as well. So those are true bridge loans where maybe somebody is closing on a property because they've got a great deal or a distressed seller asset and they need to close really quickly, but they're gonna either refi directly out of it, buy and hold as we mentioned earlier, or put it on the market even and just make a quick spread.

[00:35:30] So, um, but the majority of the loans are fix and flip loans as well. Um, do you wanna go over some of the borrower requirements? I know that's a bit more of your forte.

[00:35:40] Alesondra Mora: Mm-hmm, the marketing cat. Um, so we are, as we've talked about a few times, we are first time investor friendly, which is another, I, you know, I hate to say unique within this space because every experienced investor was a first time investor at some point.

[00:35:54] But I always say guardrails. Um, so pretty much anything that we're gonna say about any of the requirements is always gonna have an asterisk on it, if you will. And that's also, you know, something that we take pride in at FlipCo as far as, you know, tell us the story of why this deal makes sense for this particular person.

[00:36:12] Um, but FlipCo is first time investor friendly up to a 60K rehab. That's just something that we've seen within our own portfolio as far as performance of people getting a little in over their head, um, if they don't have a GC. So that would just be a question I'd even be having with somebody. If this is your first investment, why wouldn't you want a GC on the property?

[00:36:30] Oftentimes it comes down to an ROI. "Well, I don't wanna have to pay that fee to someone." However, it's not necessarily of getting in that mindset of what am I gonna lose by doing it, it's, well, what's it gonna cost you in the end by not-

[00:36:43] Kayla Pelland: Mm-hmm, mm-hmm ...

[00:36:44] Alesondra Mora: having that person on your project? Because I doubt you know what you need to do for permitting, for inspecting electrical, and if you think you can watch a YouTube video or listen to one podcast, I assure you you are no expert.

[00:36:55] Um, like I said, I've been in this space since 2015, and I have a property that, like, I ignored everything I knew. Like, I, I will... I would like people to learn from even my own vanity- Sure ... ego where it's like, "No, I know what I'm doing here." Um- We've all done that for the record. We, yeah, we, we all have done it.

[00:37:12] We, we know best. Yes. And, um, so guardrails, like I say, you know, first time investors should be local to the project. This is something not just within FlipCo's portfolio, but I've talked to several of our peers of out-of-state first time investors. Um, but even had an interesting conversation with somebody who's in California, and it's like, well, for me to get started in California-

[00:37:31] Kayla Pelland: Mm-hmm

[00:37:31] Alesondra Mora: just not feasible. Their price points are obviously significantly higher. Um, so it's like, again, going back to adjusting that lens, but FlipCo, that's our line in the sand. You have to be local to the project. Um, if you are a first time investor, have that GC on it or a project manager. Um, what we have found to be successful is also mentorship programs.

[00:37:51] Kayla Pelland: I was going to say yeah

[00:37:51] Alesondra Mora: mentioned earlier how we've had a lot of success in Atlanta and some of these other states. So what we've seen as a new kind of product development, you could almost say-

[00:37:58] Kayla Pelland: Mm-hmm ...

[00:37:59] Alesondra Mora: is not necessarily, um- Leaning into, I would say, like outreach programs, but having our experienced investors who then want to scale, so they kind of, they lean more on the GC side, and then they start these mentorship programs.

[00:38:14] So we have confidence in, in their quality of work of, you know, their prowess as an investor of kind of guiding these people along. So that's something that we've been a lot more intentional in, is investing in some of our experienced investors who are just staying within investing. They're kind of expanding their toolkit as well.

[00:38:31] Um, we don't have a loan minimum, as we've talked about again of why we've been so popular in the Midwest. We just have an origination minimum, um, currently $2,500. We have a max loan amount of a million. Could it technically go above that? But we know anytime you say a maximum, there's always gonna be an ask to go a little bit higher.

[00:38:49] Kayla Pelland: We just give room people to

[00:38:50] t-

[00:38:50] room for people to make an ask.

[00:38:52] Alesondra Mora: And I will say, we can technically do up to as many doors then within that million dollars, but what I'm very transparent about, of once you get over those four units, it- there's just not gonna be the turnover in multifamily within the last six months within a mile radius.

[00:39:06] You know, people hold

[00:39:07] onto-

[00:39:07] Kayla Pelland: Yeah, holding them is so hard.

[00:39:08] Alesondra Mora: Yeah, people hold onto those assets for years or decades. So i- I think that one, it's just not an asset class that we're particularly comfortable in, and- and we're perfectly fine with that for the people who know how to navigate that. Um, as far as we're very broker-friendly, um, that's something when I first started with FlipCo, I don't...

[00:39:25] There was maybe only a handful. Mm-hmm. It's now been about half, um, of our business and pipeline now, and I think again, like how I'm saying, it's that professation of the space of- of another guiding hand, if you will, to help somebody through a transaction and kind of be a second set of eyes. Obviously, they're the first line of defense there.

[00:39:43] So I would say those are kind of the main contributing. And of course, we like to be as transparent as possible with our terms. Um, we just have our origination fee. There's no junk fees as far as like processing, application, um, and underwriting fees. Since we do the most desktop BPOs, there's not an appraisal cost to the borrower.

[00:40:00] Um, so I think that's another reason why a lot of brokers do like working with us. It's not fee on top of fee on top of fee- Mm-hmm ... um, as far as that. So we like to-

[00:40:10] Kayla Pelland: I- I noticed as well recently with s- because I've been leaning in a little bit more and more as- as I mentioned earlier, with the conventional brokers and trying to show them what originating in the private lending space looks like and how it can help them during slower, um, seasons of their career, and one thing that I've noticed they like is the f- not just the transparency of the way that our fee structure is.

[00:40:32] So again, yes, there's not fees that are stacking up, but also with a no credit requirement, we're able to have a really, really standardized pricing guideline. So most lenders have pretty complex sizers or at least a matrix in terms of if experience is this and your credit is this and this is the market you're in, and, you know, all of the sudden it gets pretty convoluted when you're trying to price that loan out.

[00:40:55] So FlipCo's pricing is currently at 75% LTV of an ARV, or 90 p- 90% LTC. That's going to be consistent across the board regardless of- of that borrower. So brokers, let's be honest, I mean anybody, but brokers especially, they're gonna want to have the path of least resistance or something that's the least friction.

[00:41:18] And so they know when they're quoting for FlipCo, we really do stand by what- what our pricing is and what our, our guidelines are.

[00:41:26] Alesondra Mora: And as far as loan product, uh, FlipCo will not say, like, we're gonna be necessarily the best fit for an operator who's doing 50 projects a year. Uh, we are very aware and honestly proud of it, of being a launchpad for investors of they will outgrow us.

[00:41:40] And as we hope they do, um, and then they will go to the, you know, next level of what they can get for bank lines and other things, and preferred pricing kinda with some of these aggregators. So that's the natural evolution of the investors that work with us, and we hope they reach it, 'cause that means we had some good projects along the way.

[00:41:57] Kayla Pelland: Thats true.

[00:41:57] We're very, very big on being that vehicle for success for, for our investors. The funny thing that's happened over the last few years has actually seen people who we would have very much thought had graduated beyond our product coming back around. The, the portfolio in Pennsylvania was a really good example.

[00:42:15] That's an investor that would have likely had access to more institutionalized kind of funding, but instead chose to work with us, spent a little bit more money. But it was the old example of you get what you pay for. Like, he had a very white glove experience with us, full transparency. Ha- you know, he could call at any time, text at any time, knew he'd be able to speak to people that are running his projects or his draws.

[00:42:37] And so we've had people that m- maybe, um, were too high volume for really calling FlipCo in the first place, but then through learning about us or meeting us or being referred to us, have preferred to work with FlipCo over some of the bigger shops. Which is, I mean, that, like, what greater compliment can you have about your product or process than something like that?

[00:42:59] Yeah.

[00:43:00] Yeah.

[00:43:00] Rocky Butani: Let's talk about pricing, since you mentioned, uh, you don't have any junk fees. You have, uh, an origination fee, and what's the interest rates at this time?

[00:43:09] Kayla Pelland: So we're currently at 11.99 on any of our loans that are going out the door, and two points origination.

[00:43:17] Rocky Butani: Okay. And with the two points origination, there's a minimum of $2,500, right?

[00:43:21] So even if it's a smaller loan amount- Yeah ... the minimum is $2,500. Okay, great. And with that, what is the, the minimum loan amount or the lowest loan amount that you've funded?

[00:43:33] Kayla Pelland: Probably gone as low as maybe 30,000 or so.

[00:43:36] Alesondra Mora: I think the lowest- Off the top of my head ... was like 27,300.

[00:43:39] Kayla Pelland: Okay.

[00:43:39] Alesondra Mora: Um, but, uh, I do believe that was an equity cash out.

[00:43:43] They didn't wanna put-

[00:43:43] Kayla Pelland: Right ...

[00:43:44] Alesondra Mora: that much out of the property. But, I mean, the ultimate question is if, when you start getting to a super low amount of... I, I'm starting to question why you need the loan, qui- quite frankly. So again, that's just having the conversation. But again, that, that's the smallest we've gone.

[00:43:57] Um, and I will say that's kind of some of the things that we have to keep in mind with these Midwest areas or these smaller purchase prices. Yes, they have the high turnover and volume and things, but there also is, because the pricing is a little tighter, there's a little smaller room for error as far as- Right

[00:44:15] because they, they're already low values to begin with. So it's- Mm-hmm ... kinda like there's only so much lower we can go on that. So that's a, that's a risk tolerance that we're very aware with that.

[00:44:25] Rocky Butani: ----

[00:44:25] And

[00:44:25] What about a situation where the purchase price of the property might be lower than the renovation budget?

[00:44:31] Is that something you would consider?

[00:44:34] Kayla Pelland: We have done deals like that in the past. I have to admit that with the way the markets are right now, that has been flagged as one of the indicators of... I think that was in a lunch that you had recently, Ashley, that that came up as one of the, I don't wanna say a, a leading indicator, but something you have to look out for.

[00:44:52] If you're buying a property at such low of a price and it needs that big of a renovation, one would assume it's because the property is in pretty dismal repair. And when FlipCo first lends on a property, and the way that it would n- normally work in our industry is you're lending on that property at 90% LTC out the gate, so there's not a lot of room for that property's value to decrease.

[00:45:15] And when the first thing somebody does when they close on a house is what? Demo, and they tear it apart. There's a, a moment in time on that loan where it's, it's gonna be worth less than what your loan amount is before- Right ... they start repairing. I mean- Yeah ... right? And so... And there's instances where sometimes it's less than lo- land value because now you have a structure that's half built on it.

[00:45:37] So, uh, you know, for those factors, we are very hesitant. We don't have a hard line drawn that says we won't do it, but it is something that we definitely will question and wanna understand the story better of why there's such a, a delta between those two numbers.

[00:45:52] Alesondra Mora: I'd say the, the absolute line in the sand is that they can't walk away with cash out at, for the closing table.

[00:45:58] So we, we start our down payments at 10%, period. Um, so even if the leverage was below that 75% LTARV, we're still gonna require that 10% down payment, which is something that's a little different about FlipCo. It goes back to our mantra of, like, wanting some skin in the game from the borrower. So that would just be something, if their technical 10% down payment, it, like, it would've came out that they would've been walking away with money from us, that- Sure

[00:46:22] that's where our line is.

[00:46:25] Rocky Butani: Let's say in that situation, for people who don't really understand, um, the, the, the, the whole reason is that, um, y- the way you're looking at it as a lender is what if the borrower were to walk away mid-project and, and there's negative equity, and that's the reason why, uh, lenders don't typically lend, you know, a, a larger rehab budget than the purchase price because the purchase price essentially is the value and, um, and, and you don't want to be underwater.

[00:46:50] And what if the borrower walks away, then, um, then the numbers don't make sense, obviously. Yeah. But, uh, but what you said, there's a min- it's a minimum 10% down payment, but are you funding 100% of the rehab budget? Or how does the, how did the, the m- how does the money actually flow? Are they fronting the first phase and then you reimburse them?

[00:47:12] Kayla Pelland: Right. So all of... That's a great question. All of our draws are ran through reimbursement. We don't hold our borrowers to a particular schedule or phased approach to those draws, and they are able to perform their self-draws. So that's another unique factor with FlipCo that if there's a borrower who wants to be able to do draws once a week to pay their subs, they can.

[00:47:31] But also, we have other borrowers that'll wait until they're halfway through the project to take their first draw so that they save the interest payments on it. We're only gonna charge interest on funds that are used, so a borrower has a lot of control in deciding how they want those funds to flow throughout the project.

[00:47:47] The only time they really will hear from us on that is if a borrower is not taking draws for 30 to 45 days into their project. We're gonna be reaching out and just seeing, "Hey, are you, are you working on it and you don't need your dr- need your draws, or is there a hold up?" We're trying to gauge how long it's gonna take them to get through their project.

[00:48:05] The longer it takes, the higher risk the loan. So we like to understand what cadence they plan to make it to the finish line with.

[00:48:12] Alesondra Mora: I would say to maybe circle back to the initial question as far as, like, how the down payment is applied. So we calculate our down payment off of the total loan request. So it's gonna be based off of the purchase plus the rehab.

[00:48:23] That's all applied to the purchase, so pure equity in it. We're not holding that. So then they'll do 100% of rehab on reimbursement. Right.

[00:48:31] Rocky Butani: It makes sense. And, uh, the leverage stays the same regardless of the investor's experience, right? So it's 90% loan to cost, 75% loan to-

[00:48:40] Kayla Pelland: Mm-hmm

[00:48:40] Rocky Butani: ... after-repair value.

[00:48:42] Alesondra Mora: I would say the biggest thing with FlipCo would be of seeing proven execution with us.

[00:48:47] Um- Sure ... that's when we're open to conversations of adjusting, you know, whether it's coming a little down on the interest rate. It has been a rare occasion as far as going below that minimum, but then it's staying under 70%. So, like, there's different levers that we can pull, but that's strictly based off of your performance with FlipCo.

[00:49:05] Um, so we need to see that execution with us, not necessarily the verification through other shops.

[00:49:10] Kayla Pelland: Sure.

[00:49:12] Rocky Butani: --

[00:49:12] And

[00:49:12] How about, um, credit? Let's talk about that a little bit, because you said you don't have a minimum credit score. So how do you look at credit? Do you, do you check or do you pull borrowers' credit?

[00:49:23] Tell us a little bit more about that.

[00:49:25] Kayla Pelland: No, we really don't. And so we've historically always been an asset-based lender, first and foremost. I know there's a lot of people that say that they are, and then they underwrite a deal like Chase does. And so that has never really made sense to me. Um, we look to the asset first and foremost in the valuation process that we spoke about.

[00:49:44] And, and here's the, the misconception there is that I think a lot of times people think, "Oh, wow, they must be really willy-nilly or just crazy to look at a file like that." But at the end of the day, to, uh, to us, that credit score is just telling you one portion of that borrower's personality or characteristic, right?

[00:50:05] What I want to understand is the asset is really the only recourse that we have. So whether or not you've been stellar at paying your bills for the last couple years on a consumer basis doesn't necessarily paint the whole picture of what you're gonna be like as a construction or a rehab operator. And if you fail at that part, I'm going to take the asset and only the asset back.

[00:50:28] So I don't want to be in trouble with the asset and blinded by the fact that you have a 720 credit score. And so no, we don't pull it. That being said, we will sometimes have conversations still around credit based on what your exit strategy is, or if there's instances where we think that you may be a good fit for an alternative product or an introduction to somebody else, then credit may become a factor because the reality that basically every other lender is going to require a pull for that.

[00:50:56] Alesondra Mora: Yeah. It's an example of somebody coming to us like, "Well, I have a 530 credit. I want to put this into a rental. You're the only lender that doesn't have the minimum." It's like, "Well, let's have a conversation- Exactly ... 'cause you're gonna need to qualify for the loan after us." For the So if somebody's saying that's their credit score, I'm gonna believe them.

[00:51:11] But it, like Kayla said, it's a data point. Right. Um, it is more of a conversation when we know that they might be leaning towards the rental, just 'cause it's not about just our loan, it's about them exiting ours. So just having that convo with them of making sure if they have the right resources or credit repair.

[00:51:27] And I hate to say it, like again, another TED Talk topic for me, Kayla's heard it, um-

[00:51:32] Kayla Pelland: All of them ...

[00:51:33] Alesondra Mora: moving your credit score nowadays is not the same as it was five, 10 years ago. There's so many ways now, the Bilt cards, everything. You could increase your score 100 points over, honestly, 45 days. So just a lender hanging their hat on just that one thing is not something I particularly endorse.

[00:51:54] Rocky Butani: Speaking of that situation, sometimes people reach out through our platform and they want a long-term rental loan, uh, or th- or they're gonna rehab a property that they want to hold as a rental.

[00:52:04] Their credit score is below 600, and we tell them that, "You're not gonna qualify for the long-term rental, so the lender won't offer the short-term loan if you're not gonna qualify for the long-term loan." So what do you typically tell investors as far as what credit score they need if they're planning to hold it as a rental?

[00:52:22] Alesondra Mora: I would say that comes back to a lot of the underwriting, because there are products out there, you know, that are long-term that waive a credit score requirement. Their leverage and their- Right ... cost of that is going to adjust, of course. Um, so I mean, if somebody actually buys right, they, and they have the liquidity, again, why their credit score is what it is, the deal can still work.

[00:52:45] But if numbers are tight, they're at max, then, like, I hate to say the

[00:52:49] conversation-

[00:52:49] Kayla Pelland: Yeah, you're not gonna get, you're not gonna get 75% LTV on a rental and, uh, you know, on a cash out, and be able to DSCR 1.02 and have a 400 credit score. If somebody finds that product, let me know. But I hope, I hope the market doesn't have that product.

[00:53:07] That's not good for anybody. So your, your point is right, though.

[00:53:10] Alesondra Mora: Yeah, I'd say it's more of a combination with us. It's, I, I most often see low credit and low liquidity, not usually just the credit. Um, so that, that's where the conversation is. Like, our ... We get this quite often, that our minimum reserves, our liquidity requirement is one of the highest in the space.

[00:53:29] Mm-hmm. Um, and then also the news lines now is liquidity being an issue of how people are kind of calculating that. I mean, that's the bloodline of, of a project. How can you carry that company? Mm-hmm. It's not just can we get it done at the closing table, can you get it to the finish line? Um, so it's not about qualifying for us, it's about qualifying also for reserves.

[00:53:48] 'Cause typically long-term's gonna have higher. They wanna see six months, they wanna see eight months. Yeah. And again, back to your credit score, back to your leverage, other things that all adjust that. So I'm not gonna get into nitty-gritty with somebody to qualify somebody else's product. But where I have an issue when speaking with borrowers or brokers is they want us to underwrite, like, the takeout lender, but I don't even know if you're gonna make it there.

[00:54:09] Like, not to be a Debbie Downer, but I need you to perform in this loan first. And if it can't even pencil as a flip, I'm gonna have questions about it penciling as a rental, 'cause it still has to hit values. Right. And I think that's the biggest issue- Right ... is so many borrowers, like, it's gonna make this in rental income.

[00:54:25] Kayla Pelland: The, yes.

[00:54:26] Alesondra Mora: Great. But your terms are still based on the property's value.

[00:54:29] Kayla Pelland: On LTV, yeah.

[00:54:30] Alesondra Mora: So there's only so much that you can do there.

[00:54:33] Rocky Butani: If for any real estate investors out there that are listening and they don't understand the concept of liquidity, um, or, or they wanna figure out how much they need, uh, could you just tell us how you would, uh, calculate that for them?

[00:54:47] Alesondra Mora: $1 million.

[00:54:49] Kayla Pelland: Maybe, depending on the size of the project.

[00:54:51] Alesondra Mora: Yes. Um, so FlipCo's equation is your down payment, so the FlipCo down payment, your closing cost, which is gonna be your prepaid interest, um, $500 legal fee, um, the FlipCo origination. If there's a broker, their origination as well. We'll want to see, like we said, we start at six months, so we'll wanna see just liquid.

[00:55:08] We don't hold it in interest reserve. Six months of your max interest payment, and then if you have a rehab component, 25% of your rehab. So I think a common misconception is if you say you're self-funding, that your liquid requirement goes down somehow. It, it goes up, because now I need to see you have the full rehab amount if you're gonna be the one fronting that.

[00:55:28] Um, so that's FlipCo's equation for how we calculate liquidity.

[00:55:32] Kayla Pelland: The biggest question we get around liquidity right now when we're talking to, to borrowers directly is th- trying to justify, or they're trying to justify that they're gonna be using credit to run their project, and so they don't understand the idea of having the 25% of the rehab budget, especially because they can also take those draws in smaller chunks than that.

[00:55:52] Uh, what is, still surprises me today is that we're not accounting for any other costs that are incurred Not your car breaking down, not a family vacation, like none of that. So a borrower can show us their liquidity from their personal bank account, an LLC, commercial. Like as long as they have access to those funds, we're approving them.

[00:56:16] We're not taking any considerations for their own living expenses even. So it still surprises me today that there's people who will say that our liquidity requirements seem so far out of reach when the goal is purely just to ensure that they have the ability to successfully make it through the project, not just close on day one.

[00:56:37] And, uh, you know, they, they need three months in, and even if they have a surprise of an extra couple thousand, um, you know they're going to. They're flipping these projects. There's going to be something that is a surprise along the way. They need to pay for that out of pocket. That's not part of their original scope of work.

[00:56:53] Alesondra Mora: And I think the biggest ... Like the two things that we've dabbled with it ourselves, we don't include all of the third-party fees.

[00:56:59] Kayla Pelland: Right.

[00:56:59] Alesondra Mora: So we're not-

[00:57:00] Kayla Pelland: No add insurance or title,

[00:57:02] Alesondra Mora: you know, flood. Fl- you know, Florida, that's definitely gonna-

[00:57:05] Kayla Pelland: Right ...

[00:57:05] Alesondra Mora: as a factor, and we know rising in- insurance costs is, is something that's a very real topic right now, especially for the DSCR and kind of, I, I hate to say killing some of those ratios.

[00:57:14] Um, but also the reality is the rehab budgets that we see that any lender sees, it's not every single expense. Right. I know not everybody's putting the dumpster in there. They're not putting, you know, the finishing touches. Mm-hmm. They won't always put the staging. So even our liquidity requirement actually is under-shooting technically what you would need of what you're truly, truly, truly going to spend on this project.

[00:57:36] Right. So when I get pushback on that of you need 25% of your rehab budget 'cause you have to front it, and knowing that you can make six months of interest payment when we all have the data that most people are gonna need at least one extension- Right ... even if they're loan and going on their project. So if we can't even get there, we don't do income verification.

[00:57:56] I'm not looking at what you have coming in on a monthly basis from other things. It, it does just surprise me of how people lean very, very heavily on the potential of the asset, and they're not focused on the actual execution of it.

[00:58:10] Mm-hmm.

[00:58:11] Rocky Butani: So the liquidity requirement of 25% of the rehab budget, the, they need to show you that before the loan closes.

[00:58:19] But, and some of that money they're gonna use for the first phase of, of the rehab budget, right? But then you said prepaid interest. So for y- when you write a loan for six months, uh, did you say if the borrowers are prepaying that six months of interest at closing?

[00:58:35] Kayla Pelland: It's just from the date that they close.

[00:58:36] So with FlipCo, it's the, the 20th of October when we record this. So whoever closes today is gonna pay interest from today until the end of this month, and then they're not going to pay interest during the month of November. Their first interest payment will actually be in December, and they're paying for November.

[00:58:54] So they're always gonna be paying interest in arrears, which, and that do- I know that sounds, like, a little bit complex. Um, the reason why we do do it that way, though, is if you think about it, if a borrower's only being charged on funds that they're using, as they take draws during November, that's the only way we can calculate what their actual interest payment will be for the month of November, and can't charge them in advance if we don't know what they're gonna take down as a draw.

[00:59:19] Th- that is something nice, though, and it's important for any of the listeners to ask their lenders or their brokers how the interest is gonna be charged, what their payment schedule looks like. You know, if somebody closes today, they're gonna pay a little bit more at closing for those 10 or 11 days that are remaining this month, but then they get a bit of a reprieve because they don't have any other payments for November.

[00:59:39] So it gives them a bit of a break until payoff, then they're gonna pay whatever that little chunk of interest is on their payoff statement.

[00:59:47] Rocky Butani: So why don't we talk a little bit about bridge loans? Um, let's say there's no rehab budget. Someone just needs a bridge to purchase a, a property or, or, or a equity cash out.

[00:59:57] Uh, tell us a little bit about, uh, some of the terms and requirements for those loans.

[01:00:02] Kayla Pelland: So the easiest thing about working with FlipCo is they're very, very similar. So as we described up, the, some of the uses for a bridge loan are going to fall into that just needing to close really quickly. We close within 72 business hours.

[01:00:15] On average, it's about five business days once everybody gets everything they need, but we're ready to close on those. So if somebody has an opportunity where they need cash quickly to execute on a closing, and then they're gonna go into a bridge product from that, that's where that product really excels.

[01:00:32] But the same 75% loan-to-value, 90% loan-to-cost, 2 and 12 that we just discussed, it's pretty well the exact same across the board. Um, we are going to be underwriting to the, the current value of the property if there's no val- or no additional value adds going into it though. So it's a little bit different from that.

[01:00:52] If they're buying it at market value, they're not gonna get 75% of an after-repair value when they're not gonna be repairing it.

[01:00:59] Alesondra Mora: Yeah, I'd say those are the two biggest differences. It's still doc light across all the products, fix and flip, bridge, and equity cash-out. It's just swapping out what documentation.

[01:01:08] So for an equity cash-out, instead of the purchase contract, we wanna see the original HUD, a payoff statement. Um, for those, there is an adjustment. We won't ... We cap the equity cash-out at 60% of the as-is value, and then the total loan request then still has to stay under that 75% LTA ARV. For the bridge, it's technically easier because we're evaluating an asset that's complete.

[01:01:30] Right. So there's no projecting of what the market's gonna absorb six, eight months from now. So that one's actually, like, slightly more on par because we're judging the current market. So those are the only two differences as far as qualifications. Like, experience, everything else is the same, um, as far as what we're willing to look at, and that, that I would say for the bridge and the equity cash-out.

[01:01:50] So the exit strategy comes in play a little bit more just ' cause- mm ... it's not

[01:01:54] as cut and dry, I would say.

[01:01:56] Kayla Pelland: We always wanna just understand the why. So if it's a project that's different than, well, it's a fix and flip, obviously you're buying it to fix it up to sell it and make a spread, but when somebody's needing a bridge or especially, uh, an equity cash-out, we wanna understand how we got there.

[01:02:11] Why are you doing this now? Was the property inherited? Did you buy it from your neighbor? Did you just go get it at the auction? Like, those are all things that make a lot of sense. But if somebody says, "Well, I've owned it for, for six years, I've just chosen to do nothing with it. Well, it's just sat there and rotted," like, hm. Would like to understand why now, why us.

[01:02:27] Alesondra Mora: I would say the ideal scenario for an equity cash out, um, or generally like a refinance, maybe with a small cash out, is that they've held it as a rental for several years. It's ready for some repairs, so they want to get that rehab loan. So we're refinancing, maybe giving them a little bit cash back, and then we know we're just gonna either sell it after they've gotten their money out of it, or they're gonna go right back into a DSCR.

[01:02:48] So that's the most ideal one, I would say.

[01:02:51] Kayla Pelland: Easiest to wrap our head around.

[01:02:52] Yes. For sure. Um,

[01:02:54] Alesondra Mora: but the ones where absolutely not active defaults, um, or if you've been in that project for two years,

[01:03:00] Kayla Pelland: you haven't been able to execcute

[01:03:02] Made instruction. Yeah ...

[01:03:02] um,

[01:03:02] Alesondra Mora: my question always is to the borrower or broker, "So what makes you think they're gonna be successful this time around?"

[01:03:09] And I hate to leave someone hanging like that, but you've been trying for however long, so that's one thing we're not looking to be a bailout lender. Um, even if the numbers are highly attractive, we're not gonna fund a loan just with the anticipation, yeah, we wanna take this back- Never ... 'cause we could make a spread.

[01:03:27] Rocky Butani: --

[01:03:27] Okay. I think that takes care of it for the loan program. So why don't we move on to talking a little bit about the company. Uh,

[01:03:33] Tell us a little about FlipCo Financial's operation. Um, you know, the, the, the, the number of people you have in the company. Your, your, you- we talked a little bit about capital, but maybe elaborate on that a little bit.

[01:03:45] Um, and then, uh, we'll w- wrap it up after that.

[01:03:50] Kayla Pelland: Sure. So FlipCo is around 35 people now. It's exciting to see how the group has grown over the course of six years. So over those years, what we've done is taken roles that were once housed by one individual. So this is wild, Rocky. At one point, my title was director of sales and underwriting How can the same person be in charge of sales and, "Do you like this deal?"

[01:04:17] "Yeah, I like this deal." "I think it's a great deal." "Yeah, I bet I think it's a great deal. It's my deal." Wild times. Wild times. Um- We're still here. We're still, yes. Knock on wood. Uh, but what we've done over time, now those are two people's jobs. So as we've grown, we've just... I had looked at volume and said, "Hey, there's enough volume now that a, an, a, an account manager shouldn't be also the processor on a file, so we'll start adding processors and whatnot."

[01:04:44] So that's how we've, we've grown over time. We've got, um, a team of three leadership team members. Alesondra is one of them. We have, um, Kennedy oversees all of asset management, uh, anything from underwriting all the way to, to defaults or having to take assets back. And then we have, um, a woman by the name of RG who runs all of operations, so anything from processing to servicing sits under her purview, again, all here in office.

[01:05:12] As we mentioned, as the, the part of a family office, one of the biggest things, especially even when I came on board, my background was in small businesses, both as startups and acquisitions, and I was so used to, and frankly a little burnt out or tired of wearing so many different hats. So in any of our small businesses, as an example, we only ever had an accountant for annual taxes.

[01:05:35] Otherwise, I was the monthly bookkeeper. I ran the payroll. I was HR. I d- like... And, and for the record, like not good at all of those things either. And so coming here, we have all of those departments built out, so even though FlipCo is a little over 30 individuals, we have accounting, legal, business systems, IT, HR, all within the family office as people that we can call on or that is ready support for us.

[01:06:03] That's something really unique. I also think from a, a talent acquisition perspective, over the years we went from just taking random bets on people and being excited that people were interested in trying to learn something and build something with us, to now being a really reputable company that frankly I'm super proud of.

[01:06:23] Somebody like Alesondra would have never came on board. Like, I, I'm gonna be honest, if I met her th- on month six of FlipCo being around, she wouldn't have taken it seriously as a job opportunity, you know? And now the, the people that I'm naming to you are really experienced, passionate individuals who saw the value in the way we were structured and were able to come on board and then build teams of their own and do really fun things with a lot of autonomy as well.

[01:06:49] I think that's super unique here. I walk in every day and feel like I run this, like it is one of the companies that I had previously, but with all of the support of it not being, if that makes sense. I feel like I probably, I get very passionate about this part of the, the business, as you can see.

[01:07:07] Alesondra Mora: I'll speak from personal experience of one of my, uh, questions before I joined FlipCo, 'cause I've just seen it at many shops that I've worked at, is how are they capitalized?

[01:07:16] 'Cause we're seeing it now. Mm, mm-hmm. We're gonna continue to see it, you know, for years to come, of when shops run out of money, you know. So how do they get their funds? How do they run their funds? Um, you know, marketing is something that I primarily look at, and I've been in several situations where, you know, we want to go out, we want to advertise, we wanna do all the things, but if I know that we're kind of in a, a funding freeze or, you know- Mm

[01:07:40] again, very sad seeing some of the headlines of companies putting pauses on draws. So that becomes more of a reputational kind of reflection. And we all learn with each season and each market what we kinda would look at a company or how we set up our own departments differently. Um, so that's something that was important to me, uh, before joining the team.

[01:07:59] So having that autonomy, and I will say things just move very fast here.

[01:08:03] Right.

[01:08:03] Um, because everything's in-house and kinda set up, so we're not waiting a year to launch a new program. So that also allows FlipCo to be a lot more nimble, I would say. Mm.

[01:08:13] Rocky Butani: Each of you have a lot of involvement in the private lending industry, um, in terms of trade associations.

[01:08:20] And, uh, why don't you tell us a little bit about, uh, how, how you're, you know, a little bit about your involvement in each of these different groups. Um, uh, maybe start with, start with you, Kaila.

[01:08:33] Kayla Pelland: Sure. Um, I would say one of the most exciting partnerships that we just went into is actually really branching outside of the private lending space.

[01:08:40] So we officially announced last week that we're the founding members for the Capital Partners division of AIME. AIME is one of the older associations for conventional brokers and originators, and it was interesting. I mean, real- in all honesty, a year ago, I didn't even know what AIME was. I really only knew about NPLA and AAPL, you know, the

[01:09:01] and, and we're involved with those groups already. But I've had been looking for an opportunity to bring value from a resource and education perspective. We have been talking about, you know, how do we really teach brokers how to leverage the opportunities of private money? But we didn't have, like, a platform to communicate with these brokers.

[01:09:22] So we had just been trying to either go into Originator Connect and things like that, trying to just network one-on-one with them, frankly, was a little bit exhausting. Uh, and so in chatting with a couple of the leadership team members with AIME, we felt the timing made so much sense right now. People who are in the more traditional originating space obviously are seeing a slowdown in their market, and on the flip side, we are seeing ramp-ups with investors buying properties right now.

[01:09:47] And it's ... We hate to say it this way because it sounds like people are predatory in our space, but if a house has to be sold because of distress from the asset or the homeowner, there's somebody buying that asset. It's not gonna sit on the market. We still have a supply and demand, uh, equilibrium right now where people are buying up what inventory is available, and was it three out of four of these properties are being picked up by investors oftentimes.

[01:10:12] And so there's a need for those loans, and we wanna be able to get in front of originators and teach them how adding just a handful of investors to their pipeline, it doesn't mean that they have to completely change their business model. But I've, you know, I've had conversations, conversations with people that have been in the industry for 20-plus years.

[01:10:30] The people who are moving into owner-occupied properties, a handful of them are investors. They just don't know that Debra, who does their home loan every three years when they move, can also help them with a hard money or a DSCR loan on their investments. So that's one of the, the associations that we're involved with and a relationship that I'm spearheading most recently.

[01:10:52] The aAPL extraordinaire, Amber. Uh,

[01:10:55] Alesondra Mora: I may or may not dabble with AAPL. Uh-huh. So I am, I am on the Fraud Steering Committee. I've also participated in their certified broker, um, course that they offer on the due diligence side. Um, have been a contributor on several of their articles on various topics. Uh, Women in Private Lending is also a group that active in, looking forward to our upcoming sponsorship for one of their events.

[01:11:19] Nice. Um, we also locally have WIMIN, um, that's a women's group here, um, that also involved in. So as we know, um, just as far as the, the female, uh, ratio within lending just is, uh, a little tilted towards one way. Um, but we're here, we're loud and proud, you know, we're thriving together Yeah ... um, as far as it- So those are just a few things, um, that I'm actively involved in, and then just a personal one is Brylan's Feet Foundation.

[01:11:48] Mm-hmm. Uh, my sister, I call her my sister. She is a cousin. Um, we're close, uh, from growing up, obviously, family. Um, but she started the foundation in honor of my niece. Um, and that's something that, uh, I have a personal tie to outside of lending.

[01:12:05] Rocky Butani: And I know that you, FlipCo Financial, uh, hosts some local events.

[01:12:10] Um, is that, uh, only in Houston? Or tell us a little bit more about those.

[01:12:15] Alesondra Mora: Obviously Houston, that's our backyard. So we regularly host lunch and learns here at the office. Um, we'll do site visits with any of our partners who want us to do on-site trainings or workshops, anything like that. Um, we've gone to brokerages, um, wholesale shops, anything.

[01:12:30] We do have a series called Sips and Flips. Um, we have our fall one coming up here soon. Um, so we do that in Houston, but we have hosted them in other cities. We've done Tampa- like pop-ups ... yeah, Atlanta, uh, Dallas. Um, some- atlanta kind of, we call them off market when they're the smaller ones, not our full tilt, you know, 500-people one.

[01:12:51] So we find that doing the local events, just connecting with our local investors or even just kind of getting a lay of the land from the people who are- mhm ... actually in it, it just reaps benefits. Um, but yeah, our Sips and Flips is probably our longest-running and most active across the country.

[01:13:07] Rocky Butani: All right, ladies, that's all I had on my list for today.

[01:13:09] Anything else you wanted to add before we wrap up?

[01:13:13] Alesondra Mora: Uh, I would just say, like, thank you for having us. I mean, I know that we definitely have leveraged, uh, Private Lender Link as far as having a qualifier for good deals and finding brokers, so I appreciate you giving a platform for people to find us.

[01:13:27] Rocky Butani: Thank you.

[01:13:28] Really appreciate that.

[01:13:29] Kayla Pelland: So fun. Thank you so much, Rocky. You're a great partner.

[01:13:32] Rocky Butani: Of course. Thank you. Thank you both, and, uh, look forward to seeing you at the next conference.

[01:13:36] Alesondra Mora: Yes. Yes, be there. Always.

[01:13:40] Rocky Butani: And that's a wrap for this episode. FlipCo Financial is listed on PrivateLenderLink.com. I put a link to their profile in the description.

[01:13:48] When you reach out to them, please mention that you heard about them from Lender Link and the Private Lending Insights podcast. Thank you for tuning in and listening all the way to the end.