When Ruben Izgelov went to a private lending conference, he had full intentions of finding better sources of capital for his own deals. He walked in as a fix & flipper and walked out as a hard money lender. Tune in to find out what lenders are looking for in investors, how to make the lending process easier, and what you need to make sure your lender is NOT doing.
Ruben Izgelov & Andrew Schnissel Real Estate Background:
- Co-Founder/Managing Partner, Ruben Izgelov and Partner, Andrew Schnissel of We Lend, LLC, a private money lending company
- 25 years of real estate experience
- Portfolio consists of 15 units
- Based in New York, NY
- Say hi to them at: www.welendllc.com
- Best Ever Book: How to Win Friends and Influence People & Scaling Up
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TRANSCRIPTION
Ash Patel: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Ash Patel and I’m here with today’s guests; Andrew Schnissel and Ruben Izgelov. They are joining us from New York City and are partners and co-founders of a private lending company, We Lend, LLC. Between the two of them, they have 25 years of real estate experience.
Gentlemen, thank you, and how are you today?
Ruben Izgelov: Well, as well, thank you so much for having us.
Andrew Achnissel: Likewise, we’re really glad to be here.
Ash Patel: Thanks for joining. Before we get started, tell us a little bit about your backgrounds and what you’re focused on now.
Ruben Izgelov: Sure, so I myself was a fix-and-flipper/developer/wholesaler in the beginning of all of this, and then ultimately, transitioned into private lending. Kind of coincidentally, I went to a private lending conference to find a cheaper source of capital for my own deals, and I was introduced to an attorney out there who introduced the whole idea of private lending and being able to start a fund and doing exactly what my private lenders were doing for me, but doing it for other investors. And lo and behold, walking into this conference as a fix-and-flipper and leaving out as a hard money lender.
Ash Patel: And what was it that attracted you to hard money lending versus being on the investment side?
Ruben Izgelov: There’s a lot. I think, for us, we saw that there is a lot of opportunity to be able to improve in the market. A lot of the private lenders that we were working with many years back, they were old school; many of them that didn’t have an email address. Believe it or not, they were still using fax machines and still had flip phones or what have you. And we felt like being young and entrepreneurial, that there was a lot that we can bring value-wise into the business through technology, social media and just a new way of thinking.
Ash Patel: And what year was this?
Ruben Izgelov: That was in 2018.
Ash Patel: Okay.
Ruben Izgelov: So we co-founded in 2018.
Ash Patel: And what are the returns typically for somebody in the hard money lending business? Annual, let’s say cash-on-cash returns
Ruben Izgelov: It depends. There’s a number of ways of looking at it and from a strategical point of view, but in cash on cash, I would say anywhere between 12% to 15%.
Ash Patel: And that’s annualized?
Ruben Izgelov: Correct.
Ash Patel: So why would somebody want to get into hard money lending?
Ruben Izgelov: I don’t know many people who are in the fix and flip space who would want to enter hard money lending, unless they have enough liquidity to be able to do so and they don’t have enough deal flow to be able to put that liquidity into use. I think that’s really when you get into a position where you might start considering doing loans for your competitors or friends or family, which can of course snowball into being a full-blown private lender. That’s kind of how it started for us. When we just started April of 2018, we were working with friends and family, lending money out to them, and then it kind of snowballed into a nationwide private lender.
Ash Patel: And where is your source of funding coming from?
Ruben Izgelov: Our source of capital is primarily from private family office. Additionally, we have investors and other individuals who are currently in talks in order to start investing into our funds.
Ash Patel: And what kind of return would a typical investor get if they’re loaning the hard money company funds?
Ruben Izgelov: I would say anywhere between 12% to 15%.
Ash Patel: Okay, so you guys are very popular right now with this real estate boom. On all these forums, there’s tons of talk about hard money lenders. What should people look for when they’re searching a hard money lender?
Andrew Achnissel: They need to make sure the company is reputable. It needs to go online, look at their Google reviews, go the Better Business Bureau, really ensure that the lender they’re working with is legitimate, and just ask around get referrals.
Ruben Izgelov: I think to Andrew’s point, as a fix-and-flipper and an investor myself prior to starting We Lend, execution was everything, right? A lot of times, I would have hard money lenders calling me with amazing rates, but execution for me was key. [unintelligible [00:04:49].17] wall. I was still using my seven-year-old hard money lender at the time, which till this day is a mentor and a friend of mine, and I was paying him double digits. Sometimes paying him 14% on the money that he was lending us, and two and a half, three points. Obviously the market has changed. But for me, I was ready to do that, because I knew he was able to execute. And many of the borrowers that we work with today, we pride ourselves in the fact that they feel confident in the fact that we’re able to execute on the deals that come their way.
Ash Patel: So hard money scares me if I’m doing a fix-and-flip, and it runs over in a lot of time. What are the repercussions? Or are there any?
Ruben Izgelov: I think that the answer to that question is twofold. We really like to describe the company as a nationwide private lender. And the reason we do so is because we don’t only do fix-and-flip loans. Our most popular product recently is the 30-year fixed-rate refinance program, which is starting at 3.875% currently; so that’s competitive with a bank, and a lot faster and easier to work with. So I’d challenge the term hard money.
Break: [06:04] to [08:06]
Ash Patel: You’re venturing into being a traditional mortgage company, so to speak.
Ruben Izgelov: Not necessarily. I think there’s this stigma that is followed by the term hard money and I get it. Every time someone thinks of a hard money lender, they think that someone is coming in to break your kneecaps if you don’t make the payment, or if your loan is not paid off with the term of the loan.
Obviously, that’s not the case. And I think the way in which we can improve on that stigma and really eliminate it is by changing the way in which private lending or hard money is looked at. It’s no longer hard money lending, it’s private lending where there’s institutional-backed capital that is coming in, billions of capital coming in to be able to facilitate and service the fix and flippers and the buy-and-holders and the syndicators out there.
So it’s no longer those private, hard money guys that everyone thinks of. That was the case many years back. Today, it’s really institutional-backed funds that are coming in and really trying to build a business around what we’re doing today.
Andrew Achnissel: And I think to answer your initial question, if a borrower has a fix and flip loan, and it’s month 12, and they come to us, well, we’re happy to give them an extension.
Ruben Izgelov: And let’s be frank, this was a very common issue due to COVID. Many of our borrowers, their projects were delayed by six months, sometimes even greater, because of all the moratoriums and what came out from COVID. What happened? And it’s a good question. Actually, I think it’s a valid one. You have to work with borrowers, because reputation, for us, is key. If a loan exceeds the term of the loan, you have to work with them; you give them the extra time, you ask them how much time they need and you facilitate that.
Ash Patel: So you guys become more of a partner than the traditional hard money guy.
Ruben Izgelov: We like to see our borrowers succeed. That way, they come back to us with future business.
Ash Patel: Yeah.
Ruben Izgelov: We usually describe ourselves as a partner, as much as a lender who has interests aligned with our borrowers.
Ash Patel: Good. It seems like a lot of people needing hard money loans are in an incredible time crunch, because their traditional financing didn’t come through, an investor fell out… How do you deal with that? And how do you guys underwrite a deal in 10 days or less?
Andrew Achnissel: Thankfully, a lot of our business today is coming from repeated borrowers, which is amazing, right? One, it comes to show you that we’re doing the right thing, but two, it helps expedite the process, because whatever we needed on the first one that we funded, we probably need the same documents with the exception of contract, of course, and corporate documents on the next loan; so that helps us expedite the process. There’s been loans where we funded within 36 hours for returning borrowers. It also definitely helps when a borrower is organized and has all their ducks in a row. But depending on the borrower to be able to expedite the process, it’s also what we’ve built internally.
A lot of what we emphasize on today is technology. So we were able to build systems and put processes into place where things become systematic; we want to take the thinking out from our existing processors and underwriters and loan officers, and all they really have to do is just check off the boxes and move the file right over, and there’s automations that come into play that help not only the processor and underwriter, but also the borrower in completing the conditions that are open.
Ash Patel: If somebody knows that they’re going to need a private money, sometime in the near future, what documents and what things can they put in place to make that approval process easier?
Ruben Izgelov: Sure. So I think that we’ve seen across the board institutionalization of the space. So the documents that we require are the same documents required by publicly-traded REITs and foreign banks and hedge funds so on and so forth. We look for the borrower’s PFS, his SREO, we look for the income and expense report, rent roll, title… If you come to us with a complete file, we could get that closed in, I would say, 2-3 days.
And we try and be helpful with it. To a lot of borrowers, depending on what state they’re in, whether it’s an attorney state or not, they may not have the corporate documents, for example, an operating agreement or the bylaws to be able to send to us. And one of the automations that we’ve put into place is to be able to facilitate the borrower by sending them templates of documents that we would need ahead of time. So as soon as a loan is submitted, there are emails that are sent out to the borrower with what’s to come what’s expected, and what they should be foreseeing to start preparing for in the near future.
Ash Patel: And that puts the onus on the borrower to come up with all the documents, that’s great. What are limits on private money? Is there a dollar amount that you won’t go above?
Ruben Izgelov: There’s certain metrics that we have to abide by just as part of this institutional paradigm, if you will. So every time we give a loan, there’s two main parameters. Let’s say it’s an acquisition loan, for example. So we can only give a certain amount on the purchase. Generally, it’s about 80% of the purchase. And we’ll give 100% of rehab. So that’s the first metric.
And the second metric is that the total loan amount cannot exceed 65% of the after-repair value of the property. And the purpose behind that is just to make sure the borrower is secured and there’s profitability in the deal for them. You don’t want the borrower overleveraging, and as a result, the interest expenses are going to eat the profits; or you don’t want the borrower to be put in a position where they thought that the after repair value is going to be X amount, but it turned out to be Y amount, and is no longer profitable. By having that maximum of 65% of ARV, it almost ensures that the borrower is profitable in the deal, especially when it comes down to first-time investors. You want to be able to guide the process for them, show them the ropes, teach them the lessons that you’ve learned in the school of hard knocks, and that’s something that we pride ourselves in.
Ash Patel: That’s great. Is there a minimum that We Lend requires?
Ruben Izgelov: So as far as experience or—
Ash Patel: No, no. Sorry, minimum dollar amount.
Ruben Izgelov: The minimum is $150,000 on a fix and flip. Have we made exceptions in the past? Absolutely. We’re always looking to establish new relationships with borrowers. And then the maximum is $25 million.
Ash Patel: Okay. So again, private lending is just on fire right now. A lot of these newer investors that are taking money from them – what are some of the pitfalls you’ve seen from bad actors in the industry? What are things to look out for?
Ruben Izgelov: There’s a number of them. First and foremost, upfront fees. There’s a lot of hard money lenders out there who charge an application fee in the beginning of the process. It could be a number of reasons why a loan gets denied and some of these reasons may not be the fault of the borrower. But guess what – they’re never going to see that deposit returned to them.
Another thing is just look at the loan documents. Make sure that there is no hidden fees. A lot of times what we’re seeing is lenders out there promising a very low initial rate. But when you get to the payoff, you start seeing all these exit fees. Guess what? That initial rate is not as low as you expected it to be. So now you’re in the double digits. Those, I would say, are the two most common risks and things that I would look for in a hard money lender, is upfront fees, and what are your exit fees, if any.
Ash Patel: Yeah, good advice. Out here in the Midwest, I believe rates are two and 12. Two points upfront, 12% on the loan. Different areas of the country, I would imagine there’s different rates.
Ruben Izgelov: Correct.
Ash Patel: What market are you guys focused on?
Ruben Izgelov: So today, pre-COVID, the majority of our business was in a New York City area, the five [unintelligible [00:15:47].24] And that’s natural because of where we’re located along with our network.
Post-COVID, we were in a position where we had to pivot to focus on other states. So today, we’re seeing a lot of deals in New Jersey, Connecticut, Maryland, Florida, the Carolinas, Georgia, just down the Eastern corridor. But we’ve also done a ton of deals in Arkansas, Texas, Alabama, and that’s coming naturally to us from the social media marketing that we’ve been doing and focusing on.
Andrew Achnissel: And I think, to your point about the REITs being 12 and two in the Midwest – that’s something we’re trying to disrupt.
Ruben Izgelov: Yeah.
Andrew Achnissel: I think that for an experienced borrower in the Midwest, who’s done 10+ deals, we’d be happy to be at 9.5%—
Ash Patel: Wow.
Andrew Achnissel: —with that borrower.
Ash Patel: You guys would definitely disrupt the market with that.
Break: [16:45] to [18:47]
Ash Patel: I was at a poker game one time and I said, “Hey, I would do it for two and 10,” and everybody’s head turned. And I’m thinking, one, I don’t even really want to do this, but I just kind of threw it out there to see if that would win the market.
Ruben Izgelov: Right.
Ash Patel: Then I thought “Man, how easy would that be?” These guys are willing to pay 10%, two points on a four-month, five-month rehab at best.
Ruben Izgelov: Yeah.
Ash Patel: So good for you guys for wanting to disrupt some of the sharks out there that are taking advantage of people?
Ruben Izgelov: Absolutely. Look, I think it’s inevitable; when you’re backed by the correct and right capital providers, you have the ability to be able to do that.
Ash Patel: That’s incredible. Good for you guys. Give me an example of a horror story of a loan that went wrong and the lessons learned from that.
Ruben Izgelov: Yeah, there’s a number of them. On my part, I can tell you right now and experience that we’ve had recently was a borrower came to us with a scope of work of just a renovation of the property. He was just going to do a gut reno. Calls us and says, “Okay, guys, I’m ready for my first draw.” “Okay, great.”
We come in, we send our inspector. Our Inspector calls to the scene and says, “You know guys, the property is demolished. There’s nothing on the property with the exception of land; there’s just nothing there, with the except trucks and dumpsters.”
Ash Patel: Wow.
Ruben Izgelov: And we took a step back, we did not want to default the borrower, we definitely had a conversation with him in the sense of, “This was not what you told us you’re going to do. This is your scope of work, and this is what you ended up doing. It’s two absolutely different things.”
Thankfully, the borrower understood what they’ve done, they were able to bring back the structure with their own liquidity, and then we were able to come right back into issue the draws just like we would promise, considering what his initial scope of work was.
So that was just a recent experience that we’ve had; seeing a property that was once there, no longer there, I think was a total shock to us.
Ash Patel: So is there a way that you can have boots on the ground when you’re 2000 miles away from the borrower?
Ruben Izgelov: Absolutely. There’s companies out there that we use and that we work with, that are construction management companies that go out there for us to inspect the properties, along with appraisal management companies that would, of course, value the property for us.
Ash Patel: Got it. Gentlemen, I’m going to ask you a question. What is your best real estate investing advice ever?
Ruben Izgelov: I can tell you one thing. I referenced this in the beginning – I had the right mentors. I’m very, very, very fortunate for that. And surprisingly, my mentor was actually my hard money lender. He was an older gentleman, and to this day, we’re friends. I mean, he’s literally seen me grow from just a wannabe investor, fix-and-flipper, into a hard money lender, myself, a private money lender.
And to me, although he was charging me double digits and three points, it was worth every penny, because he was able to guide me through the process, teach me the ins and outs, make the right introductions… And that kind of helped We Lend, because I took that ethos and now bring it into my borrowers by giving them the advice that we’ve experienced ourselves, making the right introductions and steering them into the right direction.
Ash Patel: Which is a great attribute to you, and that’s probably why you’ve grown so well.
Ruben Izgelov: Yeah.
Ash Patel: Great. Gentlemen, are you ready for the lightning round?
Ruben Izgelov: Let’s do it.
Ash Patel: Alright, what is the best ever book you recently read?
Ruben Izgelov: I’ve read this multiple times, How to influence friends—
Ash Patel: How to Win Friends and Influence People.
Ruben Izgelov: Exactly, with Dale Carnegie. And another book that I’ve just recently read is Scaling Up with Verne Harnish, which is also really amazing, and I highly, highly recommend it. It teaches you what you need to do to scale a business, but do it in the right ways to be able to help the customers that you’re attracting.
Ash Patel: Fantastic. Andrew, do you want to throw in one?
Andrew Achnissel: I would say one book that is one of my all-time favorites is The World is Flat by Thomas Friedman. It kind of changed my perspective and made me look at things that like, “Hey, everyone from around the world [unintelligible [00:22:53].18] everything.” So essentially, the playing field is flat. And it’s kind of just a motivating factor for me to know that I can compete with anyone and have no barriers.
Ash Patel: That’s a great mindset. What is the best ever way you like to give back?
Ruben Izgelov: So when COVID first hit in New York City, the city was scrambling to find housing for doctors and nurses and COVID patients, and to see what was going on. I was like, “Hey, I know a bunch of landlords and people in real estate…”
So I sent out an email blast to everyone at my company at the time. And I just started getting bombarded with people who had hotels or office buildings or nursing homes, and that want to lease them out to the city. So I think at that time, that was the best thing that I could do. And I connected those landlords with the city.
Ash Patel: That’s an amazing way to pivot. Good for you.
Ruben Izgelov: I would say for me, charity is everything. We came to America with very little and we were able to grow into what we’ve grown into with the help of others. So charity for me is everything.
Aside from that, it’s really being able to mirror what my hard money lender did for me when I started, is to be able to give the foundation to new investors or even up and coming investors, the tools and the resources that they need to be able to bring their business to the next level. So that for us, is very important, is to be able to help our borrowers other than just providing a capital, which is huge, but also be able to help them in growing in places that they’ve never imagined.
Ash Patel: Thank you for sharing that. And gentlemen, how can the Best Ever listeners reach out to you?
Ruben Izgelov: We’re on all major social media platforms; TikTok—and yes, I said TikTok… So TikTok, Facebook, Instagram, LinkedIn. Our handle on all four is welendLLC, and you could also visit us on our web at www.welendllc.com.
Ash Patel: Gentlemen, thank you for your time today. And Ruben, what an amazing journey you’ve had, from attending a conference with no interest in being a hard money lender, and getting great mentors that changed the course of your life. I have no doubt that you guys and We Lend will disrupt this private lending industry. So thank you for sharing your journey and what you do. Best Ever listeners, thanks for joining us and have a best ever day.
Ruben Izgelov: Thank you so much for having us.
Andrew Achnissel: Thank you.
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