Welcome to the 9th episode of the #AskAPrivateLender Podcast brought to you by Mortgage Automator. In this episode, we have another West Coast private lender as our guest – Brad Currie, the founder of Accepted Financial Corporation operating in BC. We covered some of the specifics of the BC real estate market (including grow-ops), Accepted’s preferred deals and their products, and cultivating your broker-lender relationships.
Listen, watch, or read the interview below. And stay tuned for more episodes coming up!
Lawrence: For those of you who don’t know Brad, he’s been in the residential real estate market for longer than I’ve been on the planet. He’s been in that business for over 30 years. I think we’re going to get a lot of valuable information today. To start off, Brad, right now, you’re in the private lending business, but you’ve been in the real estate world for a very, very long time. How did you get there?
Brad: I started out in residential real estate sales years ago, sold real estate, managed an office of about 30 realtors. Did that for about 10 years, and then found that I had an interest in the financing side of the business. At that time, I was with a national real estate company, they actually had internal financing people, like reps, working in the office. It was the first real estate company ever to do that in Canada. Anyway, that’s where I got close to it, and so that’s where I got my interest in the mortgage side of it.
I moved into that side, worked for some institutions, and eventually became a broker. Ever since, probably about 20 years ago or so, I started developing an interest in private lending, and from there, developed out working with individual private investors, lending their own money, to actually creating a mortgage investment corporation 12 years ago.
Lawrence: 12 years ago, when you started, and from what you’re saying is you had a pool of investors, because you knew the market, you knew there was an opportunity that you could get into that space. Did it start off with friends and family?
Brad: Yeah, exactly. We started off with friends and family. We started off very slow, because myself and my partners, we all have other careers. I was still mortgage brokering full time, one of my other partners runs an appraisal firm as well, so we started off small and we just slowly grew. I think the first amount of money we raised was about 350,000 dollars, and just slowly have been adding to that over the years.
In the big scope of the mix, we’re not a large player. We consider ourselves more like a boutique player, and to compete in that area, we saw a real opportunity to specialize in second mortgages, and so that’s what we do. We just find that the yield is good for investors. We like to help those people out that have got a good rate on their first mortgage, they don’t want to break that rate, and they need to top up a second mortgage for various reasons.
Lawrence: Obviously, over the years, I’m sure you’ve grown significantly. Nowadays, is it different than it was 10-12 years ago? Are you doing different types of loans? Has it changed over time, or did you stick with that niche and just continue growing, based on what you were doing originally?
Brad: No, we pretty much stuck with the niche that we were in. In fact, yeah, we do a few more firsts now, because we are larger. In our portfolio right now, we have about 85 mortgages on the books now, which is a fair bit to manage, but yeah, the biggest change we saw was the change in the federal government rules of B-20. Immediately after those rules came into effect, the quality of applicants that we saw just jumped like crazy because there’s a lot of good people out there who just couldn’t fit the boxes anymore. We were quite pleased. That’s one significant change I’ve seen.
Joseph: That was your turning point. That was when the rules came out, the institutions can no longer finance the type of business that they used to finance. All of a sudden, there’s a lot of knocks on your door saying, “I need money.”
Brad: I wouldn’t say we saw more, it’s just the quality of the applications was better. Obviously, as a private lender, that’s great, because it all goes down to risk. It was primarily people who were self-employed, who run good businesses, meet their obligations, but they just can’t fit the boxes that the Schedule 1 banks set.
Joseph: Paint me a picture of your typical borrower. You’ve got yourself a self-employed group, obviously, that’s not qualifying, based on the new bank guidelines. Who else are you dealing with? What other kinds of borrowers do you guys usually see that come to borrow money from you?
Brad: Well, right now, because there’s a large amount of new condo product coming out on the market being completed this year in Vancouver, where people bought these pre-sales a couple of years ago, and now they’re all complete, so we’re seeing a number of those deals lately, where people just can’t qualify. We’re coming in and we’re helping them out, financing, maybe do a first and second combo with another lender, allowing them to close on that property. Then they’re immediately turning them around once they take ownership and selling them.
We see that as a good business for us. Like I said, our management group, myself, my two other partners, we all come from real estate backgrounds. One of my partners runs an appraisal firm too, so we’re very tuned into real estate, which allows us to understand markets. That helps. For example, when we’re doing a new construction, we’ll go off of actual value, today’s lending value. We won’t use the purchase price, the lesser of the purchase price, things like that. This is common sense. The value is the value.
Joseph: Someone will come to you, and let’s say they bought that condo three years ago, Vancouver price, what, 900$ a foot? 850$? 1,000$ a foot? Today it’s 1,300-1,400$ a foot, right? Ballpark?
Joseph: And so they’re looking for… Traditionally, they’d want 75 or 80% financing on the purchase price. You’re essentially potentially going to 65% of today’s value, which is a very safe position to be in, but really, the purchase… You’re going to 90%, 95% of the purchase price?
Brad: Right, yeah. Well, we won’t go to 90%… Well, purchase price, yeah. Effectively, that’s right.
Joseph: Right. You’re giving them a non-insured product at a very reasonable price… And you’re saving them, actually, quite a bit of money, because they’re not having to pay that 4.5% CMHC premium, and then they’re able to either refinance with an institution six months later, at a conventional level, which allows them to fully avoid the premiums or if they want to flip it, because they want to realize their profit and make their 400$ a foot profit, they’ve got you, take something more short term, get it off and move on?
Brad: Exactly. That’s been kind of a change for this year, notwithstanding the issues with COVID, but that’s something we’ve been seeing a lot of with those types of deals. And the other thing too, again, getting back to understanding the real estate, special assessments for condos and stratas, we recognized a couple of years ago that there was a change. A lot of lenders, they kind of look down a little on condos and strata, but we can see trends in the market, that this is the new future.
These properties are a lot more liquid if you ever had to take one over, than a lot of other single detached homes that are worth two, three million dollars here. We look at that, so special assessments, we’re not afraid of those. We understand the impact of the value, understand that stratas will work their way through that and we’ll finance people’s special assessments if they need to.
Lawrence: What’s your view on the whole having skin in the game? Or in the property, if you will? We have lenders that, they’re either on one side of the fence or the other side of the fence, which is, someone buys that condo five years ago, and effectively they want 100% financing or 110 or 120% financing because the values have increased so much. Are you of the adage that “I don’t really care how much they take out, as long as I feel secure, based on the value today and what I’ve lent them”? Is that your view on it?
Brad: Yeah, everything being equal, yeah. At the end of the day, our security is the property. Our worst-case scenario is we got to take that property over, sell it, get our money back. We pay close attention to that, so that’s why we find the value is the value. It’s how we really look at it.
Joseph: I tend to agree with Brad on that. If you’re prepared to go to 75% on an existing property, it’s the same 25% equity they’ve got, as if you were lending the money on a condo that has gone up significantly. The room is still there.
Lawrence: It provides a tremendous opportunity for companies like yours, who see that true value because there are companies that don’t do that, and I think they’re leaving good business on the table. If you’re a broker out there who deals in that sort of market (the pre-construction condo) or you’re a real estate agent… If your buyer’s having difficulty closing, Brad is the kind of guy you should be calling, because he’ll effectively be able to help you close on that property. Definitely, something to keep in mind. As far as the brokers you guys deal with, and do you guys deal with brokers exclusively, or do you also do direct-to-consumer? What’s the business model?
Brad: No, we don’t do direct-to-consumer. We strictly deal through brokers. We do get the occasional unsolicited call for money, and we actually refer them to a couple of brokers that we do a lot of business with. Myself being a broker, over the years, I understand that relationship, so we protect that relationship. Even our existing borrowers, they’ll call in and they want to do something with their financing, we’ll always refer them back to the broker. When the mortgage comes up for renewal we send out a notification to the borrower 60 days before renewal and we ask them, “You’re coming up for renewal. We’ll look at starting a process. This is a great time to reach out to your broker and discuss any potential options.”
Lawrence: Got it. You’re keeping the broker in the loop. When a deal’s coming up for maturity, it’s not an Accepted Financial Corporation client. This is a, “Hey, Mr. and Mrs. Broker, we understand that it’s difficult to obtain these clients. We’re going to keep you in the loop. We want the client to deal with you and then we’ll work out a renewal option with you.”
Brad: Correct, yeah. Yeah. We don’t like to have borrowers with us for long. I always feel if we’ve had somebody with us for three-plus years, they’re not improving their situation. Why? What’s going on there? And the longer it’s on your books, the riskier it is. That’s why we try and really encourage people to look at options and refinance and payout and get into better rates. We look at deals like sometimes bad things happen to good people, let’s get in, help these people out, look at a clear way they can refinance or exit the deal in a year or two, and those are the type of deals we like to do.
Lawrence: Completely agree with you. Every once in a while there’s that lazy borrower, where they’re happy with the payment, they don’t want to go looking and find… They’re just happy to stay with you. But I guess it’s, “Hey, you should probably go look at something because you’re spending too much money with me. You can save money going elsewhere.” That’s interesting. If brokers want to get in touch with you, do you have a BDM that they call? Do they call you directly? How should they get in touch with your company?
Brad: The best way is just to go to our website acceptedfinancial.ca, and the information is there on how to contact us. We used to do a lot of mass email marketing, however, how those things have evolved over the years, we’re pretty much always close to fully funded. We have a core group of brokers that support us too. We have good relationships with them, which we like, but it’s not to say we’re not entertaining looking for more brokers.
Lawrence: Let’s talk about products. Are you mainly residential? Construction? Commercial? What do you like? Maybe loan to values, what’s your risk appetite? Give us some insight as to what kind of deals you’re looking for.
Brad: We’ll do deals up to 80% financing. We just do residential. We don’t get involved in any commercial. It’s not our expertise, our background, so we stay out of that, but certainly, anything to do with residential property, we’ll do. We will do some construction, and given the size of our operation, a construction will be a top-up, because often people get into a construction deal and they find themselves 50,000-100,000 dollars short with their existing lender, and so we will come in and do that top-up for them. A little bit easier to work with, in terms of the draw when it comes to that.
Again, this goes back to our ability to understand real estate. A lot of construction lenders will always retain the cost to complete, we can be flexible with that. Yeah, so condos, single-family, detached homes, townhouses, land. Land, we’ll only go about 65%-70% typically. We’ve gone higher for the right deal because it was one that was strong.
Lawrence: Touch on the construction, because I think it’s a great product. It’s a great thing that people should know. If you’re not following, and maybe you do the business so you don’t understand it’s possible if you have a client who’s building a property, and he’s run out of money near the end, so it may be 85% complete, 90% complete, whatever the number is, he’s not stuck. He or she, the owner, is not stuck. They can reach out to Brad and Brad will come in there and understand the house is here. The dwelling is here. You’re just a little bit short and we’re happy to give you that money because we understand when it’s done, we’re going to be good. And even now, we’re going to be good, based on loan to value, because if you mess up, they’re probably happy to go in and fix up a project themselves.
Joseph: If you’re at 90% completion, what are you fixing? Some paint? Some trim? The kitchen’s probably installed, or about to be installed, vanities. It’s cosmetic work at that point. It’s almost like a reno loan.
Brad: Yeah, it’s really not a lot. At that point too, you see the project. It’s not like you’re just putting a hole in the ground. There are still things that can go wrong at that point, but it’s basically finished. You can see the end product. Tha