December 3rd, 2020
Accepted Financial Corporation, Brad Currie – #AskAPrivateLender Podcast, Ep 9
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. That’s the kind of thing we would do and more.
Joseph: Usually, we like to ask our lenders a few questions about the type of deals they’d like to do. If you had a choice between doing one million dollar deal or ten 100,000 dollar deals, what would you prefer?
Brad: Yeah, we would definitely take the latter. We’d rather do ten 100,000 dollar deals, just because it spreads our risk around more effectively. Again, those mortgages will be second mortgages, which do generate a higher yield for our investors, which ultimately is who we’re working for, and it is definitely a little bit more on the administration side of things, but that’s okay. We’re well taken care of now, with your guys’ program, Mortgage Automator.
Lawrence: Appreciate that, yeah. And what about a loan to value versus rate perspective? Would you rather be on the lower end of the return that you want, but it’s a much safer deal, or up to that 80% mark, but you’re going to get that higher yield for your investors?
Brad: Right now there is a good supply of private money out there to be lent, and we’re seeing some downward pressure on rates. Actually, I’ve turned down some deals that I know we just weren’t prepared to compete in that space. It’s a low loan to value deal, but we would rather take on something a little riskier and get a better return.
Joseph: There is a need for that, absolutely. There is a lot of liquidity in the market today, a lot of competition, a lot of people out there looking to put out some money, and sometimes you’ve got to find your niche. If that means higher yield is still available, at slightly higher loan to values, for companies such as yourself, you’re okay with that.
Brad: That’s exactly right. As long as we’re getting the money out the door. Obviously, if that changes and we’re not getting deals, then we’re going to have to, obviously, look at the pricing on that basis. We keep tabs on our overall loan to value in our portfolio. Sometimes, yeah, we’ll take on a deal, a low loan to value, lower rate. We’ve got some excess funds, let’s get the money out the door. Those decisions come into play as well.
Lawrence: Dealing with investors for a long time, dealing with people in the residential space for a very long time, I’m sure you’ve had interactions with some wealthy individuals. Is there something that you’ve seen that they do, when they’re involved in the business, that maybe you’ve taken with you, whether it’s their decision-making ability, whether it’s the risk that they take or don’t take, is there something or someone that you’ve dealt with?
Brad: Well, in terms of the investors’ side of things, yeah. When I look at our investor pool, most of the investors that we work with, they never really had any idea of this type of investment. Now, all of our investors are connected to us through friends, family, business associates, so we all have this personal relationship with them. We really brought this investment to them. Some of them, of course, have more money than others, but it’s really they thought, wow, I can get this consistent return with minimal risk and minimal management, and relatively liquid. Get money out if you need to.
Lawrence: That makes sense. And what about from the perspective, though, of an individual who has accumulated a lot of wealth over the years, do they work differently than those who maybe don’t have as much financial ability to invest with you? Do they make their decisions faster? They just don’t maybe think about it and they just go with it?
Brad: I’m just thinking of one individual who told me a number of years ago, “No one looks after my money better than you can do it.” This is the person who invested money and he’s done very well with both investing in property and real estate because that was his area of expertise., versus giving a lot of money off to a financial planner, nothing against financial planners, they have the role, but if you don’t understand that business really well, you can get hurt.
Lawrence: Brad, we talked about the type of business that you’re looking for, second mortgages up to 80%, but we didn’t talk about the specifics of that. What should people be expecting for the rate of the mortgage, the fee that you charge, what do you guys charge on renewal? Those sorts of things. Tell us about it.
Brad: Our standard product offering is a one-year term. It is essentially open mortgages, so if they pay off after two months, there would be a one-month interest penalty. All the mortgages are open, flexible that way. Most of our mortgages are interest only, and also, what we can do for brokers to help with them because sometimes clients are more rate-sensitive than others, is we do rate and fee combinations. We price a mortgage, a standard lender fee is 1% or a minimum of 2,000 dollars. It’s pretty reasonable for a second mortgage. A broker can charge whatever they like on top, we’ll collect it, but then we can look at a rate. If we’re quoting a rate with a 2,000 dollar fee at 10%, we can say, “Okay, we’ll do this 9% for 3,000 dollar fee, or we’re going to do an 11% for a 1,000 fee, that kind of thing, to allow brokers if they want some flexibility.”
Joseph: Yeah, so if the client’s more cash flow-sensitive and they’re okay to pay the fee upfront, you guys can essentially manipulate the numbers to get to the same cost or same yield or ROI that your company is looking for, but on paper, to make it look more attractive to the broker who’s selling that particular client.
Brad: Exactly. Our standard renewal fee is 600 dollars, which is quite reasonable again, in this space, and that hasn’t been a problem. Often, we allow people to add that to their mortgage or whatever, they can recapitalize it over 12 months for 50 dollars a month, on top of their regular mortgage payment. We can handle the renewal fee that way as well.
Joseph: That’s a very reasonable offering, I will tell you that.
Brad: Well, we like to just be fair with people. I’ve seen people go, “Oh, I’ll get in with this deal,” and they don’t realize it’s a huge renewal fee down the road.
We’ve also done some interesting deals lately, where we’ll do mortgage payment reserves. We’ll do a combination too. Some monthly payments, some reserve, depending on the scenario. We like people always to have to make a payment though, really, each month, no matter what that is, just so they have that feeling of an obligation to make.
Lawrence: But you’re willing to be flexible, and I think that’s the takeaway here is that you’re not set in stone, black and white, this is the way we do it, fit into what we do or don’t come to us. It’s, “let me understand what the borrower needs, let me understand what’s going to make this deal work”, because essentially, at the end of the day, if you’re not closing deals, you’re not making money. It’s a smart perspective to take, to be able to work with the borrower and make sure that they understand that after a year, they’re not going to be stuck. You let them know what the renewal is upfront and those types of things. It’s very good.
Now, you said you had about 85 loans on the books. You’ve been in the business for 12 years. That’s a lot of loans I’m sure you’ve done. Overall of those hundreds and hundreds, or thousands and thousands of loans that you’ve done, number one, have you ever been in a scenario where something just didn’t add up and maybe it was a fraudulent loan or you’ve been hit with fraud before or any interesting stories from any of those loans that you’ve done?
Brad: Nothing in terms of any kind of a major fraud issue. We did a loan a while back, a few years ago, and a guy ended up putting a grow-op in his garage and all that stuff. They ended up foreclosing on that one. One of our two foreclosures, actually, from all of our time, that actually went full, all the way up out for the whole process. But yeah, no, we kind of watch out for that. We really pay attention.
That’s what’s nice about dealing with a smaller group of brokers because we build a relationship with them of trust, so we know what kind of business they do. This also comes into kind of answer your previous comment about being flexible, because if we like the broker, we like the deal, and the client looks good, we will be flexible.
It’s advice to brokers out there too because I know what it’s like as a broker. You get a deal, let’s shotgun this thing out to five or six lenders. Great, but if you don’t have a relationship with that particular lender, your deal may not get the attention that it deserves. I get the idea of, yeah, not every private lender is going to be able to do your deal and you need to have a few lenders out there to work with, but I always encourage brokers, just try and work with a few that can cover all your bases and build up that relationship.
Lawrence: It’s a good strategy, because all of the stories that I’ve ever heard of, with fraud, it always starts the same way: a broker I never heard of sent me a deal. It’s always the first deal, so it’s definitely a good strategy to work with people that you know and you build that relationship over the years, and after the year, they start treating your money as though it’s their money because they want to make sure that you’re going to be around for a long time.
Brad: And as lenders and brokers, I always believe in this industry, we got to protect the hands that feed us. Otherwise, the regulators are looking at our business now, the model, particularly in this area of fraud, and if people start playing too many games and get caught, then it makes it difficult for all of us.
Lawrence: Is a grow-op a big thing in BC? Because I know BC, cannabis, kind of goes hand-in-hand. Does that actually, negatively on a major scale, impact properties?
Brad: Well, it’s not so much an issue as it was before, but we still run across properties where it’s occurring or has occurred. It’s very difficult in the A-lender space, there’s one credit union out here who will do remediated grow-ops. We generally try to stay away from them anyway, even if they have been remediated.
Joseph: There’s still that stigma, right?
Brad: Just because of the re-saleability of the property. Of course, low loan to value is a different story.
Lawrence: Low loan to value grow-op is not a big deal to do? You’re okay with that?
Lawrence: Very interesting. And it changes, right? Over the years, I guess, the world changes, the market changes, everything changes over the years. If I would have heard that six, seven years ago-
Joseph: Oh, it’s an instant do not lend.
Lawrence: Do not lend, but I guess today, it’s a different day, it’s a different time.
Joseph: But I think it’s imperative that the property is remediated because if it’s not, I think that’s the biggest issue. Because then you’re pretty much looking at land value. You’ve got to tear it down and start building from the ground up again.
Brad: Totally agree, yeah. Again, I always fall back to the end of the day, the worst-case scenario, we have to take the property over. What have we got left to sell? What’s the chance of getting our money back?
Lawrence: We didn’t talk about your location, where do you lend?
Brad: Oh, well, strictly British Columbia, Greater Vancouver, Fraser Valley area. The major centers in British Columbia, like Greater Victoria and Nanaimo, throughout the Okanagan, Kelowna, Vernon. We really actually like that area. Some of the smaller towns too, we’ll do. For example, the Okanagan, I don’t know how familiar your listeners are with it. Some will be, but there’s a lot of little small towns. There are some major ones and there are little ones like Summerland and Peachland and things like that. We’ll definitely lend in those because that area is becoming basically a metropolis now. They’re all blending in together.
Lawrence: Well, you heard it here, that’s the location, big town, small town, they’re happy to look at it. Accepted Financial Corporation, second mortgages up to 80%. We heard the rates, we know the fees, we know what they do on renewal.
They’re very flexible. They’re going to keep you in the loop on renewal, which is, I think, as a broker, one of the most important things, so you’re not losing your clients and they’re going to keep you in the loop. If you do have deals down that way, be sure to reach out, go onto their website, and get in contact with them. Brad, thank you so much. We really appreciate your time.
Brad: Thank you guys, that was great.