Welcome to Episode 2 of #AskAPrivateLender Podcast brought to you by Mortgage Automator. In this episode, we interview Blake Albright, Founder and Managing Director of Brightpath Capital, one of Ontario’s fastest-growing private lenders. Blake spearheads the overall Brightpath strategy, providing a common-sense approach to alternative lending, which greatly benefits a diverse type of borrower, and also leads to long-term growth for investors.
We talk about how Blake started in the business, the deals Brightpath specializes in, the importance of financial literacy, and a bizarre story about a deal that almost went wrong.
Listen, watch, or read the interview below. And stay tuned for more episodes coming up!
Lawrence: We’re really excited to have you on the podcast, Blake. Now, the first thing we always ask our guests: private lending is a really interesting business, it’s not something people typically jump into. How did you get into it, what did you originally go to school for, what did you want to do, and how did you end up where you are?
Blake: It’s an interesting space for sure, and I think I’ve constantly looked for different opportunities in different markets in the past 15-20 years now. I would say that private lending fills the unique niche, and always has in Canada. It’s just been a little more commonly referred to, I think, in the last couple of years, so maybe this is a more apt topic for now.
For me, it was a university stock market competition in the first year where I just found that this is a tech bubble-type time, and there are lots of interesting things happening. You could do quite well in that market without a lot of experience and with just luck, I guess.
I tried to find some other ways to use my capital, had a student line of credit at the time, had an opportunity to deploy some of that money. I came across a couple of mortgage brokers, tried it out, enjoyed looking at the deals, and ended quite well on the actual return side of it. So I thought I’d put it on the back burner as something I’d approach in the future.
For me, a time in my career came when I was in an accounting type of role and didn’t particularly enjoy that, but I liked doing deals, liked doing transactions. So I thought maybe let’s try and see if we can pull some investors together and start something up. And here we are five years later.
It’s been a good ride, and I like having conversations like this about it because not a lot of people know what it actually entails.
Lawrence: Very cool. So just to touch on what you were saying, stock market competition, I would gather you probably did pretty well? You’re a bright guy.
Blake: Yeah, but with not a lot of strategy.
Lawrence: So you started off as just an investor. You were investing in these loans, you saw an opportunity, you ended up starting a business. But were you looking up for random opportunities and this came about, or did someone tell you about private lending, is it a family thing?
Blake: I happened to be introduced to somebody who was in the space. The reason why I got really into it is I quickly realized, when dealing with a couple of mortgage brokers, it was a more disjointed industry than it should be, 15 years ago. There hadn’t been a lot of consolidation in terms of partnerships by private lenders.
You’d be looking at a lot of one-off situations, a farmer that had a bunch of land and sold some, but then had some excess capital and wanted to deploy it. Or people that had done well on a business sale or things like that, one-offs. They’d get into contact with a lawyer or a mortgage broker, that broker’s going through his Rolodex and making phone calls to see who has $100,000 this week to fund a loan. To me, that was an illogical way of doing business.
Lawrence: And just so people know, Brightpath Capital, you guys are direct-to-consumer, or do you deal with brokers?
Blake: I would say 97% of our business is through brokers. I’m a licensed broker, we have a brokerage license. I wouldn’t say we get walk-ins off the street in our office to deal with mortgages. It’s mostly people in my network or my partner’s network who have done mortgages with us in the past who might need help, who might be referred through, or someone who was referred through them.
Otherwise, I’m dealing with mortgage brokers most of the time. We were obviously very reliant on that group of people for our business. Having a good broker relationship is the most important part.
Lawrence: On the broker side of things, can any broker call you to submit a deal? Are there only certain brokers you deal with? Give us a little bit of an insight as to what are you looking for in a broker to do business with, anything in particular or is it just pick up the phone, call Blake, call maybe a BDM on your team, and go from there?
Blake: We added Dan Pauls as a BDM to our team at the end of last year. It’s kind of an interesting time in the market, obviously, given the developments of the past few months, for a BDM to do his job properly.
He’d been in the industry for about 22 years, and that was obviously a great addition. He brought with him relationships in the private space, in the credit union space, in the banking space that we had not had previously on staff. Previous to that, I would say we were almost exclusively marketing electronically, maybe an occasional trade show, to get our deal flow.
Bringing Dan onboard has been very helpful in getting a whole different group of more A-brokers or more up the chain than we typically would see deals from. We’re happy to deal with almost anybody, we just like dealing with good people. There’s no secret magic password you need to get to work with us. Send a reasonable transaction in, don’t have eight co-brokers on the deal working together on something that never gets done. Be a reasonable person about how you deal with it.
It’s an 80/20 business, like a lot of things, and we see a lot of our deals from the same core group of brokers. And then we have other brokers who just don’t do a ton of privates. So you’ll see a couple deals a year from them, but we still had to put a file together, and it’s still very fruitful for everybody.
Mortgage Automator obviously helped us too, just getting on Filogix here recently, it’s been a whole different chain of business. There’s a bunch of new brokers in that funnel, if you can’t submit through Filogix, they’re not interested in working with you. So obviously that’s been a big change for us, and we’re still sifting through the data on that, given it’s so new, but the early returns are quite promising there for our sources of deal flow.
Joseph: You’ve jumped on Filogix, you were one of the early adopters of it. Obviously you’re forward-thinking, you’re looking to try to make your business as efficient as possible. Would you say just being available on Filogix has provided that extra bit of branding or free marketing that maybe you wouldn’t have seen just from having BDMs call or brokers finding you through your digital email marketing campaigns?
Blake: Yeah, I would say absolutely. Just having the brokers working in that system every day, having that ability, where they’re already in the software, to go through and just click a box, and it sends us a file. That little extra layer that helps them do it in a much more simple way has certainly been good for us so far. We’ve had a lot of positive feedback.
Lawrence: Being in the private lending space for such a long time, do you have any interesting stories? Obviously no names or anything like that, but have you been hit with fraud before? Anything you can tell us?
Blake: Yeah, we’ve had a few interesting ones come along. We’ve had really small loans. When we have a minimum fee of $2,000, and someone wants to borrow $7,000, I always find that interesting. It doesn’t make any sense, but okay, sure.
I’ll give you an example of one. There was a property in Richmond Hill. It was a one-year term, we didn’t offer a renewal. It was coming up on 18 months, and we’re very close to the eviction date on a power of sale. And this person had constantly said, “No, I’m paying it out this week, I’m paying it out this week.”
So we get to Friday and the eviction is scheduled for 9:30 on Monday morning, Sheriff’s booked, it’s good to go. And then she keeps insisting that her dad is going to come in and pay off the loan this afternoon to my lawyer’s office. Obviously it’d be great, but I highly doubt this, given what she’s told us previously. And so we get her on the phone around 1 PM, she’s like, “No, he’s just getting his hair cut right now, we’re going to go in after that.” Okay, yeah, priorities are very clear here.
And sure enough, at 4:30 that afternoon, this guy showed up with about $450,000 in a bank draft to my lawyer’s office to pay out this loan. We could barely get the Sheriff’s office on the phone before they closed to cancel the appointment for Monday morning when this happened.
Subsequent to that, I would say that there was some legal action and there’s some other stuff that happened on that file, that had happened previously to us being involved. That one is still the oddest one I’ve seen. I’m thankful that we were able to recover our principal on that one and wipe our hands of it.
We’re acting through brokers and insurance, and things like that to cover ourselves, but there are other people involved that maybe weren’t so clean with how they operate. I always thought being licensed was the proper way to handle it because then you’re insured, you’re handling things well, and you’re above board from a regulations perspective. The rules aren’t that hard to follow, we just try to play within the box we’re given here.
Lawrence: That’s a crazy story. If you’re already at the point of eviction, this has been going on for a little while now.
Blake: Yeah, we were into six months on that post-maturity, for sure. People’s levels of motivation based on urgency are very different, I find. Some people get that, if there’s one thing wrong in their life, the urgency is built up. Other people, I think, really need a big push and they don’t really believe that negative stuff can happen until it’s about to happen.
Lawrence: You’ve been in the money management game for a while. One thing that I always like to ask is, growing up, were you taught financial literacy from your parents, was it something that you learned over time? How did you figure it out?
Blake: I can’t believe there isn’t a course in high school that tells people, like, what a mortgage is and how interest works on payments, but we have some of the most ridiculous classes of all time that are required. We had a civics and a careers course, but we didn’t have a financial literacy course for high school students. It’s beyond me. When the government wants to pay me to write that curriculum, I’m happy to help on that one.
Growing up, my mom was single, my dad died when I was nine, so it was an interesting time. My mom wasn’t working at the time, and you get an influx of cash, typically, if there’s some sort of coverage on that in your life. Managing that through that situation is always interesting, because some people handle that really well and some people handle that poorly when they’re given a lump sum of money.
I realized that I didn’t want to do something with my life that required a lot of physical exertion in the long run, and managing capital is one way you could avoid doing that. You put your time in as a landscaper for enough years in the summers at university, you figure out what you want to do with your time. Being financially ready came pretty quickly when that situation was presented to me. I wish I had been more prepared, but yeah, thankfully I was able to pick it up enough at least to get myself to this point.
Joseph: I can see why they don’t teach it in high school, fair enough. But to not have anything mandatory in university, where kids come out of school at 21, 22, in debt most of the time, and still financially, equally, if not more irresponsible now with this weird assumption that, now they have a piece of paper, they’re entitled to get a job right away. I think that’s where it’s really interesting. It should start in high school, but it should absolutely continue on because I’m sure you see your fair share of people who are twice your age who are still financially irresponsible, who still don’t understand what’s going on and can’t figure it out.
Blake: It’s certainly a portion of our client base that is that. You always have the clients when maybe some sort of hardship has happened, a death in the family, a health issue, there’s lots of reasons, a divorce, whatever. And there’s the bridge type loans, and there are the self-employed people that maybe are just getting a business started or they don’t love paying taxes or whatever the reason may be.
But there certainly is a decent-sized portion of that clientele, too, that are just poor consumers of things in life, they’re poor with credit, generally. It’s fortunate for us, I guess, in the sense that we’re able to help a lot of those people, but ideally your house is probably your best investment for a lot of people in Canada. For you to blow through that equity because you made some bad decisions with a TV purchase is not super encouraging from a society perspective.
Joseph: I always love it when people say, “Yeah, you know what, this whole getting the second mortgage thing has been really stressful on me, I think I’m going to go on vacation for a week.”
And I say, “I think that’s a great idea. You just spent a bunch of money borrowing money at a very expensive rate, you should totally use that money and go on vacation. And in 12 months, before you know it, it’s now come time for maturity, and you have no way of paying that money back. I think that’s a great idea.”
Blake: Seems like a really good strategy. The university piece is interesting in that sense, just because it’s government-funded, but the government’s also writing the loans to a lot of these people or guaranteeing the side of the loans that the banks are writing. So it’s kind of a nice big circle they’ve created here. And it’s not like they make a ton of interest on that money, where they could make more in theory.
Lawrence: You’ve been in the financial game for a while, and over the years I’m sure you dealt with some really wealthy people, as most people in your position would, whether they have millions or tens of millions or whatever the number is. Are there any pieces of advice, or anything that you learned from these individuals that you can share with our listeners?
Blake: I wouldn’t call it advice because I don’t pretend to be as wealthy as these people are, let’s say that, but the best ones that I see are the guys that are less intense about their investment decisions generally. I find the people that I end up working with that want to come and sit in my office and ask me what mortgages we’re doing today, generally don’t have that much cash, to begin with, and thus they’re being very protective of it. That also might then hold that person back from growing that base, because you’re not going to make any money without taking any risks. That’s just not how the world works.
The people that like the model, want to have a 30-minute phone call, and then they’re going to try it out, are generally the ones that I think are probably pretty successful because they know how to take risks. They’ve probably lost money too, and they’ve learned a lot from that, but then they’re using a little bit of gut feeling and a little bit of general analysis, and feeling good about their decision and going with it. Either take it or leave it and move forward. It generally leaves you a lot more time to enjoy your life, but also analyze other things that you can do, rather than overdoing it.
The people that have stayed with us and have been with us since the beginning are generally like that. We don’t get a lot of withdrawals from our fund, but when we do, it’s generally someone who probably over-allocated in a decision-making process at the time, and then is always worried about that money.
Frankly, if you’re investing in the stock market and you have a long-time horizon, same concept, you can either forget about it or you can think about it every single day, and look it up every five minutes, and keep refreshing that ticker if you really want to, and drive yourself pretty crazy doing that, I imagine.
In our game, obviously, there’s not a lot of liquidity, not a lot of price changes, but you’re either going to feel good about it or you’re not, so I would say make a decision and stick with it.
Lawrence: I was definitely that guy when it came to cryptocurrency. I was a genius, I got in right at the top and every day I’m refreshing, what’s going on with my money now? Now it’s all gone. That was a fun time, actually.
Here’s the thing, though, I look at it like gambling. I like gambling, actually, I think it’s fun. But I only play with what I feel comfortable losing, so at the time I figured, yeah, I’ll throw some in. If I make some, great, if I lose it, that’s okay too. But I think that you have to have that mentality when you’re doing something crazy like that. Not to the extent of investing, I don’t think, in mortgages, but mortgage investments are not 100% guaranteed you’ll never lose a dollar. It’s an investment, right? And it’s why it’s not a GIC at less than 1%, because there is a little bit of risk.
But I look at this risk, and I say that the reward is out of whack with the amount of risk you’re actually taking. I feel like you’re taking a minimal amount of risk for a really big reward in this market, and obviously you feel the same way because you’re in the business. The people who invest feel the same way. I think it’s one of the best investments that you can make, and it’s not a get-rich-quick thing.
You’re not going to get rich with mortgage investments in a very short period of time. I feel like it’s a “slow and steady wins the race” at the end of the day. You’re going to keep accumulating wealth year after year and year in these safe investments, and when you wake up 20 years down the line, you’re going to say, “Blake did a great job for me and I’m really happy we got involved with Brightpath.”
Joseph: Well, I think the trick is the compounding, right? If you just let it keep accumulating and don’t spend the money that you’re earning on the interest, just continue to reinvest that, now you’re earning interest on top of interest.
I think we ran the numbers, if you invest $100,000 at 10%, I think within five and a half years you can double that money if you just reinvest it all. Just re-compound it. That’s a pretty good ROI. And if you’re playing with a million bucks, in five years you can pretty much double your money, and then double it again in another five years.
If by 40 you can sock away a million bucks in liquid cash, you can have a few million dollars saved up by the time you’re 60. By then, you’re pretty much laughing. Once you’re already exposed to that industry and that game, you don’t have to worry about anything else.
Lawrence: We have a segment called Would You Rather, and this is about the types of deals that Brightpath would prefer to take. You may say Brightpath likes all of this stuff, send it all, but it’s just to give people ideas like what is your … what do you call it, Joe? Your candy-cream deals? What is that?
Joseph: Candy cream pie with chocolate syrup on top.
Lawrence: There you go. Your candy cream pie with chocolate syrup on top deals. Would Brightpath prefer low loan to value deals, extremely low loan to value deals with borrowers that have horrific credit and no income, or are you guys of the mind that I’d rather take a higher risk exposure in terms of loan to value, so call it 75- 80%? But the guy has tremendous credit, great income. What would you guys prefer? You may take both, but what would you prefer?
Joseph: Assuming your ROI was similar.
Blake: That’s interesting. I would say the ROI, unfortunately, isn’t similar, and that’s why we have to choose option two. Certainly, I wouldn’t want to position that we’re in the business of selling properties to recover our capital, I would say that’s not really generally our strategy.
We’re typically higher up the LTV chain with a higher credit score for that reason, ROI being the number one. There’s just so much competition at the lower level, and our investors are used to a slightly higher level of return than most people in this industry are paying, and as a result, we need to play at the higher end of the spectrum to be competitive and to be able to pay our investors what they expect and still make a profit.
So I would say that’s kind of why we would choose that option. We’re pretty used to that space, no problem, 75-80%, even 85% with people with decent credit.
Lawrence: The next one is, would you rather lend on a $1 million house in the suburbs or a $4 million house in the city? What’s your wheelhouse?
Blake: So only about 25% of our books are in the GTA, so we’re definitely more into the alternative locations as well. We would definitely choose the $1 million house in the suburbs. Maybe not, some of the Toronto suburbs I might prefer, actually, to be in the city on the $4 million house, just because I feel better about the values. But if you told me a million-dollar house in Kitchener versus a house downtown for four million, I’m going to choose the Kitchener one 10 out of 10 times.
Lawrence: Right. And you feel more comfortable with that market. What about in terms of loan sizes? Would you rather write 10 deals at $100K each, or one deal at a million? Rates, all that’s the same.
Blake: Our average deal size, what we write are small relative to a lot of guys in Toronto, for sure. We’re definitely more comfortable with a bunch of small loans. From an investor perspective, I’ve got a lot of different types of properties, a lot of different locations, I’m quite diversified on that, and I do find it’s harder to sell a larger fee as you go up the overall dollar size of the loan, it’s easier to sell that smaller number across many loans. I typically do a little bit better on the ROI just because of that.
Lawrence: I’m sure there’s going to be a lot of brokers listening that maybe haven’t heard of Brightpath. For those people, tell them a little bit about Brightpath, what kind of deals you’re looking for. If you want to provide rates and fees, you can, if not, that’s okay, they can call you and find out on a loan-by-loan basis. But just give them the goods.
Blake: We’re a non-GTA lender based in Waterloo, Ontario, and we’re focusing on kind of the southwestern Ontario market. We do a lot of business in Ottawa, we do some business in the GTA. We do pretty much any market that has more than 50,000 people in it, and probably some that don’t have 50,000.
I would say that we’re a pretty good bundle partner for a lot of people on larger loan to value firsts and second combos, that’s kind of our space that we play in quite frequently. We do a lot of first, second combo deals with lenders that maybe are a little bit cheaper on the front side. We’re going to be in the high single digits, B-rate combo on a first to 75-80%, and then in the mid/high teens on a second to 80-85%. Again, location … we do care about the credit score piece of it as well.
We’re always sitting on capital because, frankly, we have a lot of partners that are interested in the first side, so it doesn’t actually require me to put a ton of money out to make a lot of these transactions happen, but our space is pretty comfortable with that. I don’t necessarily prefer lease land deals and things like that, but generally, most transactions, if you’ve got a residential property in Ontario in a decent location, and the story makes sense that we’re getting from the broker, we’ll probably look at anything.
We’re used to not being the first person that gets asked to look at a deal. We’re used to seeing a deal with someone else’s name on it, that doesn’t deter us. People decline deals for lots of different reasons, we’re not going to generally outright decline something unless the story just doesn’t make sense, frankly, or the type of deal, type of property, type of location is just not compatible with what we can do.
Lawrence: You can find Brightpath on the Filogix dropdown under the private lender section. Alternately, they can call your BDM, Dan Pauls, right?
Blake: Yeah, Dan can be reached on his cell at any point. He’s still available for Zoom meetings. For new brokers, he’ll send you a more detailed rate sheet and brochure about what we actually can do for clients. He’s done a couple face-to-face meetings since things have been somewhat back to normal as well, so if you’re open to that, he’s up and coming as well.
Lawrence: And you guys are in the Kitchener-Waterloo area. Where is the office, actually?
Blake: We are right on King Street in uptown Waterloo, right at the main center. 9 King Street North, so if you’ve been to Waterloo, you might know where that is. Beertown is a great location reference point for a lot of people in this area.
It’s a nice little spot, it’s a nice little walkable community. We’ve got a good staff of seven people in here on a daily basis, and we’re ready to help out.
Lawrence: And while we’re talking about the location, I’m a pizza guy. I’m a big pizza guy, and I like to try different places. You’re in Waterloo, what’s the spot? Where do you go?
Blake: Depends on what you’re looking for. I went to Casa Rugantino with my wife on Saturday night, that’s more of the traditional Italian style. But there’s also a Famoso next door to us, which is a great place for thin crust pizza. That franchise started out in Calgary, I believe.
Lawrence: Blake, we really appreciate you dropping by. I think it’s been really informative. Brokers, you heard it from Blake first, you may not be the first call, but you may be the last call because you’re into those deals and you’re willing to look at things that maybe other people aren’t.
I think that that’s a really big positive in the market because there’s a lot of people looking to get deals done and they don’t know where to turn. So if you’re one of those people, Brightpath Capital, they may be your go-to moving forward.