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: