Welcome to the 3rd episode of the #AskAPrivateLender Podcast brought to you by Mortgage Automator. In this episode, we left the Greater Toronto Area and got a glimpse of the lending landscape out on the Canadian West Coast. We talked to Mark Pullin, the Co-Owner of Cedar Peaks Mortgage, lending in Alberta and B.C. Mark has been in the private lending industry for over 20 years and has seen a lot of ups and downs, which is quite relevant in today’s world.

We talked about Mark’s diverse career path, how the industry has changed over the years, the work ethic that contributed to his success, the deals that Cedar Peaks lends on, and much more!

Listen, watch, or read the interview below. And stay tuned for more episodes coming up!

 

Lawrence: For people who don’t know Mark, he’s been in the financial game for a really long time. I guess it’s around 40 years now from working with credit unions, banks, obviously private lending. Being in that space for such a long period of time, we’re really happy to have you because you have such a great wealth of knowledge that we think you could pass along to people listening today. 

Why don’t you talk a little bit about your path to getting to become a private lender, some of the business that you were involved in earlier on that brought you on that path to where you are today?

Mark: My first career-type job was in property management, managing apartments. Kind of like an assistant, a go-to guy collecting rent, getting to know real estate, tenants, and properties here in Calgary. I’ve been based in Calgary for the most part. From there, I moved over into banking. I was with Bank of Nova Scotia for a few years. Then, I joined the local credit union here in Calgary. I was with them for eight years, so I had about an 8-12-year banking career, all in lending, of course.

The credit union system in Calgary in the mid-80s during the high-interest rate period went through a major restructuring. They amalgamated about 12 credit unions into one, and that made Co-op Credit Union on one corner, Tuxedo Credit Union across the other corner, Bridgeland Credit Union on that corner.

They brought in a guy from Vancouver to straighten this mess out, and it took him a number of years, but that gave an opportunity for a lot of amalgamations and buyouts. At that point in time, a friend of mine was in the real estate business and he said, “Mark, you’re a natural for real estate. You should be a realtor.” I chose that option and left the banking world and went into selling real estate. Very successful career at that, again, here in Calgary, for another 10 or 12 years. 

Then, I met a lady that I really liked to spend time with, and real estate doesn’t allow you a lot of time to do that. You’re on call all of the time and no nights, no weekends. At that point in time, a buddy of mine was in the private lending world. He had a government job, raising money for venture capital. They laid him off during the ’80s, and he started in private lending. He was a good friend of mine, a good customer at the credit union, and he said, “Mark, you should come into private lending. You’re a natural. You got banking, you got real estate, you got lending. This is just a great fit.” That was exactly 20 years and three months ago.

Lawrence: So did you start a business with your friend? Or did you just do it yourself? How did that come about?

Mark: My friend had his own brokerage, and in Alberta, you have to operate under another brokerage for a minimum of two years before you’re able to open up your own brokerage and be a broker of record and so on. I was with him for just about two and a half years, and then Diane, my lovely wife, and I started Cedar Peaks Mortgage almost 20 years ago. We started with $140,000 of our own money, and today, we’re administering roughly $60 million of mortgages under admin.

Joseph: That’s phenomenal. That’s an amazing story.

Lawrence: I’m assuming, and correct me if I’m wrong, but the kinds of deals you were doing 20 years ago differ greatly from the kinds of deals that you’re doing today, right? The business has grown significantly over those 20 years and you’ve been there that whole way. What are the differences that you’ve seen over that time?

Mark: Well, the deals today are much, much larger than what they were 20 years ago. They’re more diversified into multi-family construction, industrial, and a much broader range of property types and locations. Back in the first five years of business, it was almost all residential, and smaller amounts, 30 to a hundred thousand, it was much different then than it is now, for sure.

Lawrence: Do you lend just in the Calgary area? Or are you spread out?

Mark: Technically, we lend all over Alberta and all over B.C., although some brokers will listen and go, “I tried you to get to some remote island up B.C. that you can only get to by boat and you said, ‘No.'” There are limitations, right?

We are licensed in Alberta and B.C., and if the deal makes sense, location, property, all of the stuff that you hear from every single A, B, and private lender, then we’ll look at it.

Lawrence: I don’t know real estate that well in Alberta, and I’m an Ontario guy. That’s kind of my neck of the woods. How close is the oil industry connected to real estate prices where you guys lend?

Mark: It’s very close. Alberta used to be a one-horse town. It was oil and gas. Over the years, it has diversified somewhat. A lot of IT has come in, medical supplies, insurance head offices. We have diversified, but at the end of the day, Alberta goes as oil and gas goes.

Joseph: If I recall correctly back when oil was going up in, I guess, ’08, or after… Well, once the price was at a hundred bucks a barrel or whatever it was, prices for you guys were going through the roof. 

I remember in some random town called Fort McMurray, houses were going for a lot of money, and people couldn’t understand why things were so expensive there. But it makes sense because all of the oil workers who made hundreds of thousands of dollars were living there, and so prices just went up. It was interesting to see. And so when oil went down, how badly was the market hit with that?

Mark: When oil really hit rock bottom, which was just let’s say 20 bucks a barrel, it depends on the price sector that you’re in, but anything over 2 million dropped significantly, and I mean 30%-40%. Two, three million, four-million-dollar houses, easily dropped by 30%-40%. Anything under a million dropped by 20%.

Lawrence: What do you do in that situation? What was the strategy there when you have all of these loans on the books and you’re seeing the price of real estate is… I don’t want to say in free fall, but it’s going down, and you don’t know how far it’s going to go. What was your strategy? I’m sure investors were calling. I’m sure they were asking questions.

Mark: Sure, and what people don’t realize is just because your market goes down, just because you might be underwater on your house, just because you used to be at 60% loan-to-value and now you might be at 90%, that doesn’t mean you’re going to stop paying. No matter what happened to the value of my house, no matter what, if I have the ability, I’m going to make my mortgage payment. Luckily for us, most people we dealt with had that type of integrity.

Lawrence: Yeah, and I would imagine most people feel that way about their primary residence, right?

Joseph: It’s not just a financial attachment. There’s an emotional attachment to it.

Mark: Absolutely, and the thing was, Alberta’s a boom and bust province, always has been. They know it’s going to come back. If you own a blue-chip stock, RBC, for example, and it was at 60 and today’s at 30, what are you going to do? You’re going to hold it and ride it and it’ll come back up. But luckily for us, most of our borrowers had the integrity and said, “Our equity position isn’t what it once was, but we are good people. Our employment hasn’t been affected. The market value of our home has, but our employment and income hasn’t. We’re just going to continue making those payments.” 

I wish I could tell you that was every single case, but it wasn’t. We had to go through, as every lender did, and I don’t care if you’re RBC or Cedar Peaks or a Schedule I or tier bank, you had foreclosures in 2008. You couldn’t help it.

Lawrence: Right. I have a friend whose family is in the building business. A very large builder, and back when the market wasn’t great in the ’90s, they would sometimes lend money out to help people buy their properties. They’d be the lender. 

They got a call from somebody who purchased a property from them, and they came into the office and said, “The interest rates are quite high. Is it possible that you can lower them for us?” That’s a good question to ask, and the question back was, “What’s the reasoning? When you took it out you knew what the payment was.” They said, “One of us lost our job, and just so you know, I eat dinner on Monday and my husband eats dinner on Tuesday, and we go back and forth to make sure that we can stay in our home. That’s what we do.”

To go back to the point you were making, people want to hold on to their residence regardless of circumstance. They have their kids there. It’s their one place where they can put their head down and they feel safe and they’re going to do whatever it is possible to stay there. 

For people who are thinking about investing in the private mortgage business, it’s a great business to be in, and if you’re an investor that’s in Mark’s area, as you can see, he is very knowledgeable. He is someone you should definitely reach out to to get a little bit more information because the way I look at the private mortgage business, the risk versus the reward is kind of out of whack in that space in terms of you’re getting such a high return for what I feel… I don’t want to say it’s minimal risk, but essentially it’s minimal risk.  

Joseph: People invest in stocks and can lose money. Mutual funds that the banks manage don’t always perform well. You put money in with Mark or any other private lender, you’re talking about returns between six, seven, eight, nine, potentially 10% for a real estate-backed security that you can touch, you can drive by, there is emotional attachment to the home. Everything that lines up when it comes to that type of investment is a great investment.

Mark: I appreciate you guys bringing that up and putting that out there, and in the event that you do have a foreclosure and a default, you always have the option of going, “You know what? Let’s just hold this property. Let’s rent it out.” You always got a piece of real estate that you don’t have to sell up.

Lawrence: Sometimes the rental rate may be better than the monthly payment.

Joseph: Obviously, not every deal is going to be perfect and you’re going to have your bumps in the road along the way. How much has your real estate license been a benefactor to you analyzing the deals? 

Mark: It’s been invaluable and I quit selling real estate actively 15-16 years ago. I have not actively taken a buyer in my vehicle or listed a property for that length of time. Yet, I continue to pay my annual real estate dues and fees, and there are three levels of them. There is local, provincial, and national. There’s also the continuing education requirements to maintain your license and the reason I do that is the valuable information I have and require in what I do to maintain that knowledge and expertise in the real estate field to recognize flaws or values or marketability of properties. I continue to maintain that real estate license for that very reason.

Lawrence: It’s good to be able to do your own research. The last thing that you want to do as a business owner, or anyone that’s lending out money or running a fund, is have to rely on other people to tell you what a property is worth. 

You want to be able to dig in deep and figure it out for yourself, and that way you can explain to investors, “Hey, you know, appraisal maybe came back at a million dollars or 500,000. I don’t feel it’s worth that much money. Whereas the broker thinks we’re giving them a 65% loan-to-value deal, I think we’re closer to 70-75%, and we’re going to price accordingly.

Now, one thing that’s hard to avoid is fraud. It can always happen. Have you ever been a victim of fraud with Cedar Peaks? 

Mark: Believe it or not, we have not.

Lawrence: Wow! That’s amazing!

Mark: One of my investors was involved in a scam. It did not involve Cedar Peaks whatsoever. It’s pretty easy to transfer the title here in Alberta. You just can forge a signature, go down to land titles, and transfer your property from Grandma Sally to Conman Fred.

This guy did this. He got hold of a transfer of land document, forged the owner’s signature. It was a clear title. Got the title changed into his name, borrowed money against it, cleared title, and so my investors, they were covered by the title insurance, but it was not a pleasant experience, so they were a victim of fraud. Luckily, we have never been a victim of outright fraud.

Joseph: A 100% clearance. I love it.

Lawrence: Do you guys deal with mortgage brokers? Do you do direct-to-consumer as well? Or is it mainly brokers that send you business?

Mark: It is mainly brokers. I would say 95%+.

Lawrence: What type of deals do you look for? If a broker’s listing right now and they’re like, “Hey, I’m in the area, I’ve never tried Cedar Peaks before.” Obviously, you don’t want people just sending in stuff you’re not interested in because it’s a waste of everyone’s time, but what’s your wheelhouse? Is there something specific that maybe you do that others don’t?

Mark: Well, first of all, I actually encourage brokers to send us any file that requires private financing. It takes us five minutes to say, “Hi, thank you, and I’m sorry this is why it’s not a fit.” Don’t be afraid to send Pender Island or something crazy because it gives us an opportunity to say hi, send you our guidelines, thank you for your business. Let us decide whether it’s of interest to us. Let us make that decision. Give us that opportunity.

What’s in our wheelhouse? As a private lender with a lot of flexibility, we are not major urban center-focused. Sure, we love major urban center files. Tha