Welcome to the 19th episode of the #AskAPrivateLender Podcast brought to you by Mortgage Automator. Our most recent guest was Trevor Daly, Founder of StoneRidge Lending, operating in Ontario.
We discussed the importance of having a solid exit strategy, StoneRidge’s lending preferences, how they handled the onset of the pandemic crisis, and more. We are also joined by a surprise co-host for this episode, so be sure to check it out!
Listen, watch, or read the interview below. And stay tuned for more episodes coming up!
Lawrence: We’re joined by Pavel Tchourliaev, who’s one of the partners at Mortgage Automator. We also have a great guest for you today. Trevor Daly from StoneRidge Lending. I want to know right off the bat, how did you get into the private lending industry? Because I know you were in the broker industry for a very long time, but how did you make that switch over?
Trevor: I’ve been in the broker space for about 20 years. I was actually a mortgage specialist. While I was a specialist and transitioning over to the broker space, I had met a broker and he said, “Hey, have you ever thought about private investing with your own money?” I was doing well at the bank at the time. And I said, “No, I didn’t really know that was a possibility.” So I started with my RSPs and I had a little bit of money in my RSPs. And funny enough, the story is that it started with $20k in my RSPs, and since then it’s substantially grown. What I realized is, boy, as an investor, the rate of return that you get is great, but you can also help people in different circumstances as well. And the broker was great, talking about an exit strategy and all of those things at the time.
And I thought that was great. You can help somebody out, but you can also help him out in a pinch, and see them move forward in their life. And sometimes it was about education with the customer, or they had a divorce situation, or those sorts of things. That gave me a little bit of buck up, I’m naturally a person that likes to help others. And so I was sort of bitten by the private lending space and I was intrigued. And it was very young at that time, 18-20 years ago at this point. And it was a different time, but yeah.
Lawrence: I always say, the private lending industry is a very addictive industry. And the way I see the private industry is, it’s not a great risk for what I look at as a great return. Is there a particular type of client that you really go after, or is it just the gamut?
Trevor: It’s transitioned a little bit more as I transitioned to only being a lender at this point. But if I had to say, at the beginning, it was really about helping people in all sorts of circumstances, as I mentioned. It could be a bad credit situation where they needed some education around credit. It could be a divorce situation, a bankruptcy, a business gone wrong. Or sometimes somebody was just purchasing a rental property to help their investment portfolio. So that’s where it kind of started, it was anybody and everybody. And the philosophy has always been the same as we transition now, 18 years later to, the idea is that our private money that we do is short term. Whether it be a one-year maximum, two-year with a renewal in there, but the idea is to always have a proper exit strategy for the customer so that we can either get them into an institution or a credit union, or a trust company later on, or something with a little bit of a cheaper interest rate to start that path towards better financing for them.
The philosophy has always been the same, and I guess, we still really deal with everybody. I think some of the things that are thrown at us are a little bit more different now. I would probably say that the credit quality of folks that come into the private space now is much better than maybe it was 18 or even 10 years ago. And that’s really due to B20 and B-21, and banks, and not being able to do, say, self-employed clients, those sorts of things. So we’re seeing a better quality of client.
And to your point about risk as an investor, I mean, I don’t see it as a high-risk investment. I know we have to qualify it as a high-risk investment, but I really don’t. Because as an investor, you can pick your loan-to-values that you feel comfortable with. Yes, your rate of return will be a little bit different or a little bit less with a less risky investment, but it’s okay. So the sky’s the limit when you want to invest in private mortgages. But also as a consumer that needs to utilize or as a borrower, sky’s the limit as well on the flexibility that you have as well for solutions.
Pavel: When it comes to your exit strategy, is this something that you help your clients work out? And do you leverage your brokerage at the final stages to make sure that you find them a different mortgage?
Trevor: With StoneRidge Lending, we do not have a brokerage license. So we work with city funding through Dominion Lending, and it’s up to the broker to deal with the customer. We’re just doing the lending part of it. However, each broker that deals with us knows that our philosophy is all about an exit strategy. So when we’re approving or going through the credit for our client, the one thing we’re talking about is, what does that exit strategy look like? We understand that circumstances can change over a period of time or at least a year, sometimes two years, but we still want to know that that conversation has happened and that the education piece is happening with their customers.
Lawrence: You guys are a syndicate or a fund?
Trevor: So StoneRidge Lending, as it stands today, is an administrator of mortgage funds, we syndicate on smaller things. We are in the process of opening up a MIC component with StoneRidge as well, and it will be called SR Lend. So we’re going into that space as well. We find that some of our investors want to see sort of a book return. And then some of our other investors like to be individually invested or syndicated with a few other investors they know. So we want to offer both sides of the spectrum to the investor pool. All the while keeping the products available for the brokerage as well. And our brokerage, just as a side note, has 275 or 280 mortgage brokers.
Lawrence: If you do have that relationship with a brokerage or you have your own brokerage, it just solidifies that deal more because you know the industry more on both ends. The client comes in, not only can you educate them on the private space, you can educate them on ‘this is how I’m surely going to help you’. Because I have all these connections, I know what I’m going to do with you or the broker who sent you in, I can even advise them. But do you ever find that sometimes someone sends you a deal and they just disappear?
Trevor: It does happen. We’ve had brokers send the deal and, say, we funded the deal. And so, we funded it and maybe we get up to that 90 days out from the exit strategy that we talked about originally, and all of a sudden that broker is gone, and this would be a broker that’s not a part of our brokerage. And they’re gone and we’re looking to refer, make sure that that’s a warm handoff back. But we always make sure that if that’s the case, we do make our best effort. We’ll always make sure that there’s a broker attached to make sure the customer gets the best possible advice.
Pavel: So as I’m getting to know the industry more and more, and obviously I’m more on the software side of things, it seems to me that there’s a give-and-take when it comes to organizing a MIC. And obviously, you need to be audited at that point, and you’ll have to use appraisers. Now typically, for your syndication model, do you still use appraisers? And how do you feel about the cost of organizing the MIC versus the benefits?
Trevor: So I haven’t seen the benefits of organizing a MIC as of yet, to be honest with you, but it is very expensive. So if you’re considering doing it, I would really weigh the book of business that you can bring in versus the cost of it. And you mentioned audited financials. So not only do we have to audit our administration company as it stands today, but as we open up that SR Lend, that MIC, we have to audit those as well. So now we’re paying two different companies to be audited. So we’re upwards of $20k or $30k, depending on the auditor. And that’s an annual cost. So just that alone. And then you have your yield-related costs, and maybe there are appraisal costs, and so on. So you’re looking to get into a MIC and it sounds great and awesome, and I can do all of this stuff. I think you really want to be at the $20M or $30M mark to make it worth your while, to be honest with you if I had to pick a number.
Lawrence: I would agree with you. There are some benefits though, even the cost of capital, right? You can leverage that MIC with the bank, a little line of credit in your pocket, and maybe do tranche loans, A-B, or just put the money out. Do you ever worry that with opening a MIC that you’re going to have the pressure of putting that money out?
Trevor: It’s the age-old story of service though. So if you’re doing this, and this is maybe just to educate some that are thinking about it, but there’s nothing wrong with thinking about it. What you want to focus on first is, yes getting in money, but also what your distribution is going to look like. And then really making a commitment towards customer service. But I’ll tell you right now, we turn over deals really quickly within our brokerage. Jordan, who’s my right-hand woman, literally will turn a deal over and an answer sometimes within 30 minutes. Now it depends on volume, but not gone a day where she hasn’t turned it around, called the broker, understood the situation, no different than we would with one of our A lenders or B lenders, she’s actually treating it that way so that we are always providing the utmost customer service. So getting that distribution channel, and then every day loving on your clients and your clients will be that distribution channel.
Lawrence: Yeah, speed is key. A deal could be here now and in three hours it’s gone. So definitely have to jump on it and not even because the broker is shopping, but the client sometimes is running around trying to find a solution without the broker even knowing.
Trevor: Sometimes we forget to put ourselves in the end borrower’s situation, and somebody coming in and borrowing money. It’s very scary for them, right? They’re giving their entire life and guess what? Now they can’t get into a bank because something’s happened. So all of a sudden, they’re a little bit more embarrassed about that. It’s our job as, not only brokers, to have to do their thing, but as a lender and having a broker as our client, we have to make sure that we respect that and turn that business around as quickly as possible for them.
Lawrence: We have a lot of people that listen to this that have private deals that are looking for lenders. They want to build relationships. What are you looking for? What you love to do, what you have done, what is your wheelhouse?
Trevor: I like to simplify things. So I always say this and any of my friends that are listening to this will laugh. But I said, if a 3-year-old can understand it, then anybody will be able to be successful at it. We’re an 80% loan-to-value lender. First, second, it really doesn’t matter. We will look at commercial, obviously, we will look at residential, we’ll look at student housing.
Really what we’re looking for, and I want to bring this word back a little bit more, and I think it has been lost, but common sense lending, which means that a file comes to us, it’s gotta service itself, we’re not looking to take a home back, that’s not why we exist. We’re here to help somebody get to the next level because they have a vision of what they want to accomplish. Whether it be somebody who’s gone bankrupt, well guess what? They want a place to live. And they want a great solid place and a home for their family. It could be a divorce situation, and their goal is to move on with their life. And that’s the only reason we exist. So it’s 80% loan-to-value, common sense lending. It’s gotta service. If the person can’t afford it, we’re not doing the deal.
Lawrence: So prepaid deals, not for you?
Trevor: We’ll look at the prepaid deals, I mean, there are so many different nuances to it.
We can pay interest for the year because you know, the circumstances are such that this person can afford it in 12 months from now, but they just can’t make the payments because they’re waiting on some money to come in or something like that. That makes sense. And you asked about maybe something cooler, different stuff that we’ve done. We’ve done wineries before. We’ve done some stuff off administration, but we’ve done a brewery, we’re into all sorts of different, cool things.
Lawrence: I always hear, I’ll lend on that house. If something goes wrong, maybe I’ll take a look at it. A winery, I mean, that sounds fun. Do you go and visit the properties? Like you go up to the winery?
Trevor: I do, I mean those ones, because geographically, I live in Niagara, and so it just so happens that the ones that we’re working with are in Niagara. So I’m friends with the owners, and they’re there to do their business. We’re there as a solution for them. And that’s cool too. We know what we need to do to come together.
Lawrence: What’s the best piece of financial advice that you’ve received from some of your wealthier guys who have the money in the bank?
Trevor: Always have cash in the bank as well. So safety money, if you will, I mean, there are many ways to quantify that. But have a little bit of cash saved aside for a rainy day. We hear it all the time, but it’s important. At least 10 or 15% of any dollar that you make should go towards savings. 20% of anything you make should go towards your future. And then you got some bills in there and then the rest is fun, right? So really what you’re looking at is 50% of everything you make there, you splice it out where you got some savings, then you got some investment. So I think savings and investment are two very different things. And then you have your bills, whatever those are on a regular basis. And hopefully, you’re at a point where you can have some fun with 50% of everything you bring in. There are only so many ways to split a pie, right?
Lawrence: That’s true. The real estate market’s crazy now. I’m sure you’re seeing the numbers, they’re going up. I don’t want to even say steadily. I mean, ‘cause it’s not steadily, it’s rapidly. What’s your view on the market now, are you looking at your loan-to-values and thinking you should scale back, or are you sticking at that 80%? And maybe it’s different in Niagara, but I mean, you lend all over Ontario, right?
Trevor: All of Ontario, yes. Yeah, here’s what I would say. I’ve seen some of our people in the industry when they start to retreat, I’m going to double down in our industry because I believe in our space, and hopefully, some others will do the same thing too, to keep our space going. I believe in Canadian real estate, I don’t believe in big crashes or any of that. There’s too much invested from the Canadian government into real estate to allow that to happen. They’re going to have some easing, they’ve already talked about this, there’s no surprise.
I think the condo market’s back. If not already, it will be back. I think you’re going to see some need for low-income rental buildings to be built. And yes, traditional lenders will jump into that, but there are some opportunities for us in the private space to look at that and maybe help bridge some constructions for those sorts of things. So you’re going to see some buildings being built for rent. I’m not concerned at all about the real estate market, especially in Niagara, London area, I’m really not concerned about real estate. Now, Toronto is a different animal. I don’t really lend too often in Toronto. We tend to stay out of there, or our loan-to-values are just a little bit less. So Toronto as an example would be a 75% loan-to-value for us because things can change really quickly in a major market versus outside of a major city.
Pavel: It’s interesting how you say that about doubling down, and we witnessed that with a lot of our clients at the beginning of the pandemic. Where some lenders, they really took a step back just to wait and see what happens. And others went foot to the floor, and they grew exponentially during that time. What was your experience like at the beginning of the pandemic?
Trevor: Pedal to the metal. And there was no question. Yeah, it was “Let’s get our brand out there a little bit more.” We decided right off the bat that the sky was not falling, and real estate was not going anywhere no matter what. The one thing about the pandemic, and not to pick one side or the other, but things are going to happen today, they’re going to happen tomorrow, they’ve happened in the past. Humans will always prevail and real estate will always be there going forward.
Lawrence: It must’ve been great for you. I mean, obviously not a good situation for the world, but when you’re doubling down in a market like that, where there are people retreating and not lending, and then you’re the guy coming through and you’re lending, those relationships that you’ve probably built over that time are still going.
Trevor: It’s one of those things. And during that time, it was important for us to pick up the phone, call our investors as well, calm them down first, and then just see how they’re doing too. And just making sure that they’re mentally in a good place, whether it be investing or whatever it was, just a conversation. And that allowed us to do the things that we wanted to do. And that was to be aggressive in the market to help our main clients, which is really the brokerage. That’s our main distribution channel, to make sure that they had products to sell as well in a time of a little bit of uncertainty at the beginning of this thing.
Lawrence: Most memorable deal you’ve ever done. Does one come to the top of your head?
Trevor: Yeah, the one winery actually. It wasn’t our first deal, but it was the first winery. And it was just, really going through the nuances of what that looks like. And it’s exciting right off the bat, but then getting into the numbers and saying, okay, there was a little more risk in this. But then really understanding the vision, the owner, and what they wanted to do with it. It’ll always stand out, I think. I haven’t really talked about this, but I opened up StoneRidge Lending with my business partner, Mike Litniansky, he passed away from pancreatic cancer at the age of 32 and it was six months, it happened quickly. That was a special deal to us because we underwrote that deal together. And he was my more commercial underwriter at the time. And so that’ll always stand out. He and I, we both formed a great relationship with the owner and actually the owners, the winemaker as well.
Lawrence: Unbelievable. What about an “Oh no” deal? Do you have any “Oh no” deals where you did one, and you’re like, “Maybe I shouldn’t have done it.” Maybe something happened, but I got out of it. Something that maybe wasn’t as smooth as you would have liked.
Trevor: I’m proud to say to this day, I’ll knock on wood, we have not had a power of sale of property to this day. So I’m proud of that.
That being said, boy, there was one. And we just kept going and going and going. And then finally I don’t know how it worked out, but I think we had to cut some fees. Which was fine. And we got out of the deal and somebody else took it on and it was a Toronto investor that decided that it was a good deal for him. And maybe it was, and that’s not for us to judge, but it was one that the client would just perpetually default and everything looked good when we underwrote the deal. But things happen in life and just perpetually every month would be a default.
Trevor: It was a residential property. And the great thing is, so now we start the proceedings for power of sale and we go to inspect the property. And now there are chickens on the property, there are pigs, there’s like all livestock.
Lawrence: In Toronto?
Trevor: No, this is outside of Toronto. The investor that took us out was from Toronto. Yeah so we show up at this property, then all this livestock and we’re like, “Oh no.” And now it’s on a Friday, unfortunately. And we’re thinking, “Well, who’s going to feed the chickens over the weekend?”. But it’s a learning experience. We worked with the borrower and we worked with the borrower’s lawyer to make sure that we could get out of it and everybody would be happy. And the last thing we wanted to do was take that property, right? And we could have done all sorts of things with it, but we have to stick to our philosophy all the time.
Lawrence: Trevor Daly, free-range eggs, get them at your local grocery store.
Trevor: Daly eggs.
Lawrence: Yeah, you never know, right? But I guess if you stick to that 75%-80%, in that range, there’s always going to be a guy who’s going to be riskier than you are, right? And they’re going to want to take you out and they feel comfortable with the risk and they’re those types of lenders.
Trevor: Mike and I, when we started this company, we sort of set it in stone, this is what we stand for. And yes, there’s going to be a shiny object. But I believe in being an infinite player, which means that sometimes we’re going to win. Sometimes we’re going to lose, but we’re going to accomplish our mission as well. And we just keep going and doing our thing and making sure that we provide service both to our investors and our distribution channel as well.
Lawrence: You have a great team. You brought up Jordan earlier. For people who would want to test you out, send in a deal, how do they do that?
Trevor: StoneRidge Lending is right on Filogix. I don’t know if we do PDF deals anymore, so I’d have to check on that. But they can always inquire on deals, info at stoneridgelending.com and we’ll answer stuff, and you’ll see our turnaround time is very quick. But Filogix is the main way we capture files.
I think the biggest thing when you’re submitting a file, especially to like a first time to a lender, no matter who it is, the one thing that we find is, we don’t get enough notes. So brokers tend to think that we know exactly what’s happening because we can see the property in the application. But there’s a lot that goes into a story. So saving private lender time, and this is probably for all lenders, but just really telling that story and keeping in mind the five Cs of credit, no matter what, whether it’s private A deals, whatever five Cs of credit always apply, no matter what.
I find that in the mortgage space, we don’t share enough. And I think the more that we can share, now we know our A lenders and all that, they share, but the more that we can share, the better we’ll become. And we always have to worry about fraud in our space. So if we become a tight-knit network and yes, there’s enough business for everybody, we’re going to weed out that fraud. And fraud is probably more prevalent in the private space, and I’m talking serious fraud, than it would be with say your big banks and all sorts of things. So the more that we can communicate and be a tight-knit group, the better it is. And I know you guys are big supporters of that at Automator as well, which is cool.
Lawrence: We do our best. Do you ever have any incidents where you sniff something out, something didn’t look right or smell right?
Trevor: Yeah, it was part of the FSCO broad thing many, many years ago, and got some insight as to things that we should look for. And it really helped me in my career. And so, yes, we haven’t had anything come to us. Probably because we teach our brokers to sniff that out a little bit before it even gets to us as well.
Lawrence: What about loan sizes? What do you like?
Trevor: We’ll look at anything under 5 million bucks. That excludes land deals and stuff, we’ll look at land deals over 5 million bucks. And we’ve got some investors with some deep pockets. So if we need to dig deep, we’ll dig deep. If we need to call some of our friends in the private space, then we’ll each take a piece of it and have some fun.
Lawrence: Residential, commercial, land, construction?
Pavel: And how quickly can you write for those deals?
Trevor: For a commercial deal, we can probably underwrite depending on all the documents, the story, and those sorts of things, you could probably underwrite it within 72 hours, I would think. We could jump on the file right away and then request documents though. So our turnaround from a first communication back could be as quick as an hour, not even.
Lawrence: You guys are close to your lawyers, I assume. They’re on the ball.
Trevor: Yeah. We’re always looking to push them a little bit. I think we’re at the 5-day point right now. And I think that’s just the way volumes are happening five or seven days give or take. If it’s an urgent file, we’ll try and push it a little bit more, but five days it’s not bad. Commercial might be a little bit more, there are some nuances to it. Land deals traditionally take a little bit longer, but again, from the first touch, we’re on that right away and communicating with whoever.
Lawrence: But anybody who’s dealing with commercial deals, land deals, they get it. They’re not expecting a 24 hour turnaround time. Completely understandable.
Pavel: You’re on both the broker side of things and the lender side of things. How would you feel if private loans would be, if you’d have the option to report those loans to Equifax, to appear on the Bureau?
Trevor: I’d love it. I think in the spirit of transparency, I think everything should be out there always. I think it’s good for every lender partner that we have in the space to understand how a client is repaying their loans, no matter what. So I love reporting.
Lawrence: Trevor, we really appreciate you stopping by with us. Do you have any last words to say?
Trevor: Yeah I do. One, thanks for having me on. I love to share and hopefully, this offers some value to at least one person out there. If there’s more, then I’m flattered. How we stumbled upon Mortgage Automator, it was quite amazing. We were using another software and just really didn’t have the training. And to be honest with you, it wasn’t good, and I’m sorry to say that, but it wasn’t, the other one. And we stumbled upon you guys, and boy, the world changed for us. Your technology that you have and is easy to use, day one. And then the changes that you guys have made. I think we’ve been on the system, I want to say, two years maybe?
And it just continues to drive forward with the changes that you’re making and the cool stuff that you’re doing. And I like the transparency piece that you guys have in there and just trying to make it better for not only the investors, but also the borrowers as well. And you’re always open-minded to any sort of changes or suggestions, which is always important. It’s a give-and-take sort of relationship, and we love that. We support you guys 1000%. If you’re using a different technology, at least give these guys a chance to show you what they have, honestly, because it’s going to change your business.
We’re very thankful for the timing that we had when we met you guys, and we went along with it, and everything that you guys said, you did, and that’s always important to me. So what you say and you did it, and you’re continuing to do it and that’s, love it.
Lawrence, Pavel, thank you, guys. And thank you for everything you do every day.