Welcome to the 22nd episode of the #AskAPrivateLender Podcast brought to you by Mortgage Automator. Our guest is Josh Lloyd, Co-Founder of Yieldi, an online marketplace for investors and borrowers offering high-yield short-term real estate investments directly to investors without brokerage fees.
Josh is our first guest operating in the US, so this was a great opportunity to learn more about the market specifics over there, as well as some of the strategies that contribute to Yieldi’s success, how they handle their broker relationships, and more.
Listen, watch, or read the interview below. And stay tuned for more episodes coming up!
Lawrence: Today we have a great guest for you. Actually, it’s our first guest from the U.S., Josh Lloyd from Yieldi. Thank you so much for stopping by. For those of you who don’t know Yieldi, they’re an online marketplace for investors and borrowers. They offer high-yielding short-term real estate investments directly for investors, without the brokerage fees. Josh, one question I always like to start off with is how did you get started in the private lending industry?
Josh: Yieldi’s been around since 2019. Originally for me, I’m a technology guy, so I’ve been in the tech space my whole career. I was really fortunate to start a couple of companies that did quite well. We exited and I had some cash, and I was looking to put that out in some meaningful way to earn yield.
My family has a lot of background in real estate, so whether it was renting properties or fixing up properties, or hard money lending, as it was. I got a chance to spend some time with my dad and my grandfather prior to his passing back in 2016, and had a long conversation with him. I was like, “Look, I need to start doing some loans.” They were both super helpful to me early on and taught me a lot about how to properly underwrite properties.
For me personally, I was doing a lot of residential properties, just because they’re a little bit easier to understand. I was specifically doing them in areas that I understood, which for me meant South Florida mostly and a little bit of Atlanta, because that’s where I live now. A little bit along the way, I was still working for the parent company that had bought my previous company. It was called FitMetrix, and a company called Mindbody acquired us.
I was getting burnt out, especially selling two companies in three years. I was like, “I don’t really want to work that much right now. I need to take some time off.” Getting enough passive income was really important to me, and specifically, lending or hard money loans was super interesting to me because it was safe, right? It was backed by real estate. I had a first-position mortgage on the property. We never went above 70% loan-to-value.
By the end of 2018, maybe the beginning of 2019, I was really fortunate. Just weird timing or coincidence, but I went to a new gym and I met a guy named Joseph Ashkouti, and he and his family had been in real estate development here in the Atlanta area for pretty much about 50 years doing all sorts of stuff, residential, commercial, multifamily, and they have an ability and a team to underwrite all sorts of assets of property. Joe and I got to talking, and from his point of view, his costs of construction at that point were really starting to go up higher and higher. He was trying to find different ways to leverage his money, and he found some local opportunities for some private lending as well.
When he and I had met, he was first like, “Wow, man, how are you getting all these loans?” I was like, “Well, I’m not telling you that, but if you want to invest in them, that’s a great idea.” At that point, I had a couple of friends of mine who were interested in investing money in these loans, because they saw what I was doing. I let them participate in these loans, just kind of as a favor. Once Joe and I started doing a few loans together, it quickly became obvious that there was a model that hasn’t really been deployed here in the U.S. that successfully, but between my technology and his real estate experience, we thought we could carve out a really nice niche.
That was kind of a way better way to allow investors to come to participate in these loans with us through an online marketplace, through technology, to get high yield returns, where we’re making some money on the spread of what we’re servicing the loans at versus what we’re paying those limits out at. That was the beginning, and a couple of years later we’re growing a lot. We’ve got a growth trajectory, both in terms of the investors and the borrowers. We’re really happy with the business progress so far.
Lawrence: Talk about your actual business and the deals that you’re getting and you’re writing. Number one, how do borrowers find you? Is it direct to the borrower? Do you deal with brokers that send you deals?
Joseph: What’s your wheelhouse deal? What’s your bread-and-butter type of loan, or are you guys fairly open to doing all sorts, because of the experience that Chris’ family and Joe’s family have?
Josh: Typically, bread-and-butter for us is 250K to 5M, anything in that sweet spot. We’re in about 24 states actively right now. That’ll grow. If it’s got good loan-to-value, it’s got a good borrower and a good story, whether it’s commercial or residential, we can get it closed pretty quickly. We’ve got enough funds, between ourselves and our investor pool that we have within our marketplace, to really get those loans closed, and that’s the biggest thing. The borrowers that we work with are looking for speed, right? It’s not always because they have bad credit. It’s actually most often not that they don’t have bad credit, it’s just that they have a reason they’ve got to close fast.
Then as far as how we get the deals, it changes a little bit over time. I love watching you guys put out your Instagram stories with marketing and SEO tips and other things. That’s obviously near and dear to my heart. That’s my background. We do get a fair number of direct leads from borrowers through our marketing and through our SEO. To be honest, what we find is that that’s great, but those borrowers are either inexperienced or they’re not really ready to make a commitment yet.
We like paying broker fees, because what we find is that the brokers have already vetted the borrowers. They’re bringing us a loan package. Yeah, we’re paying a couple of bucks for it, but you know what? It just makes sense. They’re easy. We put a lot of our marketing energy into trade shows, online marketing, and other marketplaces that will bring us a nice broker network.
Joseph: It is interesting to talk about this because we’re from Canada, you guys are from the U.S, and we’ve learned the market’s a little bit different, but what Lawrence and I have learned is with brokers, if you’re training them and teaching them how to properly package these deals, the amount of time you’re wasting is significantly lower than if you’re dealing with a consumer who’s like, “Yeah, I think I want to borrow this much, I think I want to buy this, I’m not even sure if I want to buy it yet, I’ve got to check with my wife,” and just spending all this time underwriting these deals, getting excited to fund them. You’ve got investors that are looking to put out cash, and you’re just spinning a lot of wheels. Whereas brokers, they’ll just come in. If they figure it out, and they get exactly what you’re looking for and you build that rapport with them, it’s just like in and out. It’s like a factory, essentially.
Josh: Yeah. I mean, brokers appreciate a fast no as much as they do a yes, honestly, because they don’t want to have their time wasted. We can look at a deal. We can run it through our very basic underwriting algorithms and just be like, “Yeah, this is just not going to make any sense. We’re never going to get there. Good luck. Hopefully, you’ll find somebody else who can.” On the other hand, the ones that do make sense, we can typically do our basic diligence of looking at a property and the borrower upfront within 24 hours to have a term sheet to them, so they love that too, and then get into our operational processes. That also, we continue to streamline on a daily basis to get these things closed within a week if we can.
Lawrence: Can you expand on the online marketplace? Where do people find your deals?
Josh: Yeah, that’s a great question. I’m going to answer that question in two ways. Before I talk about the marketplace itself, one thing that I think might be helpful to the people listening to this, that was a shock, frankly, to us, was that I like to surround myself with good companies and agencies that are really good at what they do, right? Every online marketing company I spoke to said, “Nah, Instagram’s a waste of time. Nobody’s going to care.” Well, actually they were completely wrong.
What I’m finding is that on our Yieldi Instagram page, if you properly have a good social marketing company or can do it yourself, that puts these offerings out there that you talk about your knowledge of the space, you talk about why this just makes sense. If you’re looking for something with a good yield and a good high interest rate, it makes a lot of sense. Then we, as the owners of the company, re-share those on our stories, and then people follow up with us. The number of leads of investors that see that [on Instagram] and come talk to us is actually way higher than I ever imagined, to be honest.
As far as the marketplace itself goes, Lawrence, this is also interesting. To be an accredited investor…and for the moment, Yieldi only works with accredited investors. That may change over time, but that’s how we are today. The sign-up process can be annoying and daunting, depending on where you’re putting your money. Anyone who’s invested money in a real estate deal or an equity deal or anything, maybe a technology deal, it’s a lot of paperwork just to subscribe to get started. One of the first things we wanted to tackle was making that as simple and painless as possible.
I know this is going to sound crazy, but make the sign-up seem sexy so it’s just easy and you get through it. On the back end of that, you DocuSign a couple of things. You get an automated email and you’re ready to roll, basically. Once that happens, whether you’re a prospect that maybe has talked to us or whether you’re actually a signed-up investor with Yieldi, we’ll put on our Instagram that we have a new offering. We’ll put it out via email, and we’ll always put it out to our existing investor base first and then to prospective investors second, so they have a chance to look at the loan and gobble it up if it makes sense. They get the email before the loan’s available to be consumed.
We want to create a little bit of sense of urgency because there is a sense of urgency. These things get gobbled up usually within 24 hours when we put them out on the marketplace. We’ll let them know what it is and give them a day or two to look at the property, ask us any questions, and then we’ll send a follow-up. Once it’s time to actually invest, they’ll invest right online, go through a pretty simple checkout process actually, and that includes the ability to take their money via wire. Or actually, something new to us … we’re just starting and we’ve had some good early success… investors in the United States, which may be different from Canada, can use their retirement accounts as an alternative vehicle, and have those interest payments go back into their retirement accounts.
They choose, “Hey, I have my Schwab account. I want to get a bank wire.” The money pulls that out. They sign the documents that give them a promissory note against that specific loan and they’re good to go, and they get an interest payment immediately. Let’s say today’s August 17th. We typically pay our investors on the 10th. By the 10th of the month, if someone puts money in today, they’ll get 13 days of interest for this month, and then each 10th thereafter they’ll get their monthly interest payments. It’s pretty straightforward.
Joseph: Is there a minimum amount of money people can buy into on a loan? When you put an offering out there, let’s say? Let’s use a million-dollar residential house as an example, because obviously $5M, you might have more investors participating. What would you say the average number is of investors that will participate in a million-dollar deal? Then again, what is the minimum amount? They can’t put in $5K, can they?
Josh: Not currently. If we eventually go down the unaccredited path, but with the amount of technology and being able to scale the business up from that side of things, we’re not quite there yet. We look at that. We don’t really ever want to have more than 8-10 investors in any deal, no matter what, and that’s really size-dependent. That would be like a $3M to $5M deal. Using your million-dollar residential deal, it’s probably, at the end of the day, going to end up being somewhere around five investors, just based on our experience. The minimum investment amount would be around $50K in that loan. Usually what we find is people will put in $100K.
Plus, keep in mind that one of the reasons this is super attractive to our investors is Joe and I specifically, we look at these loans like we’re going to put our own money in them because we do put our own money in them. That’s why we started the business, to begin with. We might put our money in a loan and only make 75% of that loan available. These loans get gobbled up pretty quickly, especially if the rates are good and they understand it.
Lawrence: I’m assuming you come in on these loans even before you’re going after investors, so you’re basically saying, “If nobody wants this deal, I’m taking it personally.”
Joseph: Josh is putting his money where his mouth is.
Josh: Pretty much, yeah. Joe and I, and Chris, and Mike, we’ll fund these loans upfront, and that’s really what the business model is. Then we’ll, quote/unquote, sell off a piece of it. Where we differ, then, and I don’t know how it is in Canada, I guess it’s worth a conversation over a drink…but in the United States, I would say that the majority of the lenders that I interact with are…and I say this nicely…glorified brokers in a lot of ways. They’ve got a little bit of money, or they’re table-funding deals with a larger institutional lender. They’ll originate that loan. They’re good at originating loans, but they’ll sell it right at the close of that loan.
Lawrence: They’re not keeping it on their balance sheets?
Joseph: Isn’t that called shadow loans or something like that?
Josh: Table funding. It sounds attractive, and we will do that for sure on loans that are outside of our wheelhouse. If there’s a loan that just doesn’t make a lot of sense for us, maybe the LTV is not within our parameters but it is with a partner, there’s a couple of folks that we’ll work with. Or if it’s a larger deal than we’re comfortable with that we can raise the funds, we’ll do something like that. For the most part, for our loans, we want them on our balance sheet. It’s half our revenue, frankly.