Kevin Rodman joined Asset Based Lending as a partner in 2014 and brings 30 years of experience in the mortgage industry to the ABL team. Along with Dan and Paul, Kevin is one of ABL’s three loan underwriters. Kevin is leading ABL’s expansion in New England, with a focus on Connecticut and Massachusetts. Kevin also works on building ABL’s strong capital base, which is one of the largest in the hard money lending industry. REIMastermind.net
Kevin Rodman joined Asset Based Lending as a partner in 2014 and brings 30 years of experience in the mortgage industry to the ABL team. Along with Dan and Paul, Kevin is one of ABL’s three loan underwriters. Kevin is leading ABL’s expansion in New England, with a focus on Connecticut and Massachusetts. Kevin also works on building ABL’s strong capital base, which is one of the largest in the hard money lending industry.
Kevin began his career at Morgan Stanley, where he spent 25 years and served in a variety of roles in the Firm’s securities and mortgage businesses. He was President of Morgan Stanley Home Loans, a retail mortgage business, and CEO of Saxon Mortgage, a Morgan Stanley subsidiary focused on mortgage servicing. Kevin was co-head of Morgan Stanley’s Prime and Alt-A mortgage conduit, which purchased and serviced mortgages from over 600 mortgage banks across the US. After leaving Morgan Stanley in 2008, Kevin held several senior management roles in the mortgage industry. Kevin holds a BA in Government from Clark University and an MS in Energy Management and Policy from the University of Pennsylvania.
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"You can invest 10,000 hours and become an expert or learn from those who have already made that investment." - JD
00:00:01 JD Hoss
We have Kevin Rodman here on the line with us today. Kevin, I really appreciate your time and this is a topic that I'm really looking forward to diving a little deeper because we have a lot of newer listeners to real estate investing and we're going to essentially do a hard money lending 101 class here today so people have an idea.
Of what hard money lending is? How to make use of it? And some of those questions that they should probably be asking themselves and their in their potential.
But before we kick things off, we I wanted to make sure everybody has your contact information. First of all, I believe your website isebl1.net is that.
00:00:45 Kevin Rodman
That's correct, that's our weather.
Is that one? Is that one of the best places to get ahold of you?
Well, that's our website and there's a lot of information there for new investor, so I suggest you go there and play with it and.
And look for information, but the way to get in touch with me is my email. UM, it's my initials KR at ebl1.net.
Sure, and don't spam his email now.
Well I appreciate.
Appreciate your time today and like I said we have a lot of newer to real estate investing listeners. So let's start things off by.
Helping them understand what hard money lending is and how they can incorporate that into their real estate investing goal.
Hard money lending uhm it. It covers a pretty somewhat broad spectrum of the type of lender, but it's an alternative to a bank. A bank. Take time.
A load of clothes.
UMH does a lot of due diligence digs a lot, wants you to prove your income when you have construction draws, they could take a week to review it and ask questions and fund it. A hard line lender is somewhat more based off of the asset.
We don't underwrite the borrower as deeply as we underwrite the underlying real estate and the other hallmark of what we do is we close fast.
At EYBL, our average time to close in two weeks last week, I closed the deal in two days.
Uh, in order for that to happen, the borrower came with.
Insurance and all of his documentation ready to go because he got frustrated with another lender.
It's, uh, it's it's a bit of a. It's usually a high touch business. Uh, my speak directly to borrowers even though we we've done almost over 700 million in loans in the last about five years.
UMH UMH we.
Even though uh after its asset based lending and it hands, it relies more on the value of the real estate.
I don't want people to think we don't look at the borrowers we do. We move by coast. We look at two years of income taxes.
And we pull a background report and we have a in depth conversation with the borrower. Mostly the determined. Does the borrower know what they're talking about?
So what's the proposed project?
And before we get on the phone with the borrower, we'll research that House in that market and we'll have a good idea of of weather and the borrower would have had to submit a draw schedule or scope of work for the renovation.
So we'll have a good idea, but we still want to get comfortable with the borrower after we've gotten comfortable with the real.
Sure, can you talk a little bit about like what? What are those things that you're looking at regarding that that real estate, that House that a person would need?
To to be aware of.
Well, the most important thing for the borrower and eibl is that you buy the house right. That means you buy it at the right price.
Especially, you know if you have new new people to real estate on the phone.
Uh, on I'm sorry on the program, UM?
Buying on MLS.
It's generally full price. You're not gonna find some diamond in the rough.
On MLA, so over, but we have over 500 borrowers in our book right now. In our portfolio. We're direct lender.
We have 100 million in capital and 60% of our borrowers are repeat and those borrowers are professionals and they know how to find houses. They've got real estate agents.
Who might find them a property before it's listed they go to court? How they go to courthouses for auctions?
They have connections with banks for sports sales. UM and Dario.
UMD and UM.
You know one that's rare, but we find often is a hoarder house. Most people, when you see a real hoarder house, it's shocking. You know you could get three dumpsters to clean out a 2000 square foot house.
Stuff piled up to the ceiling and you just can't. Some people can't envision what it could be, but a professional investor does so. So the most important thing is.
Uhm, to answer your question is by the house right? So then, once you buy the house the investor with that you know without our help have to figure out what's the house going to be worth if I fix it and and what does.
To be repaired.
And so there's small renovations that are umfer typical homes of say, you know 1800 to 2400 square feet. More renovations are redo the kitchen, redo the bathrooms, maybe refinish the floors and some paint.
That you know that might be $25 a square foot.
Then you get into slightly bigger renovations, which would include biting roof and Windows. Now you're in for a maybe.
$50 square foot.
And then there's bigger renovations where you're replacing the heater, adding HVAC, doing a bunch of electrical work. If you're putting in HVAC, you might be putting in duct work. Now you're getting into, you know, $70.00 a foot, though we the, the investor.
I have to figure out how do I make the most money.
Do I do the $30,000 job, the $50,000 job, or the $70,000 job and in order to figure that out, you have to know the local real estate market.
So there are some markets where you just have to have central air conditioning to get the right price.
Often you you know you need a 2 1/2 bath.
Not too bad.
And you almost always need a new kitchen.
If you're buying a house that got updated or beat up kitchen, Bella home and honestly bathrooms. Bella home.
Then it's pretty easy to refinish the floor so so the investor has to decide which way they're going to go, how big a renovation.
If I do the 80,000 renovation, do I get paid back all of that and maybe it sells the house quicker than $30,000 renovate?
And, and so there's their decisions to make. Then you get a scope of work.
Should you should have a contractor or interview two or three, get a scope of work, what it's gonna cost.
Then you come to ABL. Now during this period you'll be working with one of ABL sales people and they know.
The the regions that they know, just like myself and my partner.
You know, every town that we lend in and what the markets are like in those towns and our sales.
People have more time to talk with a potential borrower and talk about what we think might spell in that market.
But really, what they need is a real estate agent, the investor. They need a real estate agent to guide them.
And tell them, yeah, you.
You gotta put in central air from you. You know you need a second bathroom, sometimes in lower middle income neighborhoods we might see a 70 year old Cape home where there's three bedrooms upstairs with one.
With one bathroom but no bathroom downstairs and you know? Or what does that mean for resale and what? What would it mean if I put in a half bath?
So, so those are the types of things you have to figure out before you present a real loan opportunity to EBL and you want.
Maybe I'll lend you money.
Hope that answers your question, yeah.
Yeah no, yeah it does it and what is interesting is that you you're pretty much painting a situation where you could really use your hard money lender as one of those team members to validate a few things.
Well, we are a local lender. We land in 10 states. Most of our lending is in a state that touches the Atlas.
Nekocon, and that's because we've been around for 10 years and we started our based in Jersey Stadium in New Jersey and we started just blending in New Jersey and New York. And then we added Connecticut. And then we added Pennsylvania and then we added Delaware.
Delaware Maryland, Virginia. Uh, we recently added Rhode Island, Massachusetts, New Hampshire, and along the way we added Florida, which has become one of our biggest markets.
Dumb and dumb are.
Our value or our mantra is blend in areas that we know I don't know how to land in Kansas.
I I don't know the market lending markets that we know and we know those markets and so we're a high service.
Uhm, somewhat lower volume shop then if you go online and you see national lenders that lend everywhere, they're not going to give you the service, they're not going to hold your hand like we will.
So just as a reminder, everybody head over to ebl1.net For more information. And as Kevin mentioned, there's quite a bit of information out there.
For for you there and it's great to see a lot of those resources just available for people freely on on your website.
Uhm, when you're doing your due diligence on a property, then what? What are you looking for like it? Apparently there's going to be comparable and what can the neighborhood and the market support? But what are some of those due diligence items that?
That you will be asking for.
Great question Jack. So the way the process works is my sales person worked with a potential borrower to put a submission together for the loan, and that's going to include a signed purchase contract, a scope of work and a borrower experience working. So what else has the borrower?
John in real estate investor.
Uhm, and then they submit the package, uh, for underwriting. So then I pick up the file to take a look and I spend.
And by the way, there might be more information in there that borrower has submitted like tax returns, maybe or.
Uh, survey? Other things related to the property.
So the first thing I do is I take a look at the property address.
And I go on Google and I pull it up.
And there's a remarkable amount of information on Google, so I look at the House.
Uhm, sometimes it's, uh, there's photographs of the house online inside. I then look at the Street View.
Uhm, how does this house compare to the other houses on the screen?
Then I zoom out and take a look at the town. Uhm, where is the town in relation to other towns that we know?
Where is it in relation to New York City or one of the cities in Florida or Boston, wherever whatever state we're looking in?
Then I take a look at the scope of work.
I already know from looking at the house what I think it's worth.
Uh, because we just know the markets and we know, you know, we know what sells. And then I look at the scope of work and based on what I'm seeing online, does the scope of work makes sense?
And we've underwritten thousands of loans. But then when we get into the scope of work.
If it's a house that's going to sell for 350,000.
It doesn't need a $20,000 kitchen.
But there is a now. It needs $10,000 kitten.
So if somebody put a $20,000 kitchen in line at him there I would know there's a serious problem.
Either the borrower doesn't understand what they're doing, or they've got a contractor who's trying to steal money from them, or.
Tell me one or the other.
Same with bathrooms. A $300,000 house the bathrooms could be around 5000.
Master could be 7.
Uhm, and and so uh and same thing we go down I go down I do a quick scan fighting for that house could be 6000 the route 37,000 in the in those ranges and so if it all looks good.
And, uh, we also have a profit calculator, but uhm, we take a look at assuming an average hold time, which pre pandemic was ten months.
Get a project completed and sold and come and that timeline actually had been lengthening over the last few years. There was eight months.
Three years ago, and there's a lot of reasons why things were getting a little bit longer, but a post pandemic six months everything is moving.
Uh, in in in the suburbs inner city, inner City, Brooklyn and Bronx. Different story. If you're in an inner city market, those markets are not selling as well right now as suburbs 'cause people are getting out of this.
Uhm, so uhm, we run the calculator just be how much profit the borrower has built in. We have our own policy which is the borrower has to make a minimum of $25,000 profit after all expenses or the lesser of that and 10% of.
How much they're spending? So if they're buying it for 250 and putting in 50 so it's 300 deal costs, then they have to have $30,000 profit.
Based off of probably will put in a seven-month whole time.
So, so that's what I look for, and then I get on the phone with the borrower.
And introduce myself.
And uhm, start asking questions. I asked the borrower to tell me about himself.
Uhm, what do they do for a living?
Uhm, uhm, do they have any partners in the transaction? What the flight goes before? How much money do they have in the bank? What? How much money do they make? Have they set up an LLC for the property?
Uhm, uhm, how do they know the contractor and describe the Prof?
Yeah, and the borrower has to sound like they really understand the project.
That to give me confidence in my partners confidence that they're going to execute because we're in this together and it's not adversarial really. We're partners. You know, we want to just make our money back from the loan.
Uhm, make our interest.
Have the house pay off so we can put the money out again.
And we want to help the bar or get it done. Borrower wants to get it done as fast as they can sell the house, make their profit, buy another house, hopefully finance with the ABL so we're all aligned together and EBL out of our.
3000 loans we've only had problems on about 80 to 100.
So it's it sounds like you know outside of you know you you talked about the statement of work. You need the address.
Maybe some tax information? What like your ideal applicant if they came in fully prepared, what would they have in hand for you?
A well, a well thought out scope of work.
And an experience worksheet that we would give them a form where a template in Excel where they would put that in and.
That's really All in all, you know this is part of money. Hard money is bad.
So, uhm, that's really all we need to.
Get on the phone with the borrower.
Talk about the deal and give them a decision on the call.
It's either OK.
Uhm, sounds good. Everything you said sounds good, so we're going to move forward. We're going to send you a term sheet and if everything you told me uhm works out, we'll do this loan.
But there's a.
Fair number of steps between what I just said of sending a term sheet that you know and closing the.
Uhm, and we can go through that if you'd like to that you know, processing from terms too.
Those but the most important thing to them, the two of the most important things that happen first is the appraisal. So once we've issued a term sheet, we order an appraisal.
The appraiser and we have appraisers in every county and the you know, we move fast and our appraisers are hard money appraisers and they know we have to move fast so we send them the order. The appraiser will call the borrower, set up the appointment.
Usually happens within two days, maybe 3. The appraiser has the scope of work so they know what's being proposed to be renovated in the house and they meet the borrower and the appraiser at the property.
And the and the borrower then pays the appraiser typically $450 a month for the appraisal when they meet, and the appraiser then takes off with the scope of work as the borrower explained the project.
So they hear it, and then the appraiser will walk through the house, photograph everything, photograph the entire exterior, photograph the Street View, go back to his office or her office, and within 48 hours send us an appraisal report that the report that says if the borrower.
Does all these repairs the house was going to be worth X.
And that's the biggie.
That's the biggie. So if the borrower came to us instead, I'm certain this House is gonna sell for 3:50.
I have a real estate agent. I have comps, you know parables that you know other sales. I know the neighborhood I've done this before in this neighborhood. That's great. It comes back at 3:50 and we had.
Price the deal for the appropriate profit margin and you know, say the borrower is borrowing on that deal maybe 275, so they've got 75,000 baked in.
I'm sorry, but they're probably boring, more like 250 because they're spending more than or lending UM, then, uh, that's 85% of the deal right there. All that's remaining is some paperwork. Pretty standard like the LLC Formation documents, then operating agreement.
Like there's more than one person and the title report and credit so credits the next really serious one borrower. But I'm always gonna ask the bar or what's your FICA?
Well, it says my flight goes 700.
We get borrower gives us authorization to pull credit. We pull credit, it comes back at 700. That's great.
Comes back at 600. That's the big discussion.
You know comes back at 6:50. Usually it's because of high credit card balances. Not a big deal. We'll probably proceed. I was back at 600. That's a.
Uhm, so there's a. There's a phico discussion to be had, and then there's the bank accounts. The borrower might need $40,000 for this deal. They build $40,000 with down payment.
For the first draw up, pay for closing costs so they have to spell U.S. bank statements that go the that they have the cash.
Close the deal.
Uhm, and then the title report is the final thing. It's always the final thing. UM, the borrower has to pay to have a lender's title report means there's a title company that's been storing that. When we make our mortgage.
We're going to have our first lien and no other.
Entity like the county or the date looking for taxes or an another mortgage lender has a lien in front of ours that the title insurance. The purpose of it is to guarantee the lender that we have a perfected first.
Priority lien in the in the in the property.
So you know then I I probably are going to say that it it likely depends on the property, but how do the what would you typically see for terms and how does the how is the money utilized? Like if if I buy a property?
Uh, I know that the IT comps out if I get it all repaired, it's going to be worth 250,000, but I'm buying it for.
Half that 100 and a quarter.
What would somebody typically see like regarding the purchase price? And then how does the funding work for the rehab?
Another great question Jack. So uhm every lender. It has somewhat different rates points and proceeds that they lend and it also varies depending on the experience of the borrower. Though as borrowers get more experienced they get.
And more proceeds higher level.
So our rates range from 9% to 11%.
And our points range from one point to two points.
There are borrowers that are doing.
In deal deer are getting 9% and one point.
Meaning if the loan is $200,000, that's $2000. They pay us in upfront points.
Uhm, and while I've never done a deal before, it's getting 11%.
And two points.
OK, that's the range. It's a pretty tight range. It's actually much lighter than it was years ago.
Where new borrowers might have had to pay.
13 percent 14% the market you know gotten tighter.
Uhm, and then you're posting.
No, for somebody that's never done a deal before, we, we, we, we have our loan at 85% of their deal cost. So if their purchase in your example is 100 and 25,000.
And their rehab is 50,000. I'm making numbers up, not diploma calculator for this Jack, that's 175.
So our maximum proceeds would be.
100 and 4800 and $48,000 so. But from that we cracked the 50 for the construction escrow, which means we would come with roughly $98,000 to close and the borrower would have to come with roughly $27,000 down.
That's an important concept of most hard money lenders. It's very core to our culture, which is what we call in in the game.
Pak does the borrower have to put in this deal?
It's enough to incentivize them to get the deal done.
'cause obviously if we went 100%.
They just walk away.
But they've got no skin in the game.
So like the big lesson learned from the UM, the Great Recession of 2007 and what went wrong with the mortgage market is borrowers were getting 95 and 100% loans and then they all just walked away.
So, uhm, we all we've learned our lesson and now we require our table with some cash.
You know, we talked about what your due diligence would be on a property, but what let's? Let's spend in the last few minutes we have talking about the due diligence a borrower should have, like what kind of questions and what should they be asking for from a potential borrower or lender.
Well one of the oh what's the asking from lender? Oh OK.
Yeah, just to make sure that it's a good fit for them. You know, you know there's a lot of.
Sure, so number one is. Are you a direct lender or a broker?
A direct lender like us.
Generally keep the loans in our portfolio.
And that means we have a lot of flexibility.
Because nobody else is telling us what to do.
Is going to send the loan to some other prompt.
You might be getting into a situation with a lot of unknowns. Uhm, there's a lot of good brokers out there who brokered in good firms.
And then there's other quickly.
UMH so direct lender, that's number 1 #2 how fast can you close?
It's gonna take Me 2 months or two weeks because my seller told me I have closed in two weeks.
But like you know, yes or no. Can you close and then take a look at their reviews on the web? Eibl has hundreds of reviews and 98% of them are.
Great, and so are the reviews online, consistent with what the person you're talking to is saying. Are you certainty of close? That's the number one thing our borrowers are looking for.
And you both.
OK, so are you in or out broker with direct lender? Can you close tell me about the closing process?
Is this going to be somewhat easy or is it gonna be really painful and what? How are you gonna make this easy for me?
Uhm, and uh, what's it gonna cost me to close?
What are all my cost ABL discloses it in our terms, every cost we have is there. Are there any other costs that you're not telling me about?
Uhm OK then uhm.
Then, uh, when am I gonna get punky?
When am I gonna know exactly what you're offering me and uhm? And is the term sheet.
Are you gonna? Are you going to change the deal at the last minute when you know I have to close?
Are you going to raise my rates or you know you know what? What are you obligated to do?
And you know the truth is any lender can change anything at any time. But check out their reviews online.
Because Blender can do that.
Well, it couldn't honestly if.
It's up to you know, are we going to have a trusting partnership or not?
So those are those are the big.
Questions that come.
And some other questions borrowers ask is that I hire an attorney.
And the answer is yes.
No, we think you should hire an attorney and we're never going to advise you otherwise, because if we advise you not to, and everything gets screwed up.
Or I was going to say, but you told me not to hire an attorney.
But in addition, ABL has a closing attorney.
But those they're not part of our company, they're external. We have attorneys in every state, and so our borrowers have to pay the attorneys cost.
It's one of the biggest parts of the closing cost in Florida. It's $500, but up here in the Northeast it ranges from 1000 to 1500, so it's a significant part of the closing.
Uhm, and another question borrowers asked is that I order the title report or will you and our answer to that is whatever you want.
We have a title agency that we work with. We don't have an ownership interest in that title agency and we don't think lenders good.
Have ownership interest in title agencies, uh, because it could be somewhat of a conflict of interest and and but some do and it works OK.
And typically we tell borrowers to go out and order your own title.
We think it's the right thing for a borrower to have freedom to do.
Well, the last question I have for you then is there. Is there a question you wished I would have asked you here today?
Uhm, you've really covered it well, Jack, uhm I don't. I can't think of anything right now. And you know, do your lender to the people listening.
Do your lender due diligence do? Do you know there's a lot of lenders you can find on the web on the website?
Out there, you know, a lot of lenders paying.
Or paid apps. And then there's the organic EBL. We're proud we've been around so long we're near the top of the organic search in every state.
So what does that mean? How do you get there? Well, you get there by having a lot of people land on your web page and use your website.
And we're proud of that. But do you want to work with a lender who's only been in business for two years?
Or one year, so check out your lenders, uhm, check out their reputations. Talked to a few of them, interview them and.
That's my suggestion and see if they're helpful. See if they can tell you about the market that you want to be in.
No, that's a great advice. You know, as much as anything, I keep seeing everything. And as just adding a number, another team member and you know you need to make sure it's a good fit.
That's right, you really do.
Well, again, if you want to hear more from Kevin, Head over to ebl.net For more information. I really appreciate your time.
This has been a great session, especially the long overdue hard money lending 101 and I really appreciate the insight and help.
Thank you, Jack. Thank you to everyone who's listening.