Welcome to Mortgage Talk with Mark Hairston, the program that not only talks about
mortgages, taxes, and interest rates, but Mark and his guest talk real
estate trends and your home. He also answers your mortgage questions to help you
make the right financing or refinancing decisions. Now here's Mark Hairston. Happy day,
everybody, and welcome back to this week's station of Mortgage Talk. I
am your host, Mark Hairston, and I'm really really excited about today's today's
show because, as I've mentioned in the past, I really do this show
primarily to learn, you know, so I bring on speakers that I can
learn from as well, and we want to share information to the marketplace that
can help you make very good decisions around your investments, particularly in real estate.
And today I've got a couple of guys who work in a field of
lending that I don't. We're both in the same space of lending, but
I'm more traditional in the mortgage space of doing residential mortgages, and these guys
are in a different area called hard money or private lending. And I wanted
to douce Ray Walter and Curtis Simpson, who Ray owns Capstone Funding and Curtis
is sort of his right hand man, his chief lending officer, and I'm
just really excited to hear what their story is. A matter of fact,
I'm pretty sure we're gonna do this more than once because there's so much meat
on this bone to choose. So give me Ray. I want you to
kind of both of you actually spent a little time a few minutes here whatnot,
introducing yourself and your experience in this world. Sure, so Ray Walter
with Capstone, and thank you Mark for having us on the show today.
We appreciate it. And So I've been in the lending business its nineteen ninety
eight. I grew up in Orange County, California, moved to austin ninety
eight. Started with Countrywide Homelands, I remember those, Yeah, started in
wholesale, yes, definitely, And and so I was there for about three
years and two thousand and one. So from nineteen nine two thousand and one
is when I launched out and I opened up my actually I got my loan
officer's license and eventually opened up my own conventional mortgage lending company. It was
just, you know, did conventional loans. I FH loans and I do
today that like you do today. That's correct, yes, And about two
thousand and five, if I remember correctly, I started seeing this need for
private lending. I always heard about it. I didn't really understand a whole
lot about that, but I just I researched out that industry and I wanted
to understood out here. I am as a loan officer, I'm already doing
conventional loans here, what is this private lending? How do you fund private
loans? How do you what is hard money lending? So I learned everything
I could, and I just scoured the internet and I even ordered you know,
classes that you can this is that. This is actually a DVD if
you could believe that before it was on YouTube. And I learned everything I
could, and I was fascinated with that industry and what hard money lending,
private lending also known as bridge lending, what it's really it's gap financing,
and that's why they also called bridge lending. And I started seeing this need
for for individuals, let's say, for renovation properties, for example, because
that's the most common asset that people understand on the conventional side. Single family
primarily primarily single family, that's correct, and if and if and I'm not
sure how much it's changed in the conventional lending world because I haven't been in
that uh you know, it's certainly not recently. But at that time I
couldn't find good financing available for someone who wanted to rehab loan. And I
would work with roles to agents and occasion, I think get a lot of
them, but I just was fascinated with that need. And what I realized
is that there are individuals that would buy a property that was you know,
needed maybe you know, twenty five fifty thousand dollars or renovation, and there
really wasn't a good program there, especially on the conventional side, for someone
to get financing for investors for investors only investors, not let's be clear about
that. Yes, that's correct, Yeah, for only for investors. And
and so that's what really propelled me into the hard money lending industry. And
I started a little bit with my own capital, and then I worked with
some of our family money and clients, and it just organically grew in fifteen
or plus years, right because in two twelve is when I when I launched
Capstone, primarily only as a hard money lending company, and I ended up
leaving the conventional lending industry went completely. That's correct, And tell us about
your background. So Ray and I met early two thousands through some ministry things,
and and I ended up actually becoming what is now Capstone's largest bar work.
Okay, you're a client one time. Yeah, I was doing luxury
flips from everywhere from Ocean Drive and Corpus to Santonio and the Dominion Wow wow,
gated communities, Kenya Lake and even here in Austin. Okay, So
we've been friends for a number of years. Done done quite a bit.
I actually come out of the I was part of the tech boom. I
was working for a technology company. From there, I rolled out a venture
capital firm. Okay, tell you've been in Austin. I've been in Austin.
I came in eighty six. Wow. Wow. Uh played football ut
wow, and got a degree and never left. So I play football,
but yeah, yes, I still go to games, you know. So
anyway, I guess two thousand and seventeen, I had kind of been consulting.
I have my own capitol company that I do development deals with and such,
and I started consulting and I actually in two twenty twelve, I actually
wrote the business plan four Capstone awesome, So our wells in two thousand and
twelve, yeah wow when he started so uh he or Garret started growing it
for the next five years and then twenty seventeen it was just kind of meant
to be. Yeah, that's fantastic and came together and start working. We'll
tell us a little bit about the typical profile of your clients. I know
you all do a variety of types of loans in different industries, if you
will. You know, you talked about a winery as an example. Okay,
that you that you you all funded. But what's your day to day
sort of typical client or is there one? So? Yeah, our our
bread and butter is single family, residential, new construction, new construction.
Yeah, working with builders, working with builders. And funny enough, we
we actually don't really call it hard money anymore, at least as far as
for Capstone. Yeah, hard money does have a little bit of a stigma
from the fix and Flip days and there were a lot of foreclosures then oh
eight happened kind of got lumped into the subprime you know, just right,
But I will tell you I have profile our clients and our average client as
upper seven hundred stores. Yeah, but they are looking for something. Ray
taught me a long time ago. Hard money or private lending is about ease,
convenience, and speed of capital. You can fund quickly. We can
fund quickly. There's no red tape. And as long as the asset is
good and the LTV is good, which will pretty much walk up to the
seventy percent line on LTV, Okay, then that's about it. Yeah,
I mean, yeah, well we we depending on the asset class. So
it's commercial, we're going to be you know, maybe fifty up to sixty,
multi family same but for residential, Yeah, seventy percent LTV is just
I will tell you this. If a deal doesn't meet the seventy percent LTV,
when you consider the purchase in the budget, it's not a good deal.
And all a lot of times we save uh some of our builders and
yeah, this is not a good deal. You should not be done.
Your margins are too slam You got it? Got it? Yeah? I
think I mentioned too that on the seventy percent that is based on after repaired
value. That's that's the key. So in other words, the seventy percent
after repaired value. Take, for example, if it's a rehab loan or
new construction, that can still be up to ninety percent of the total cost.
Right, So the best thing to do if there's someone who's interested in
getting a private loan is to call us and we can run the numbers,
you know, run the numbers for them, because the seventy percent is it's
a little deceiving it. It's actually much higher than you realize when you look
at just the cost of the loan. Okay, So, but builders are
a big target market for that because of the ease of finance. Is that
correct? That's correct. They don't have to go through so much red tape
to get a line of credit, that's right. And banks have really tightened
up. The banks really tightened up. And one of the things we always
tell builders really and client, we're more expensive than a bank. We're more
expensive obviously than a conventional one that that a conventional officer can get, but
we're still cheaper than a partner. And that's the key. So we're in
between a partner that might want fifty percent of the profit on a transaction,
and and in between bank financy and capstones. Right in the middle of that.
So it's like going to a convenience store to get a gown on milk.
You'll pay more than going to H G B. But you don't want
quicker, and you don't wait, and you don't got to walk so far.
That's that's a good analogy I'm looking at it. That's the way I'm
saying that analogy. Well, I like the Ray basically said it, but
the the you want to say the phrase that you say, which is hard
money or private lending is the cheapest equity partner you'll ever have. Okay,
right, so that's why we get high level and totally most of our guys
are bankable. A oh yeah, okay, okay. The reason I ask
you and we talked about the frustration, at least in my experiences as a
traditional what we call agency lender selling loans of the secondary market to Fannie Mae
or Freddie Mac. You know, there's a lot of red tape, and
you know, to close a loans usually around thirty days. Sometimes it's faster,
but you know, there's a lot of documentation and stuff like that.
So you guys, like you say, have a you all fill in the
gap that's right between somebody who may not be able to qualify traditionally for whatever
reason, but has a good, good asset and maybe good credit, and
you guys can his asset base. Yeah. Yeah, So so you mentioned
builders, custom builders, I assume yes, well most, I mean we
do some spec, you do some spec Okay, okay, but what other
type of primary clients would you also serve? Talk a little bit more about
your your client base. So I would say bread and butter. Probably seventy
percent of what we do is that new construction, mainly here Austin, Central
Texas. Well, we do all of Texas. We've actually even lended outside
of Texas. In fact, I was the borrower who piloted that program.
I did six poems Seattle to Florida, got it. But yeah, the
the primary place that we focus on right now, and this is by my
own stamp or design, like I e. I don't let us go outside
of that as we are solely in Texas. And even a bigger, more
micro focus is the Austin to San Antonio corridor and then the forty six corridor
saging all the way over to Bernie got through New Bronfels. So that's that's
central Texas with the top edge of South Texas is primary. But we do,
we do. We actually do a few things in Corpus and a little
bit in Houston, not as much anymore, And then we loved Dallas for
two Now we've seen, at least in my experience, we've seen a fairly
big shift in the residential world. I want to focus on that for just
a second. That's been my world. You know, as far as values
in Austin, what are y'all seeing? Are you seeing? Let me put
it this way. I've had some friends of mine who have gotten in some
trouble, you know, in the fix and flip in the last year because
they bought it wrong, right basic our timing was wrong, if you will,
And they're they're challenged right now with with equity positions and selling properties and
even leasing properties on some level. You know, what are y'all seeing as
as as Austin goes, as far as values, are y'all bullish here?
Still? I seem you are, well, yeah, we're we're highly bullish.
But if you knew how to navigate this ten percent adjustment, which the
numbers just came out last week and the past year year over year to the
month of July was a ten percent reduction and value. Yeah, and then
the last year in the last year. Yeah, So for us, we're
still and that's not too bad. We're still yeah, we're still within that
range that that we're okay from an asset standpoint, But we did when we
were coming into COVID and the supply chains were affected, demand just shot through
the roof. Everybody from the Left Coast and other areas moving here. They
just absolutely the demand. I think there was one hundred and sixty five people
a day coming to Austin. And do you know the stats on that today
as far as people coming into town. Yeah, I mean we're not too
far below that really from those about it was last month sometime, okay,
so I'm thinking we're in one hundred quote me on that, but just curious.
Yeah, it's still still really healthy. Yeah. I mentioned too on
rehabs. Rehabs probably what would you say, curtis less than less than five
percent, So less than five percent of our portfolio. It's exception transactions and
there there's a couple of reasons for that. Number One, the margins on
fix and flip transactions are much thinner than the margins on new construction, and
the budgets are bigger surprise. Budgets are bigger surprises. They always say,
you never know what's behind the walls, right, and and so that's been
our experience. So we're not And Curtis has done both. He's done fix
and flip, he's done new construction, he's done development, and and so
the margins are always better on new construction, and that's why we favor new
construction or renovations that. Fortunately we haven't had a lot of our borrowers get
in trouble with that, with that price change that we've had over the last
twelve thats because of that. That makes sense, That makes sense, and
they're they're also liquid enough to write it out right. The builders. The
builders, yeah, yeah, because they've done well with us few years.
Tell us some tell us our viewers a little bit about some success stories.
Maybe a client that y'all worked with in the past. It worked out for
everybody, you know, including y'all. Sell if you have any suggestions around
that. I think there's one primarily that we would discuss. And I don't
think he'll care if I mentioned his name. Is his name, Peter Piveto
he worked for the top custom luxury builder here in Austin. He ran their
cruise for about seven years and in fact, his boss of that company used
to work for is now it just become our new client. Awesome. He
was literally the custom builder of the year in Austin, Wow, for the
last two years. Awesome gossip. But Peter started off as an I don't
know if you know what condo regimes are, yeah, okay, in one
Okay. So when that became the thing and East Austin started going through that
process and it was like automatic. He started off with a little fix and
flip on the front property and then built new construction on the bad back sign
and what was approximately that was twenty seventeen. Okay, it was a first
deal I did in Capstown, got it, And that was the first deal
he did on his own. Now he's building four multi multimillion dollar homes in
Terrytown, Wow, and probably has seven or eight other developments going, including
small subdivisions of eighteen units down to other kind of more median type. That's
awesome conn the last six years. In the last six years, and he's
gone from a guy who needed investors around him to not needing them. Is
he's still a client, he's still a client of Yes, so he's doing
some big stuff. Yeah, that's it, right, And just just to
tag in on that, with hard money lending bridge lending, it helps people
like that get started where we where we do be gives chief secuity partner you're
going to have, like you said earlier, and and so we're willing as
a hard money lender, we're willing to take that risk that a bank may
not take because we're still asset based. So so Peter had great experience,
right, great person to work with, right, And there's any representstive a
lot of barbers that way, he'll come back for more, and he'll come
back for more. And so it happens. What we really love about our
business and I would see that sometimes on the conventional side, but we really
love about hard money lending is a lot of our clients to become clients for
life. Sure, And we might do three, four or five six transactions
you know, a year. In some cases it's been how big they are.
We'll do a lot, we'll do multiple transactions and they'll come back and
we'll do another loan for them, right, And it's it's usually similar terms.
But what they really appreciate is that they can give us a call and
say, hey, I've got another one right and and we just we bring
them through that next process. So we do operate very much like an equity
partner a lot of ways, but we're still lending as if we were a
bank. Yeah, so it speaking of the equity partner, do you ever
do true equity partner with people? Typically we don't. The loan structure that
we have gives them the equity that they we easily prefer to just stay in
the lending business, and that is something that Capstone's going to be looking into
in the near future. We're not there yet, but but right now,
with the structure that we have, it's it's it operates as if we are
an equity partner. Okay, we're just establishing a second fund that that will
be part of it. It's already up and running. But we're just not
moving there quick. You're not investing any any of that money in not quite,
We're still lending it. Okay, good good, good, Before up,
before I forget, let's let's make sure what people know how to get
a hole of y'all. Okay, if they're wanting no more information. This
is just a snapshot, this little radio show. So tell us your number,
your email address or whatever. Your website Okay, it's Capstone Lending dot
com. Okay, and my email address. Easy, it's Curtis c R
T I s at Capstone Lending dot com. Got it, got it?
And Ray knows this. I mean, my my builders are texting me their
Longhorn games and we're going back and forth about things like that, and in
the middle of it, it's like, oh, by the way, I
got a deal coming to them Monday, so my personal I'll give them my
personal cell phone five one two six five six one four three three okay.
And to get around any unintended firewalls, text me, yeah there. You
much easier than getting hold of me through phone call because you might get my
spam robot killer. Yeah, I got it, got it. Didn't I
didn't know about the robot killer, but I need one of those. You
know, it works really well. There's a way for them to leave a
message and say who it is, and I can kind of screen it,
right, but otherwise texts the way to go. It seems like that is
a preferred method of communication these days for sure, you know, so and
so, speaking of your clients who come back for more, let's assume that
these builders come back. How how fast can you fund a deal generally speaking
typically anywhere? It depends on and depends on the transaction and how you know,
if they've got their documents together, because it could be anywhere from a
week to four weeks on the average. When didn't you say, Curtis,
Yeah, that's that's an average. I mean, look, we've we've funded
an eight million dollars deal in like forty eight hours because the guy who's gonna
lose his property to a nefarious loan own kind of lender. Uh huh,
and we knew him and trusted him, and uh I did the personal My
my expertise is in value. Yeah, so I did the thing, so
we can do that. It's not our preference, sure, right, I
understand. I'm just curious and relative to commercial properties, can you share a
little bit what what y'all do in that space, you know, like apartments
to work in that warehouse or anything like that. We're we're we're we're kind
of getting close to that. But right now what we're doing is typically land
that's going to be a future apartment complex, okay. And so we'll get
developers, commercial developers that will come to us, they'll purchase to land because
they need to purchase it. Maybe quickly. They'll come to a company like
Capstone to get what's called the bridge loan, and they'll they'll acquire the property,
might do some horizontal development on it, and then eventually they'll end up
getting financing. No, there's hut financing out there for for apartments that that
you know would be hard for anybody to compete with. Okay. So typically
it's not on the vertical construction, but it's on the horizontal development of what
might be either a subdivision or it might be or BTR or multi family.
Yeah, and BTRs for those and the build the rent. So that's that's
a huge, huge movement right now. I'll see in the single family world.
Yeah, yeah, we'll see how long it last. But those who
are able to from a from a portfolio standpoint, hold onto that and get
there. You're seeing a lot of institutions more more than the clients we serve.
Yeah, but our guys are preparing and entitling the land for those guys.
Okay, I've got to do on New Bronfels. It's doing that all
right now. Okay, So all right, and you you interchange the words
hard money to private lending to bridge loans. Is that correct? Yes?
Okay, because it's I didn't know that. I thought there was a separate
thing, to be honest with you, Okay, but when you speak about
bridge loans to me, that's a that's a sort of a temporary situation.
You want to roll out of those pretty fast, don't you. We do.
So most of our loans are anywhere from you know, twelve months to
thirty six months, probably more twelve months or less in most cases, unless
a new construction we're looking at, probably would you say, yeah, okay,
yes, and y'all fund it from the ground up? Yeah we do.
Yeah. I always say from trees to keys. I like that.
I like that. I like that. So what else can y'all share in
your world? I'm gonna let you guys run with it. Well, another
thing I would mention too. So we talked a little bit about what type
of transactions we fund new construction. We'll do commercial development, We'll do commercial
land. You know, we have ratios that we like to look at.
So we don't like to do a lot of land, right, so we
have to we have to kind of watch those percentages. But we'll do We'll
do commercial office. That's not a real popular asset right now, but we'll
look at that if it's a low loan to loan to value and the barber's
got liquidity. Another thing that we've done too is cash out refinances, and
that's where we've done a lot of those lately. And they're not necessarily come
to us for obviously a better interest rate, but they're coming to us because
they need some cash. So if they're sitting on a commercial building and they
own it free and clear, or they have a small first lean balance on
it, and they'll come to someone like Capstone to say, hey, I
need to get an extra hundred thousand on this particular property that I own to
reinvest it back into the business. Right. So that's the other thing we
have. Another one, we've had some other ones in the past, I
should say, where there's been they're buying out errors and the property, you
know, buying out the brother and the sister and you know, and then
one of the siblings wants to keep it, and so they're buying them out,
And usually what happens is they'll usually go to a bank first and the
bank says, well, we want to see some seasoning, right, and
so come back to us in twelve months. So they'll come to Capstone,
they'll get the seasoning, they'll get the track record. Then they'll go back
to the bank a lot easier loaned to do when they go back. That's
right, Well, you do residential too. We'll do residential as long as
it's not unoccupied. So all we can do has to be invested homes,
forget about that. It has to be investments. So in that example,
that would be like an investment property right that they may have inherited and and
they need to buy buy. Okay, it will be like a line of
credit almost it would be, but we would actually just do it as alone.
So we would just cash them out and we're okay with cash outs as
long as it fits our LTV loan to value parameters. Is there anybody in
the world doing your sort of business with unoccupied properties or no? Is that
I don't think they're in Texas. They're not in Texas. Yeah, it's
really hard. If they are, they're doing it creatively, and okay,
not announcing it because there's a lot of people who come to me that I
can't help. Yeah, we get a lot of we get a lot of
mortgage brokers calling us and hey, got this owner occupied yep, that just
can't do it. Yeah, understanding, strangeful. Those are the quickest phone
calls we get. Yeah, like and and and like, and I wish
we could help them out. It's just you've got the Texas homestead laws and
it gets real ugly, and it gets real hard for hardy to do that,
you know, and in traditionally, like I do. You know,
our rates are pushing seven a half percent right now. You know that's a
qualified borrower. You're hitting on something that we are getting people like the top
builder I spoke up earlier. Yeah, he's totally bankable. Yeah, the
interest rates are are literally bringing those people to us because they'd rather pay a
couple more points. Absolutely, absolutely, Well, this is just we're just
kind of scratching the surface right now. You know. I mean, I'm
here, like I said beginning, I'm here to learn too, because I
want to know more about what you do and how to participate in that,
whether it be the fund or my personal investments. You know, so i'd
like to have you guys back again, you know, and more. We've
got a lot of questions here. We've covered maybe about a third of them
at most, you know, so we're gonna wrap it up today, guys,
and again we will appreciate y'all listen in to Mortgage Talk, where every
week we come in here with some some knowledgeable people to share what's going on
in the world to help help you guys make better decisions around your investment.
So until then, thanks again, guys, thank you, thank you,
Thank you. Mark Well, this has been Mortgage Talk with Mark Hairston.
Mark is a mortgage advocate with Texas Mortgage Source LLC, offering personalized mortgage solutions,
vast customized quotes, great rates, and service with integrity. Contact Mark
at Mark Hairston dot com Mark Hairston dot com. You can call our text
Mark at five one two seven eight nine sixty nine sixty seven. That's five
one two seven eight nine sixty nine sixty seven and come back next week for
more mortgage Talk.