Just 2 Minutes - Interviews by Kamil Sarji

26-Commercial Lending Opportunities: Programs Investors Can’t Miss with Alex Wallace

• Kamil Sarji • Episode 26

Share episode

Send us a text

 Discover the world of commercial lending and the unique opportunities available for investors in this insightful conversation with Alex Wallace, Vice President at Cornerstone Commercial Capital. Alex shares the inside scoop on various commercial lending options, from bank loans and SBA loans to private money lending and DSCR programs. Understand how commercial loans differ from residential loans, why some properties face lending challenges, and the strategies investors can use to secure financing. Whether you're an experienced investor or new to commercial real estate, this episode is packed with valuable insights, actionable tips, and real-life examples. Don’t miss out on learning how to finance your next investment property with Alex’s expert guidance! 

Whether you're a seasoned agent looking to stay ahead, a newcomer eager to learn, or a client seeking reliable real estate advice, "Just 2 Minutes" offers a wealth of information in a convenient and enjoyable format. Join us as we explore tips, tricks, and insights from industry leaders and professionals that can help you navigate the dynamic world of real estate.

Join Us:

Tune in to "Just 2 Minutes" and elevate your real estate knowledge. Subscribe now and never miss an episode of quick, insightful conversations that make a big impact. https://kamil.buzzsprout.com

Stay Connected:

For more information on joining our team or how we can assist you with your real estate needs, reach out to us today!

Kamil Sarji:

Welcome everybody, I am Kamil Sarji, your host of Just Two Minutes. And today I have Alex here. Alex, you want to tell us about you?

Alex Wallace:

Yeah, so, uh, my name is Alex Wallace. I work at Cornerstone Commercial Capital. I am the vice president. The company was started by my father, Bill Wallace. We've been in business now for 10 years and we handle commercial financing.

Kamil Sarji:

Awesome. Thank you very much for being on my show.

Alex Wallace:

Thank you for having me.

Kamil Sarji:

So yes, I'm excited to talk to you about commercial lending. But first, as you know, we have our Just Two Minutes questions. So are you ready for action? Sure. All right. And go. All right. If scientists got together and said, Hey, water is actually bad for us. What would you drink?

Alex Wallace:

Mango juice.

Kamil Sarji:

How come mango juice, not any other fruit?

Alex Wallace:

It's real sweet. Or maybe watermelon. I suppose watermelon would be the second closest. I still got water in there, but

Kamil Sarji:

I am with you on the watermelon. Um, do you believe in ESP?

Alex Wallace:

Mind reading?

Kamil Sarji:

Don't stop! Are you reading my mind? Do you?

Alex Wallace:

Maybe.

Kamil Sarji:

Maybe. Okay, if it was true, how do you think it would work? Like,

Alex Wallace:

if it was true, I think you would have just heard me say yes.

Kamil Sarji:

Okay, I shouldn't have asked then. Um, alright, so, uh, if you were to pick any job, the whole post office organization, what, what would, what job would you have?

Alex Wallace:

Postman. Delivering mail.

Kamil Sarji:

Hmm. Where would you deliver mail, mail to? Like, what city? In Rhode Island?

Alex Wallace:

In Rhode Island? Probably Newport.

Kamil Sarji:

Newport. Cool. Would you wear the shorts? Awesome. Um, if you had to pick between two best friends to live in a home with, uh, a crocodile or a tiger, which one would you choose?

Alex Wallace:

Crocodile.

Kamil Sarji:

And, um, uh, like what room would you give and dedicate to that, uh?

Alex Wallace:

to the crocodile, bathroom

Kamil Sarji:

The bathroom? If you need to use it, it's okay.

Alex Wallace:

It's okay. I have a very big bathtub.

Kamil Sarji:

Okay. Um, alright. Awesome. And then, uh, last thing. Oh. Alright. That was it. No, last thing. What did you think?

Alex Wallace:

It was great.

Kamil Sarji:

Cool. So, commercial lending. Let's talk about that. I know, as a realtor, we get into the territory of like over five family, now it's a commercial, now I can't lend money to you. Let's start off with that, with that kind of scenario. What do you have for someone who wants to live in the property, or is it not possible?

Alex Wallace:

So if it was a five family, and they wanted to live in the property, Then, like we do have programs for that. Like we would, as long as they qualified, I mean, we would place them into a bank loan. It's basically, I mean, it's pretty similar to an investment property loan. It's just a lower down payment because they would be living there. So they would actually, they'd be able to take advantage of 20 percent down opposed to 25 percent down. That's the, really the biggest difference. I mean, they would still, you know, we'd have to make sure that their personal income would be able to pay for their contribution to the total income of the property. Cause generally if somebody wasn't going to live in the property, I would say when looking for like an approval on a loan, their personal income is maybe like 20 percent of the total pie. Really banks look at the property itself as, as like an independent entity. And the income generated by that property is what's going to support the mortgage. When you are one of the tenants in there yourself, or, you know, you're the owner, you're one of the occupants, you know, the bank is going to want to make sure that you can afford your portion of the contribution.

Kamil Sarji:

Okay, interesting. So in a regular residential loan, you know, you get your loan through whatever company and the next thing you know, you get a letter saying, Oh, this is your new mortgage company. So Freddie Mac, does that scenario happen with those types of loans?

Alex Wallace:

It really depends on the bank. Some banks like to service their own loan. Some banks will sell the loan to a servicer, to another entity. I would say, I believe all of the banks that we work with service their own loans. I can't say for sure because there are a lot that we work with.

Kamil Sarji:

Yeah.

Alex Wallace:

But I would say the majority of them service their own loans.

Kamil Sarji:

Hmm. Yeah, it's tricky when they service their own loan because they have a pool of money and then now it's like, you know, that's taken and so I guess they have to, eventually they, if they need more money, they just sell it and, right? Is that how that works?

Alex Wallace:

Yeah, or, I mean, that's more of a question for the bank themselves. But I think usually when it comes to banks, like especially on the commercial side, a lot of times they do hold on to the commercial, the commercial loans. The term of a commercial loan is also shorter. I mean, generally you're looking at 25 years opposed to 30. Some banks will do a 10 year term, but they always give an option to, or almost always give an option to renew. As long as you have a good relationship with the bank.

Kamil Sarji:

Does Freddie and Fannie think that those loans are too risky for them to, uh, use? Take or

Alex Wallace:

it's a question for a residential loan officer. So I don't deal with either of them.

Kamil Sarji:

Okay. Yeah with commercial There's so many different programs, right? There's so many different situations and scenarios. How do you keep up with all that?

Alex Wallace:

I realistically it's just every so often I'll speak with the lenders and see you know, do they have any updated programs? Do they have any new programs when I first get in touch with a newer lender? One of my questions is you know, what are their oddball loans? You know, what do they lend that's different? You know, some banks, especially because we're in Rhode Island and Massachusetts, you know, or I'd say probably in New England in general, some banks will offer loans specifically for fishing boats. You know, that might not be something that you think of off the top of your head, but we are coastal states, and that's something that can get taken advantage of. And it really comes down to, I mean, it's just like with each lender, you know, they all have their own preference. Some lenders are more preferential to apartment buildings. Others may want like industrial properties. So that's one of the other reasons why we work with so many different lenders is just so that we know that our client and the bank makes a good fit. You know, we know what the client is looking for, we know what the bank is looking for, and that's why we try to bring the two together.

Kamil Sarji:

Okay, so my mind is like logical thinking so now you're dealing with like 10 15 different banks and 10 15 different scenarios and you're meeting with a new client. How can you pick which program is gonna work for them? Is it do you have like in a spreadsheet or how do you

Alex Wallace:

know? I mean really what it comes down to is, you know So we'll have a conversation with a client to start to figure out, you know, what are they picturing? What's their plan? We get their ducks in a row You know, we kind of have a little strategy section, sit down and we figure out, all right, what's your goal, what are you trying to do, and what are your resources? So that's when we collect all their documents for pre approval and we see, you know, all right, these are their strengths, what are their strengths, what are their weaknesses, and we just see what lines up, really. You know, we take it one step at a time and we try not to, you know, we don't rush into anything. Put the feelers out, see who's interested and what the person is trying to do, and that's how we figure it out, really.

Kamil Sarji:

Okay.

Alex Wallace:

It's just a lot of communication, that's really what it comes down to, is we just make sure everybody's on the same page and, you know, we try to make sure everybody gets what they want.

Kamil Sarji:

And you kind of remember, like, one of those 15 offers, and you're like, oh yeah, this scenario would definitely work with that, right?

Alex Wallace:

Absolutely, when somebody first calls in before I even get any documents or anything, you know, I'll start thinking. All right, where will this person be a good fit? And then, you know, it may be all right Maybe the first one that I thought of is the right fit or maybe, you know We'll we'll be going through the information and all right This isn't quite the fit for them, but I know that this person would love to get involved So that's I mean, it's also just from experience too, you know, you do it long enough You know which shape will fit into which place and you know You just fit it there. And yeah, it's a lot of practice.

Kamil Sarji:

So now you get this client and you've already select or already envisioned who would be a perfect fit for them. So, I mean, it's completely different from residential, like your situation, your life, and the way you do things. Do you create, like a realtor, an offer package that you send over to the lender?

Alex Wallace:

Yeah, I mean basically, so it's not like an offer, but it is a preliminary package. So I'll get, you know, the pertinent information together, let them know, all right, here, this is the property. So I mean, a lot of it also comes down to the property too, and making sure that the property is gonna be profitable and be able to support its mortgage. So I get the information about the property, I get the information about the borrower. Present it to the lender as a preliminary package. They say, all right, yeah, we're interested in this. And then we get all of the other information together and get sent over there, goes through, like we always work with, you know, at the senior vice president level, junior vice president, the vice president level of the lender, and they're the ones, if they're interested, goes into underwriting and we make sure we get the underwriters everything that they need.

Kamil Sarji:

Awesome. Nice. So it is literally like, Hey, here's this packet. Look how awesome this person is. And look how awesome this property is. Like it's pretty great deal for you. And you know,

Alex Wallace:

yeah. If there is any issues, say a borrower had like a bankruptcy or if they had say that they didn't have great credit, their credit's okay. They haven't had any leaks in a while. We try to bring up any issues that could come up down the line. We try to bring it up from the very beginning so that everybody's on the same page from the beginning and there are no surprises. It's also why it's very important for clients to be clear and let us know if there's anything that we should be aware of. Because if we're up front about it with the lender, well that's all, that's all well and fine and we can get through it. If it comes up, if the lender finds out on their own or it seems like, you know, the borrower's trying to withhold information, then there's issues down the line.

Kamil Sarji:

Yeah. Yeah, and that's how you guys get your good reputation because you're getting all this information in the beginning So there's no surprises exactly and mess up the whole loan Now you have someone pissed off that they can't get what they thought they were gonna get.

Alex Wallace:

Exactly.

Kamil Sarji:

Awesome. that's really great So once they get through that once the bank picks them and I mean is this process similar With all the loans that you offer

Alex Wallace:

for the most part. I mean if it's not like a cookie cutter pretty simple I know when somebody will say, alright, this is a great deal, let's run with it. Even then, stuff will still come up. You never know, you know, you're dealing with people. So, um, everybody's different. But, you know, no matter the program, I would say it's pretty similar. It's just, you know, the more documentation, the more paperwork needed, there's more information needed from the client. You know, if we're doing something with private money that can close in two weeks, a lot less is needed than if we were doing, say, an SBA loan, which takes, you know, you're looking at 90 days, if not longer. And you're dealing with the federal government so that they require substantially more information. But you're also getting better terms and a better rate than you would with private money. So it really depends on the program and the borrower. It's all, it's multi faceted, yeah.

Kamil Sarji:

Oh man, okay. All right, so once you've connected them, what's your next steps?

Alex Wallace:

So I'm always the intermediary. We're working with both the lender and the client every step of the way. We're there from pre approval to the closing table. So we coordinate with the lender. We will coordinate. So say, you know, makes it through underwriting, borrower gets their commitment letter. So the bank says, all right, we've committed to lending you money. We need to make sure that the property appraises. If it was something where we were going off of projections, those projections need to be verified with the appraisal. And from there, you know, say everything's going fine. Well, then we work with the insurance agent. We work with the borrower's attorney. We work with the bank's attorney. Really, if anything is needed, you know, I'm on the phone finding what needs to be done and making sure that it gets to where it needs to be. So it's not just working with the lender that we do, it's really helping the borrower every step of the way.

Kamil Sarji:

Awesome

Alex Wallace:

you know, if somebody needs a referral, we give them a referral. We just try to make the transaction as smooth as possible.

Kamil Sarji:

Yeah, it sounds like a realtor like holding their hand through the whole process to the closing table. That's pretty cool So once they do get to the closing, I mean, that's the last step. Anything I missed in between?

Alex Wallace:

No, I mean realistically if it was a construction loan Then, you know, the borrower would have drawers after the fact, so they'd have to have inspections to get their drawers released. But yeah, other than that, then they just, you know, they have to make sure they make their payments. And, you know, after a year, we're kind of distant memory and they're happy to be in their property or have their business in a property or whatever their plan was.

Kamil Sarji:

Awesome. What's the craziest thing that you loaned to, or helped loan to? What's the wildest, uh,

Alex Wallace:

We did an adult bookstore in the south once, because no one else, that's not something that a bank would really like to lend on. So we were able to get them a lender and that was fine. But nothing like, I didn't even know, that's not like, that's not that outlandish, you know, it's the person that

Kamil Sarji:

So why is that tough to get?

Alex Wallace:

Cause it's like, so, banks don't like to lend on things that they would, so it was also a smoke shop.

Kamil Sarji:

Okay.

Alex Wallace:

Now banks are, like around here, because marijuana's legal. You know, some banks are more open to lending on anything that has to do with cannabis. It wasn't the case a few years ago, but I don't know. I guess it's anything that they don't see as just like a vanilla product, like a vanilla business. And it kind of comes down, I don't know, it comes down to, I don't want to say it comes down to the character of the business. But, like, for instance, like, we can't do strip clubs, you know, we always say we can lend to just about any business, well, strip clubs, it's really anything in the vice industry. So we can't lend to strip clubs, can't do casinos, and if somebody, I don't remember, has 40 or 51 percent of income is derived from gambling, those are really the big ones. It's like, you know, we can do bars, we could do breweries.

Kamil Sarji:

Sounds like, you think religion plays a factor in those decisions?

Alex Wallace:

I don't know if it's religion, but I think it might be something to do with like, public perception. They're a bank, you know, you don't really think of progressive banks.

Kamil Sarji:

Yeah, these are the normal banks. These are the dirty banks. Would you use a dirty bank if like, it's like, oh, this is a dirty bank. Would you go, would you use it?

Alex Wallace:

I mean, I don't know if I'd go with the term dirty bank. Then it sounds like they're using stolen money or dirty money.

Kamil Sarji:

They're just lending to non, like, you know, like frowned upon places like strip clubs or,

Alex Wallace:

you know, I mean, I wouldn't care about that, but, I think they, you know, we're in Rhode Island and sometimes it hasn't always been banks that are lending money to strip clubs, you know, I don't know.

Kamil Sarji:

All right, cool. Well, thanks for taking us down that road. Okay, so going back to the different products that you have. What's the fastest?

Alex Wallace:

Fastest product?

Kamil Sarji:

No, fastest closing that you've done. Like, oh, I want this, want to buy it.

Alex Wallace:

Private money. I mean, it's probably a little less than two weeks.

Kamil Sarji:

Okay.

Alex Wallace:

I mean, realistically, it just comes down to how long a title can get done. that's really the determiner. You have to have a clean title to buy a property.

Kamil Sarji:

Even refinance, they have to pull title.

Alex Wallace:

You never know what kind of lien.

Kamil Sarji:

Lender. Oh, okay. Okay.

Alex Wallace:

You know what? If you have a million dollar mechanic lien on a property or what, if there's any, a lot of different kinds of ways a lien could get put on there, you know, or just like a second position. So they have to make sure those aren't there. They need to know, you know, what's, what's actually going on with that property?

Kamil Sarji:

Because the trick is they buy the place and then they get a loan on it, or second mortgage, and they're like, oh, hey, I wanna refinance my small loan. But the title search pulls that up and is like, wait a second, you have other things that are hanging on this property.

Alex Wallace:

Exactly, because you know, sometimes people won't be very honest about, you know, the money that they owe on a property. And that's like, getting the title, that's, that's how you know, you know exactly what they have. So it really comes down to as quickly as a title can get done. Yeah, I'd say I think there's maybe like a week and a half. We might have, it's been a long time, I don't know, about a week.

Kamil Sarji:

What about the longest?

Alex Wallace:

I don't know. The longest that, uh, over a year. That's, I mean, that kind of comes down to the scope of a project. You know, I did an SBA loan out of state and it was just a big loan. They had big plans and you know, that's really, that's kind of a barometer is how large is the scope of this work? Cause you know, we have to make sure all of the bases are covered. And SBA specifically, I mean, that is you're having the federal government involved. So, you know, they're gonna go through that with a fine tooth comb and they could come up with questions that, you know, you are on, I would say. Why are you asking this right now? But, you know, you gotta answer federal government, and when they ask you, gotta give them an answer, because that would be something that they, you know, push the scale of yes or no.

Kamil Sarji:

So why, I mean, is that one of the big reasons why SBA loans take so long to get?

Alex Wallace:

Because of working with them, yeah.

Kamil Sarji:

Yeah, because there's so many layers and so many people that look at it and have to approve it and sign and they might not be working on a Friday, now you have to wait.

Alex Wallace:

And you have, there's a lot of, a lot of cooks in the kitchen. You know, you're not just having one or two people sign off, you have many people sign off. Like this was a multi million dollar. Project, you know, it's not like it was a little one, but even smaller ones, it's, you know, it depends on what your plan is. It depends on the property, you know, are there environmental issues with the property? Because then once there's environmental issues, that can make it take a lot longer because you need to have multiple tests done. What kind of remediation needs to get done? If it's construction, you know, are the permits in place? Are the quotes correct? You know, they have a lot of boxes to check off and that's what makes it take longer is just making sure that everything is correct. Everything is approved. But I say a lot of times, you know, even when a product, like when, when it does take a long time to get a loan done, when you're in the middle of it, it seems like it's, you know, a lot longer, but once you get done with it and it's successful and it's in the rear view mirror, you know, it's in the past and now you reap the benefits.

Kamil Sarji:

Awesome. So that's the SBA loan. So let's talk about bank commercial lending.

Alex Wallace:

Well, something with the SBA loan too.

Kamil Sarji:

Yeah.

Alex Wallace:

And it's always worth mentioning is, you know, one of the advantages, like yes, an SBA loan does take a long time, but, and sometimes they can get done in 90 days, but with an SBA loan, it also gives one, you know, I kind of look at an SBA loan, the kind of the same way as like a first time home buyer and FHA loan where they're getting a better deal. Yeah. So an established business could get into a property for 10 percent down payment. With bank financing, like we're about to talk about, they would be looking at 20 percent down. Now an SBA loan is a little bit more expensive to close because there's more attorneys involved, but they're getting a lower down payment. The rate is a little bit lower because the SBA rate is lower than the commercial bank rate, so you're kind of looking at it as like two loans almost, but it really is. It's like you're buying a home for your business. And a lot of times it's the first time that they're buying a brick and mortar location. Yeah, so it can be a very powerful tool for for business owners Because it does allows them to have a property for the business.

Kamil Sarji:

So you're saying SBA loan lower down payment Versus a commercial which is almost double or even more But the thing is like the closing cost for the SBA loan is more compared to the commercial But wouldn't the closing costs also be or might be as close to the 20 percent that they're gonna have to pay anyways

Alex Wallace:

Not really, especially not if they're looking at a larger property. So, you know, if you're buying a property for 200, 000, maybe you shouldn't get an SBA loan. You know, it would be more advantageous to get a bank loan because yes, your down payment would be a little higher, but you would be able to close quicker. There wouldn't be as many hoops that you need to jump through. More times than not, there isn't as much paperwork. But if you're looking at a larger property, that 10 percent difference in down payment is just going to get larger and larger. So even those more expensive closing costs wouldn't be as big. You know, comparatively. So the larger the number you're working with, those closing costs don't play as much of a role.

Kamil Sarji:

Mm hmm. And that's why it's good having you because you can look at their situation and be like, yeah It's probably cheaper if you did the commercial or it's cheaper if you do the SBA.

Alex Wallace:

Mm hmm,

Kamil Sarji:

depending on the situation. That's great It's good to know. So yeah, let's talk about the commercial one. What's, uh,

Alex Wallace:

It's basically, if you were to look at a commercial loan, you know, bank financing, generally speaking, you're looking at a 25 year term, 25 year amortization, two months to close, 60 days, and the majority of the approval is based off of the debt service of the property. So it's looking at the income of the property versus the expenses and mortgage payment. And we would just want to make sure that the property is able to make those. You know, pay all those expenses and then have money, you know, to go in your pocket, go in the bank as reserves.

Kamil Sarji:

The rate, how's the rate on those types?

Alex Wallace:

So as of earlier this week, I believe it was right around 6. 8. Could even have been 6. 7 or 6. 68. Somewhere right around there. It's pretty close. The rates have been coming down lately.

Kamil Sarji:

Wow, okay. Like, SBA loan is

Alex Wallace:

SBA, so I haven't checked the SBA rate, but if the bank rate was 6. 8, my guess would be it's at least 6.2 if not six percent.

Kamil Sarji:

Oh, just a little tiny bit lower.

Alex Wallace:

Yeah.

Kamil Sarji:

Okay,

Alex Wallace:

generally, I mean in the past it's been like a one percent difference So whereas if you know if the bank rate was six the SBA could be five Yeah, the SBA rate is always a little bit cheaper, but with an SBA loan you do have both So if you're buying a property for a hundred thousand dollars just for ease of numbers And you're getting an SBA loan and you were putting ten percent down you'd have a loan the bank portion would be fifty thousand You SBA's portion would be 40, 000. So you'd have, you know, if the rate was 6%, the bank rate 6%, you'd have 6 percent on the 50 and 5 percent on the 40.

Kamil Sarji:

Wow, okay. I guess that also depends, right? So that's the commercial loan and anything between that and the hard money? Like, uh,

Alex Wallace:

so there is, you know, we work with lenders, like light dock lenders, where the rate is higher, but you don't need to supply tax returns.

Kamil Sarji:

Who are these people?

Alex Wallace:

Just a lot of different lenders. They're not quite, I mean, I wouldn't call them, you know, private lenders.

Kamil Sarji:

Not dirty banks.

Alex Wallace:

But it's basically corporations that lend money. So where you would see So

Kamil Sarji:

legit, like, let's say, I'm not saying CVS, but CVS, like

Alex Wallace:

No, no, no, no, no. So it's still like, it's still a, you know, private

Kamil Sarji:

So their job is to

Alex Wallace:

Is lend money. Yeah, they're lenders.

Kamil Sarji:

Okay.

Alex Wallace:

so essentially, I mean, essentially you're looking at like DSCR lenders.

Kamil Sarji:

what's it stand for?

Alex Wallace:

Debt Service Coverage Ratio.

Kamil Sarji:

Okay.

Alex Wallace:

Which is a hot topic now with a lot of people.

Kamil Sarji:

How come?

Alex Wallace:

Because a lot more residential loan officers have can say you wanted to buy a four unit property but you don't show much income on your taxes. Then they have the DSCR lenders where they don't look at your tax returns. We'd never use them as a first, like a first pick. Because the rate is higher. And there are better programs out there.

Kamil Sarji:

Mm-Hmm.

. Alex Wallace:

You know, if the taxes aren't that bad, then we will try to place 'em with a bank. If they are really just not paying taxes, then you gotta pay somebody and you're gonna pay it with a higher rate.

Kamil Sarji:

Mm.

Alex Wallace:

So that's the way that we look at it. But that's kind of, I would say that's a middle ground between private lending.'cause you can still get, I mean, I haven't checked the rates on that this week, but you know, I'd say decent credit, you're probably looking at a rate in the nines opposed to 12% with a private lender.

Kamil Sarji:

Wow.

Alex Wallace:

Some private lenders charge even more than that.

Kamil Sarji:

If they're not looking at income, what do they

Alex Wallace:

They look at the income of the property, opposed to personal income.

Kamil Sarji:

Oh, okay. Um And that should be what percent of the income, the payment, versus how they look and see the income of this place, versus your monthly payments, are gonna be, like

Alex Wallace:

So they'd want to look at the debt service ratio. I mean, this isn't the minimum, but say it was 1. 5. So 1. 5 would be the income of the property. And they would be looking at an adjusted income. So they take some expenses off standard in the industry. Everybody takes 5 percent off of the income for vacancy, even if it's a single unit.

Kamil Sarji:

Yeah,

Alex Wallace:

but they're going to look at to make sure. So say if it was a debt service of 1. 5, which would be a strong debt service, that means that the income of the property, the adjusted income of the property is 1. 5 times the expenses.

Kamil Sarji:

Okay. So let's say it's 1500 a month just to make it easy for the audience. So if it's a 1500 a month that it's bringing in this property, you're saying

Alex Wallace:

if it's adjusted income was 1, 500.

Kamil Sarji:

Adjusted, after you remove the vacancy.

Alex Wallace:

And there's a couple others that they take off. But if it was if the adjusted income was 1, 500, and all of the expenses, mortgage payments, everything was 1, 000, that would be a debt ratio of 1.

Kamil Sarji:

So 1, 500 income, but the loan is going to be 1, 000, that situation would work.

Alex Wallace:

The loan, so the principal, interest, taxes, insurance, utilities, All of the expenses. That's how they look at everything, correct.

Kamil Sarji:

Okay. Okay, cool. That's an easy way to, uh, for people to think about it. That's good. But the rate is high, so.

Alex Wallace:

Exactly, because they don't want to show that their income on their taxes. So you gotta, you know, everybody's got to pay somebody. And

Kamil Sarji:

so the 1, 000 here, you know, could be like 700 somewhere else.

Alex Wallace:

Yeah,

Kamil Sarji:

payment of a thousand could be 700 another place. Okay, cool. Wow. Awesome. DSLR. Camera. Is that what it's?

Alex Wallace:

DSCR.

Kamil Sarji:

DSCR. Okay, cool. Not the camera, the other one. Alright, and then anything else between hard money?

Alex Wallace:

In between those, no. Then you got private money.

Kamil Sarji:

Private money, yeah, let's talk about that.

Alex Wallace:

So private money, hard money, same thing.

Kamil Sarji:

Uh huh.

Alex Wallace:

short term loan, secured by the real estate. Want to make sure you have an exit strategy. That's really what it comes down to, is with short term finance and you have to have a plan on how to get out of it.

Kamil Sarji:

So if I had 500, 000, right, I go to you and I say, Hey, could you add me to your list? Is that what happens?

Alex Wallace:

Generally not. I mean, we have, potentially, we can entertain it. But, it's that, you know, we meet lenders, or we have pools of hard money lenders. It's just like with the bank, or any other lender. You know, we put together a package. We say, hey, these are the strengths. If there's any weaknesses, these are the weaknesses. This is what the client is trying to do, and this is what our plan is to get them out of the loan. The exit strategy. Whether that is, you know, if it was a flip, you know, they're going to sell the property afterwards. If they wanted to hold it. You know, we'd figure out how it's the best way to refinance them. So then they'd be able to refinance the hard money loan.

Kamil Sarji:

So they all like you have to make sure like each one has their own rules or set of rules how they want.

Alex Wallace:

Yeah, because I mean there are some may have no prepayment period. Others may have a prepayment period. Some have, you know, higher points, no matter what, like a hard money lender is going to want points up front. Those are really the big ones with the private money. Private money lenders, a lot, will still want to see an environmental, an environmental report. Make sure that there are no environmental issues, because once a borrower buys the property, any environmental issues then becomes their environmental issues.

Kamil Sarji:

So, for the audience, like, if someone's buying a property, the bank is lending them money, this property could have a leak of some kind that's toxic, where a DEM comes in and says, oh my gosh, there's toxic stuff being leaked. And they're like, it wasn't, it's not my fault. Well, it's your fault now.

Alex Wallace:

Because you own the property.

Kamil Sarji:

Yeah. And then they're like, all right, you owe a million dollars to get all this stuff cleaned. And now the lender's like, oh my God. So that's why

Alex Wallace:

That's why environmentalists are down there to prevent. Or, say somebody bought a property cash. You know, they were like, Alright, I got the money, I'm just gonna buy it. I don't wanna have to waste my time getting environmental done. If they go to sell that property and somebody has an environmental done, you know, part of their due diligence and something is found, then they, that's their responsibility. And in an environmental company, you know, they need to report what they find to the DEM so they know what's going on. And that's why it's important when somebody buys a property, you know, that could potentially have environmental issues to get it done. You know, a phase one environmental is maybe somewhere in a ballpark of 2, 800. But in the grand scheme of things, it's not much compared to it. So a phase one you're looking at around 2, 800. Could be a little lower, could be a little higher. A phase two environmental, then you're starting to get into five digit numbers. You know, it could be 10, 000. Maybe it's 8, 500.

Kamil Sarji:

Where they dig deeper.

Alex Wallace:

Where they try to see exactly, you know, what could be here. And then if they find things and there needs to be remediations, that could be, you know, say 20, 000. We've seen it be 100, 000. Makes a deal fall apart. But those are all that 100, 000 of remediation. If you own that property, that is your responsibility.

Kamil Sarji:

You have to pay. Okay, so let's say I want to buy a property. Okay, and the seller's like, oh yeah, great, you can buy it. Alright, yeah, let me get the lender. Oh, I need a phase one, environmental. Okay, I do that. They find an issue, the person doing the phase one. They're required to report this immediately to DEM.

Alex Wallace:

I don't know if it's immediately.

Kamil Sarji:

Well, okay. But, they are

Alex Wallace:

they are, they, that, eventually, like, what gets found gets reported to DEM.

Kamil Sarji:

And I pull out of the deal, and this old owner is screwed. Right? Heh.

Alex Wallace:

Yeah, they gotta fix it. Or they gotta find out what, you know, maybe a phase two is going.

Kamil Sarji:

They just have to go bankrupt. They can't, they can't, you know, like, wow, that's interesting. Okay, so back to the hard money lenders, because you said something interesting, you said the pool of hard money lenders. I'm envisioning all these big sweaty guys with like hairy in one pool together, swimming pool. But that's not what's happening. It's these hard money lenders that have, let's say, 500, 000 each and someone's like, I need to borrow 10 million. These guys get together and put their money together? Is that what you're saying?

Alex Wallace:

There are some lenders will put their money together.

Kamil Sarji:

Okay. Realistically, three guys. Like could you guys put people like that together?

Alex Wallace:

Possibly. Have we had to yet? I don't think so. Maybe.

Kamil Sarji:

Hmm. What if someone isn't that rich? They don't have 500,000. What if someone has like 5,000 or 10,000, but there's like a hundred of these? 5, 000 10, 000 people.

Alex Wallace:

I mean, that's not something that we would touch. Um, that's a lot of, that's a lot of people

Kamil Sarji:

to manage.

Alex Wallace:

Yeah. I mean, that's something for an attorney, realistically, or somebody, because, you know, then you have to figure the corporate structure. Yeah. Because they're all, that would be a hundred people all in one corporation.

Kamil Sarji:

Yeah.

Alex Wallace:

They'd have 1 percent interest in that corporation. Yeah. Because that's really what it comes down to with the private money with things like that is or anything You know, you hear about people having investment syndicates where multiple people partner up to invest in property Maybe that would be something somebody needed to raise all that money, you know, they take on some partners I mean, that's you know, that's that it comes down to I mean, it's somebody's personal corporation. That's lending the money Sometimes people will end it in their own name It's a corporation lending it, you know, an LLC. Yeah, sometimes a couple lenders will combine forces to lend money. Some private money lenders are just larger and, you know, they have the ability to lend it. But also, I mean, if you were looking at, you know, ten million dollars I don't think you'd want to have a 10 million dollar hard money loan because that's you know, if you look at

Kamil Sarji:

Because banks, I mean dirty banks, they'd be down to lend to you but

Alex Wallace:

Well, no, I mean if it was a regular bank will lend 10 million dollars. It just depends on what you're trying to do. I mean something else you got to think of with private money is when you approach it, you got to ask yourself, would you lend this person that money? That's, you know, one of the first questions. Is this a deal that's going to work or not?

Kamil Sarji:

Okay,

Alex Wallace:

would you lend a person the money? You know, why do they need private lenders to lend them 10 million dollars? Opposed to why can't they go to a bank? You know, what is it? Do they not have enough money to have, you know, skin in the game? If that's the case, a private money lender is not going to lend it to them. You know, it's all of their money that's gonna be on the line. This guy's not gonna have any money on the line.

Kamil Sarji:

Yeah.

Alex Wallace:

So that's something to think about too, regardless of whether it's private money, if it's bank financing.

Kamil Sarji:

Yeah, you gotta get a good feeling about what you're doing. If something seems suspicious, and I'm sure you've had suspicious stuff that you tiptoed away from, or said, we can't do this.

Alex Wallace:

Yeah, there's, I mean, there's definitely been times where we've said, you know, we can't, we can't. Do something like this.

Kamil Sarji:

I know you can't say it on camera about,

Alex Wallace:

well, no, nothing. Nothing ridiculous. But yeah. You know, you gotta pick and choose sometimes. I mean, one thing to think about too is, you know, a lot of times if somebody has a felony and they won't lend to them.

Kamil Sarji:

Mm.

Alex Wallace:

Even, I mean, sometimes if you look at that though, that's like a whole nother conversation.'cause it's. You know, if somebody has a felony from 20 years ago, that shouldn't make it so that a bank won't lend them money. You know, there's supposed to be reform.

Kamil Sarji:

Yeah.

Alex Wallace:

But especially, you know, if it's a felony for something that was so far in the past or something that was nonviolent,

Kamil Sarji:

Hmm.

Alex Wallace:

Somebody shouldn't be continuing to have to pay that debt. So far afterwards.

Kamil Sarji:

That's awesome. Yeah, we covered a lot of things that I wanted to talk about. How do people find you guys?

Alex Wallace:

They can find us online at cornerstonecommercialcapital. com. We are on Facebook under Cornerstone Commercial Capital. Or I would also have, maybe at the bottom of the screen, our phone number. Or just in the comments, something.

Kamil Sarji:

We don't have the technology to do that yet.

Alex Wallace:

All right. But our phone number, if somebody wants to call in, is 401 603 3732, that is an office number. So it will not get texts.

Kamil Sarji:

Okay.

Alex Wallace:

But there is always somebody in to answer questions, and most likely they would either be speaking to myself Or to my father, Bill

Kamil Sarji:

who's an awesome guy. Bill is really cool. Yeah, and I heard that you're gonna be out there more, you're gonna be the the face.

Alex Wallace:

Yep. Yep. Be out there, out and about when I am not behind my desk.

Kamil Sarji:

That's exciting.

Alex Wallace:

So I'm always there. I don't, you know, people ask me all the time, oh, can we, can we get lunch? Can I meet you for lunch? And it's, nope. I ate lunch at my desk while I'm working on paperwork or answering questions on the phone.

Kamil Sarji:

Yeah, that's awesome. Yeah, definitely good as a realtor. Having you guys as partners is super important, because you make us look good. Like, someone wants to buy something that's, you know, they're like, oh, I can't put the money together to get this. And it's like, well, yeah, I get you, connection. That's what I've done for you, like, since stuff over. But yeah, definitely good real estate partner. And thanks very much for coming down and being interviewed.

Alex Wallace:

Thank you for having me.

People on this episode

Head Shot

Kamil Sarji

Host