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WS396: How to Think Like a Private Lender with Ian Walsh

Today on the show we welcome Ian Walsh who is a partner at Hard Money Bankers. Ian is responsible for underwriting loans for a large portion of their market, and he joins us today to give us a glimpse into the mind of a private lender. It is crucial to keep the potential risk in focus throughout the process and he explains why remaining slightly skeptical is wise.

Watch the episode here:

Listen to the podcast here:

In the lender role, speculation and guesswork are unadvisable, and Ian walks us through the process of studying the data to avoid overpaying on a property. He weighs in on the anticipated downturn, including how he is preparing for the worst and why he believes it will be different from the 2008 recession. His philosophy of keeping things simple and sticking to what works has certainly paid off, so tune in to learn more!

Key Points from This Episode:

  • The impact that reading Rich Dad Poor Dad had on Ian’s perspective on real estate.
  • Entering the field on a wholesaling basis and starting a company based on this model.
  • Learning that property management is the hardest part of real estate.
  • Thoughts on how a private lender should analyze and consider a project.
  • Being careful not to overthink and overcomplicate a deal.
  • Guidelines to ensure that you are not overpaying on a property, including studying the data.
  • Avoiding speculation and guessing as a private lender.    
  • Where Ian finds the best data and the need for information to be displayed visually.
  • Remaining skeptical and always considering your risk in the worst-case scenario.
  • Why Ian considers himself to be an investor rather than a banker at heart.
  • Being aware of the coming downturn and why it will be different than in 2008.
  • Growing on the strengths that have brought you success in the first place.

[bctt tweet=”I don’t like to speculate as a lender. That’s not what I do, I look at the data and go, this is what I have. — Ian @hardmoneybanker” username=”whitney_sewell”]

Links Mentioned in Today’s Episode:

Ian Walsh on LinkedIn

Hard Money Bankers

Rich Dad Poor Dad

The Big Short

About Ian Walsh

Ian Walsh has been a full-time real estate investor since 2008. He entered the industry by building WeSellHomes2Fix. From there he built a property management company that was sold in 2014. During his time in the Philadelphia investment market, he partnered with Hard Money Bankers and has since underwritten all of the loans in the Eastern Pennsylvania, New Jersey, and Delaware markets.

Full Transcript

[INTRODUCTION]

[00:00:00] ANNOUNCER: Welcome to The Real Estate Syndication Show. Whether you are a seasoned investor or building a new real estate business, this is the show for you. Whitney Sewell talks to top experts in the business. Our goal is to help you master real estate syndication.

And now your host, Whitney Sewell.

[INTERVIEW]

[0:00:24.1] WS: This is your daily Real Estate Syndication show. I’m your host Whitney Sewell. Today, our guest is Ian Walsh. Thanks for being on the show, Ian.

[0:00:32.8] IW: Thank you for having me.

[0:00:33.7] WS: Yeah, Ian is a partner at Hard Money Bankers and he’s been there since 2012. He’s responsible for underwriting all of the loans in the Eastern Pennsylvania, New Jersey and Delaware markets as part of his role at hard money bankers.

Built and sold Atlas Property Management between 2010 and 2014. Ian, thank you again for your time and being on the show. Give the listeners a little more about who you are and what you do in real estate right now and then let’s dive into what we discussed. I’m going to leave it at that and then we’re going to leave it at that and then we’re going to dive in.

[0:01:04.0] IW: Okay. Yeah, I mean, the bio’s accurate, you know, I came out of school years ago and read Rich Dad Poor Dad, Robert Kiyosaki’s book and Rich Dad, Poor Dad, sorry. It was you know, I read that excerpt about wholesaling a deal that he did in Arizona for like 40 grand or something. I thought, what is this, how do I do this, you know? It’s a lot of money back then.

I came out of school, I didn’t have any money so entering the wholesaling way, a good way for entry into a business. I also think it’s highly underestimated on how much money you can still make in that business but nonetheless, that’s how it came out in 2008 when the market was crashing.

Decided this is a good thing to do and ended up building a pretty large wholesaling company in Philadelphia. I really learned how to become an investor at that point because I could learn how to source a deal to bring it to real buyers because right now, we’re kind of in a marketplace where like, we’re closer to a top than a bottom, right? You have a lot of people that will overpay and that’s not really, you don’t really have your huge sharks buying properties right now so I had to learn how to sell to sharks back then. They’ll come back out again and you know, when this thing tops out but –

That was kind of how I cut my teeth initially in the business and then from there, I grew a property managing company. That, as I look back on, you know, it sounds easy on the surface but easily the hardest part about real estate in general is property management done right just the process and systems and things you have to put in place to do that properly but –

[0:02:21.1] WS: Yeah, some of the most important.

[0:02:23.1] IW: That’s right. I didn’t know what I didn’t know back then, I started the company, we grew it, really made a very polished company that we ended up selling to a company in center city, what am I going to do now? You know, we had decided that I had two silent partners in the managing company already and say they were deploying a lot of capital in the Maryland area so we decided hey, let’s – I understand how to underwrite, I understand how the investment area where I’m located.

Let’s deploy capital in my market. Rode a bunch of money up here and that’s kind of been the story, I’ve just been deploying a lot of capital on the private front for a while now.

[0:02:56.8] WS: Nice. You have some skills though now? You’re analyzing lots of projects and you know, just our conversation before we started recording. You know, you mentioning like helping us think like a lender and what that should look like and you know, analyzing a project, you know, how a lender would analyze it and we can understand what that should look like.

I’d love for us to dive into that Ian, break that down a little bit and so you know, help us to get started though or maybe where you know, most people make their mistakes in doing this but yeah, get it started.

[0:03:26.7] IW: Yeah, without a doubt, I would say, don’t overthink it, right? People send me spreadsheets and stuff and I’m like, if you’re putting, a lot of times they’re overcomplicating a good deal. It’s got to just work on a few fronts typically. Just take away an easy example of like a single family flip or an investment property that might be a single family flip or even like a small piece of commercial, that’s buy it, fix it, renovate it and then lease it out. Is that – you make your money when you buy.

I know it’s the oldest saying in this game but it’s the real answer, it breeds you either room for error or profit but if you buy too high, you have no room for error and you’ll make no profit and a lot of people lose before they even get to that point because they’re buying it too high, they don’t understand really what a project or a deal looks like in their market and really where they should be buying, you know, a property of 20 or 30 cents on the ARB dollar versus you know, 60 or 70 cents in the dollar there that I see a lot of times because they don’t know how to analyze the property to begin with.

That’s where a lot of people go wrong I think. From a simple numbers perspective or a simple like outlook that you’ve got to buy deep enough, you’ve got to then make sure your construction or renovation cost if there are any which almost all the time they are to bring that property up to value are accurate.

A lot of times people like to pay too much, put too little in and in between those two things, there’s no profit there. I see that and that’s really like if you’re going to think like a true private lender, that’s what the focus should be, the asset, where you’re buying it, how much you’re putting into it and what’s that potential value.

Everything in between in terms of like credit, tax returns, all that other stuff, if you’re using that, you’re really not a true private lender in what you’re doing and you don’t really know what the asset’s worth, you’re trying to actually end the bar or to offset your risk.

[0:05:08.1] WS: Don’t overcomplicate it, don’t overthink it, it’s hard, right, I mean, it’s hard not to want to just analyze it to death and just I mean, make it this big ordeal but I’d love for you to elaborate a little bit on you know, thinking about getting our property cheaper or maybe the actual steps of the way that you’re going to underwrite something. To know that we’re not overpaying it because it is when you buy, I mean, the money’s made in and making sure you’re not overpaying.

What are some tips or things that you use then to make sure you’re not overpaying?

[0:05:38.1] IW: I’d love to tell you there’s a shortcut to this but there’s not. It’s screen time, it’s so – I’m always in front of my local MLS systems. MLS is your multiple listing services, you can’t really do this with the free sites out there, they’re not going to name any because you know, you really have to have the data and insight into your local MLS systems and then it just constantly, you know, nowadays, the technology, you have a map view of just like Google maps or whatever when you bring it up, you know, you can see exactly where the house is or do the street view.

You know, you can do that but with sales data, square footage data, all that kind of stuff. Very quickly you can identify when you know, if the deal comes in, it may or may not be in a good range just based on maybe you’re filtering criteria of however you’re answering it butt let’s say it’s something worth looking at, you should be able to bring that up in your MLS system and know within a minute that hey, there’s something here.

Maybe it’s not exactly the right price right now but this is worth fishing, and then from there, you can basically in a map view can just determine extremely quickly, you know, is this area hot, are properties selling it the right price, are these only investor pickups? You know, is there something else here like this, like sometimes I’ll see with like huge commercials, like a 10-million-dollar commercial deal, on paper, on spreadsheet looks fantastic and maybe if I was underwriting it based on you know, a lease, a rent role, maybe this works but you know, that type of underwriting to me is really scary because if I don’t have a comparable sale that I can pull up in a map right away and look at –

Have to deal with the rent roll, it really is saying okay, the guy operating this thing is really the business owner of this building and because of that, however he decides to you know, whatever type of operator he is really what I’m investing in. That’s not all the leases and the building and they certainly helped, obviously to have rent in place but a bad manager or a bad owner operating wise can destroy inside of a leased building quickly.

What I have to do then is say as an underwriter or somebody who is looking at a project, okay, what’s my potential out value. Well, I don’t have something I can pull up on a map and go, this is the value, and then I’m just speculating. I don’t like to speculate as a lender. That’s not what I do, I look at the data and go, this is what I have.

It’s very important for me or somebody, they should be able to pull up, look at recent sales, you know, within the last year, call it, of very similar property types and if they don’t have a very comforting, easing, obvious answer, right then and there, they’re probably in the speculative zone which they want to remove themselves from and bet their own money on a deal.

[0:07:58.7] WS: Where are you going to find those recent sales?

[0:08:01.6] IW: I find them in my MLSs. I’ll go into my MLS and I go okay, this is search criteria, pretty easy and you know, last zero to 360 days and I’ll put a geographic bubble that I’m comfortable with, typically the last small other people think it is, you can’t go – most regions, you can’t go miles outside of where you are, you’re usually within one tenth of a mile of where you’re trying to buy to determine where those other properties are.

I’m going to go in my MLS and pull a geographic and time area that’s all similar and then look for houses, commercial buildings or whatever that I’m looking at that are very similar. If I don’t have any, I don’t have the value I’m putting on is guessing is what that is, I don’t feel comfortable guessing.

[0:08:42.3] WS: II couldn’t agree more, you can’t guess in this game, that’s for sure. Can you share where you’re getting some of this data? Because the data is so important, right? And then we’re going to make their best decision based on this data but I know a lot of people are saying well, where do you find the best data?

[0:08:58.2] IW: The data I have is all just from on multiple listing services, fortunately I’m in a market that has like, from what I can see or have seen an exceptional multiple listing service that it’s very user friendly when I say that compared to the other ones I’ve seen, there’s about maybe like nine or 10 in my local market that I essentially am part of.

Easily, there’s two that are the biggest and then one that is fortunately in my market, the biggest that I deal with is also the most user friendly and you know, if you had to like – put yourself in a position, you can have different outlines and different ways to display something but ultimately it needs to be visual, I find it needs to be visual and easy to hover over and move around very quickly. If you’re in an MLS system that’s like archaic in its data or the way it displays, only displays maybe a list of properties and you can’t visually see it on a map, that kind of stuff makes picking a value out difficult.

Mine’s very user friendly and very appreciative being in that. I would say, if people are looking, first thing, do yourself a favor and get comfortable with your MLS system locally. Every area will have their own MLS system that they –

[0:10:00.5] WS: Sure.

[0:10:01.1] IW: Yeah.

[0:10:02.6] WS: Help us to think like a lender. You know, what should we be thinking about and what does that need to look like or maybe ways that we wouldn’t even know that things that they were thinking of?

[0:10:12.3] IW: A lender, you know, a private lender, I can’t speak from a bank’s perspective. If you go to a bank, there’s nothing wrong with banks, banks are fantastic but usually when you go to a bank as a borrower, the bank is really – we’re all asking how much are we risking? We’re all saying risk. That’s all we’re concerned with, we’re not concerned with profit, we’re concerned with risk.

Minimizing risk is what our game is about, go to a bank, they’re going to offset their risk with you being a borrower or like what your skillset is in terms of credit score, tax returns, all that kind of stuff. They don’t’ really know much about the asset. True private lenders are going to be focused on the asset. The way I as a lender, do want to think like a lender and really feel like flippers should think this way, commercial guys that are retail or commercial guys should think this way.

Because if you think this way first, it’s all gravy for you, you know? If you think then, what the upside is. I’m always thinking how much am I going to lose like if you die tomorrow, you buy my deal, you die tomorrow where am I and then 30 days in, if I give you construction money and you botch it all up or you just fly to the Bahamas and disappear, where am I. Constantly thinking throughout the entire project from day one to day 90 to close essentially or until it closes out, where are we in terms of you know, how exposed am I on this project assuming you do nothing right.

Now I have some fantastic clients that are exceptional executors at what they do and there is never an issue but if you are on the other side of this, you should be thinking, “Okay, if tomorrow my entire…” if I am flipping the house let’s just say, if our entire crew leaves me how much is that going to set me back in holding cost tomorrow, everybody leaves, my number one crew, boom. The guy gets arrested, goes to jail, contractors, it happens right?

So if that happens tomorrow where I am? Okay can I afford another $5,000 of holding costs on this project while I find another GC that is built in here? Is there a 10 or 15% buffer that I built in? So you walk yourself through all of the what ifs that could go wrong because everybody what I have noticed is that they come in thinking everything is going to go right the entire time. Every contractor is going to get paid the exact right amount that I budget, every this, every wall you open up is going to be –

Nothing is going to be back there, you know every tenant that I release for is exactly to be this much money when in reality is it never goes exactly in. So you really want to be buffering all the time and then go, “Okay, I do all of these worst case scenarios, am I still left with a good profit at the end” and if you go, “Yeah, I have checked every box and I can’t lose here” you’ve probably been bought it for the right price and you probably budgeted the right amount. Don’t trick yourself to thinking it is going to go smoother than it is.

[0:12:34.0] WS: I like how you said you want to be buffering all the time. You don’t know what is behind those walls and we say, “Okay we are going to renovate this many units or this is the way it is going to work out but you know there is a heavy rehab we are looking at on a property that was nearly 300 units and we expected obviously massive turnovers but we are going to vacate a building or two buildings at a time and do massive renovations.

But there is times where we were underwriting like a 50% vacancy just in case, you know? We are just planning on two buildings at a time but we know that there will be more than that over the first part of the year and so yeah, I appreciate that and also I thought you could elaborate on how before we even started recording, I think you are talking about how you are an investor first.

[0:13:19.1] IW: So yeah, I am a little different in the lending space. So the lending space is traditionally, you know probably went to school, got your MBA, you come out, you are not wearing a hoodie, you know? That is not how it is, you probably have a tie and buttoned down and so forth. You’re a finance guy, you sit behind the desk and you swing a pen. Not how I’m built, not how our company is built. So I am not saying there is anything wrong with that.

That is just a different space. It is just less – I don’t know, I am an investor in the way that I believe that there are true investing, true real estate investing, doesn’t judge by color, background or anything. It judges by can you analyze the deal and protect your money? So that is where I came from. So I did a lot of real estate investing prior to becoming a private lender but in my heart and the cloth that I am made of is I don’t relate as well to a banker.

Even though people will consider me a banker as I do other investors. It’s is just I speak the language of investing with real estate investors rather than caring what your debt to income is or stuff like that. It is just not relevant to me. So that is why I would be considered an investor first to what most people will consider maybe a banker first.

[0:14:24.7] WS: And there is a few questions before we run out of time but how do you prepare for a potential downturn?

[0:14:29.9] IW: Yeah, going back to being a private lender, the downturn is the ultimate, right? That is the cycle risk so I am always saying what could go wrong, what could go wrong, what can go wrong? So always I go, “Okay, the downturn is around the corner, it is around the corner.” I guess the things I could look at with that right now and I actually do a lot of – I interview people locally in my market, similar to what you do but that is a question I ask a lot of the bigger players as well.

So, I like to actually get a pulse and a feel for what they are doing. It is a really good question especially ones who have been through multiple cycles because you need to know how they survived it and why they survived it and you know preparing for the downturn, I don’t know that it is so much preparing to do anything different as being aware of it because nobody can time it perfectly. The only person that says they timed it perfectly is when they make movie, The Big Short, right?

And I look back and go, “Oh he is so smart. He is a genius” there is a million other guys predicting other things, it didn’t work out. He looks like a genius because that’s the one that worked out and it played out, he put a bunch of money into it. Great, you know it worked out. I don’t wait around saying it is here or it is coming, it’s coming, it’s coming in my head and then changing my business along the way. I am always thinking it is coming. I am always thinking this doesn’t make sense now.

2008 you know, a couple of things we have going, the money is flowing pretty well, too well right now. People have money that shouldn’t have money right now meaning that they think they’re smarter than the market and that is when the market comes and gets you. So we are closer to a top than a bottom, I believe that so you know, how do I change or how do I adapt my business to that? Honestly, I look at it and go I have been underwriting the same way I have forever.

And that means I was close to the bottom of the market when I was underwriting to begin with and I haven’t changed my stipulations or guidelines. I haven’t gotten looser. So I am essentially saying I am battle tested at the bottom of the market in my mind and prepared for that again because it will come. It doesn’t get to do what it is continuing to do and I also don’t think it is going to happen in the same way it did last time.

I think the scars are too fresh with people in 2008 that they are a little bit too aware in the real estate market that so what I don’t think will happen is won’t double down again in real estate again. Last time the catalyst was real estate itself and the mortgage backed industry and the derivatives and so forth. It was tied together whereas I think we are going to be looking at a scenario where it is going to be something where the world is connected.

It would have to be able to impact the entire world but it won’t be in real estate. It will just affect real estate like it affects the rest of the world. Be it like currencies, be it like whatever. You know it could be something that is just not tied to real estate because the people in real estate are a little too scared to get caught with their pants down again in that same spot.

[0:16:54.3] WS: What is a way that you have recently improved your business that we could apply to ours?

[0:16:57.3] IW: I’d say it never hurts to go back over what you are good at and make sure you are continuing to do that. So all the time you are growing a business, a different business along the years. There is two things I would suggest to somebody is one, be very clear about the departments or the pigeon holes in your business and make sure everybody else in the business is aware of it. I see a lot of small businesses especially in real estate where people wear a lot of hats.

That is not a good idea. That makes your business very confusing and not scalable. The second thing I would recommend is to make sure that you are in a position where you got – if you are doing well or you are happy with where your business is going don’t lose sight of what got you there to begin with. So, it is a good refresher every I don’t know, so many years to go back and we are doing this right now in our business, just reiterating like why we’re good at what we do.

And let us not lose sight of that because if you stray too far from what already made you work and it is easier said than done because all of this new things that come up and fun stuff you can do but don’t lose sight of your core reasons that got you to where you are and the strengths that put you in that position and then grow upon those strengths as oppose to trying to fight and make your weaknesses that much stronger. You can hire people that are better at weaknesses than you can.

If you are naturally good at something, build on your strengths that have gotten you at this point already.

[0:18:09.4] WS: I like that and how do you give back?

[0:18:11.9] IW: So a culmination of things. I do certain things in my personal life that you know along every so often, certain things strike me from a turkey drive to several years ago I ran a marathon to raise money for a girl that is dying of cancer. So anything in there in terms of my personal life business wise, you know I know what it is like to be in the real estate market and trying to make your way. I talk to a lot of new investors every day.

I try to figure it out. I try all kinds of stuff so I usually spend a lot of time honestly on making sure daily that I give back to people on like forums or message boards that where I started, I started on those years ago. That is how I started to cut my way in and maybe that one piece of information I could give to somebody can really help them and then I selfishly and selflessly do these kind of presentations where I know A, it is good for me, it is good for you.

In terms of marketing and so forth but it is also very good because this could be helping somebody. So it is like a win-win for me to say, “Hey, if I am winning you’re winning” and this information really could trigger somebody. I get calls from these all the time, “Hey, I saw your video” or I saw your podcast or any and I learned this or I did this and I’m like great. That is one step closer where you are trying to go that feels good for me.

[0:19:17.6] WS: It’s awesome. Well I appreciate you sharing that and it is so true. I hope the listeners gain a lot from the show and will most importantly take some action from it, right? If you just listen and you know it is like overanalyzing or you know over complicating it. If you don’t actually take some action though you are not ever going to be able to improve and get to where you are going but most importantly right now, tell them how they can get in touch with you and learn more about you.

[0:19:37.6] IW: Sure, I keep it really simple. It is hardmoneybankers.com, Ian so my first name is ian@hardmoneybankers.com and that is the best way.

[OUTRO]

[0:19:48.7] WS: Don’t go yet, thank you for listening to today’s episode. I would love it if you would go to iTunes right now and leave a rating and written review. I want to hear your feedback. It makes a big difference in getting the podcast out there. You can also go to the Real Estate Syndication Show on Facebook so you can connect with me and we can also receive feedback and your questions there that you want me to answer on the show.

Subscribe too so you can get the latest episodes. Lastly, I want to keep you updated so head over to lifebridgecapital.com and sign up for the newsletter. If you are interested in partnering with me, sign up on the contact us page so you can talk to me directly. Have a blessed day and I will talk to you tomorrow.

[END OF INTERVIEW]

[0:20:29.3] ANNOUNCER: Thank you for listening to The Real Estate Syndication Show, brought to you by Life Bridge Capital. Life Bridge Capital works with investors nationwide to invest in real estate while also donating 50% of its profits to assist parents who are committing to adoption. Life Bridge Capital, making a difference one investor and one child at a time. Connect online at www.LifeBridgeCapital.com for free material and videos to further your success.

[END]

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