WS1454: Private Debt in Property Investing | Will Coleman

EPISODE 1454

[INTRODUCTION]

Will Coleman (WC): So keeping a really close eye on the recent comps, we do have all of our borrowers sign a personal guarantee. And then just making sure that even if it sells for five to 10% less than what we think it will sell for that the borrower still makes money.

[INTERVIEW]

Sam Rust (SR): This is your Daily Real Estate Syndication Show. I’m your host Sam Rust. Joining us today is Will Coleman, who is a founder and chief executive officer of UrbanGate Capital. Will is responsible for operations and investor relations, has over seven years of real estate investing experience in Texas and Tennessee. Before founding UrbanGate Capital, Will worked as a credit analyst at City Bank. And as a director of finance at RAND Capital, a commercial mortgage brokerage. Will, welcome to the show today. Thanks for joining us.

WC: Yeah, thanks for having me. I’m excited to get this going.

SR: So as I was browsing through your bio, went to Liberty, got a Bachelor’s there back in 2016. And then shortly after that, you kind of started your real estate journey. It looked like as on the leasing side, you got to see how the cookies really are made. What made you decide to go down that path? How did you get into real estate to begin with, Will?

WC: Yeah, so that’s funny that you picked up on that. I wanted to learn the hands on real estate. So in college, I was always the responsible in the group of my friends. So we had a house, you know, there were six or seven guys, and I played college soccer. So I had to coordinate, everyone paying rent, and everyone, you know, paying the bills. So I was responsible for collecting the rental income, and then taking it to the landlord, who was like a 90-year-old that couldn’t even you know, could could literally couldn’t stand up. I was like, man, it would probably not be too difficult to purchase a house and do the same thing. 

So right out of college, I did the traditional house hack and bought a couple properties in Texas. And at the same time, I was like, I want to get into multifamily. I want to get into the larger stuff. And I was going to grad school as well. So I was like, What’s a job that I can learn multifamily while still going into school? And I said, Well, I’ll just be a leasing agent at an apartment complex. And I, it taught me how to sell, it taught me how to communicate with tenants, it taught me how to do budgeting and accounting. And it taught me how difficult property management is. And then I just kind of scaled from there, bought a couple more houses, a couple apartment complexes, and we can get into the private lending stuff. 

But I really just wanted to learn hands-on and being a leasing agent. As difficult as that job is, I was able to learn a lot of the day-to-day for actually operating the real estate side. 

SR: Now, I think that hands-on experience is super valuable. There’s so many people that want to get into syndication or multifamily in general, but I think almost everybody gets in from the raising capital side or buying a deal. But to start at the ground floor on the operation side and have experience leasing a property is really, really valuable. Is there anything that you’ve learned during that time that you’ve used and carried forward? I’m sure there’s a lot of things. But is there anything that stands out to you, as you move more towards the finance side of the equation that you keep in mind to this day?

WC: The thing that I can summarize is one, it taught me how to sell. My job as a leasing agent, I had the lease and I was not a good salesman. But by the end of it, I was. So it taught me you know how to sell, which is a really valuable skill. And secondly, it taught me how to communicate with the tenants, which a lot of operators may or may not do that. So it may not be that valuable of a skill. 

But literally yesterday, our property manager in an apartment we have in Knoxville was like, I know, like, we don’t really want to do this, it’s gonna upset the tenant, you know we’re really busy. We’ll call him in a couple of days. I was like, give me the tenant cell phone number, I’ll call them right now. And I did and I, you know, they were grateful to hear from the owner and you know, having that ability to communicate with the tenant. 

You know, I don’t want to always be the one doing that. But so I’d say sales and just communications in general is. The importance of communication is probably the main skill set. I learned doing that? 

SR: Yeah, Ithink having having the ability to both read people having a high EQ and then be able to give them what they want or need is a really valuable skill set in many different fields, whether it’s leasing apartments or negotiating cars or so many different things that’s broadly applicable. So from there, your journey took you to credit analyst, then you jumped over to Director of Finance for Rand. You’ve moved fairly quickly through and then to starting UrbanGate. How did UrbanGate come about and what’s your primary focus? 

WC: Yeah, so I was working at RAND capital, which was a commercial mortgage company, and our commercial mortgage brokerage and our you know, our product was helping people source commercial debt on apartment complexes. And I was hired to work and kind of run that company as the Director of Finance. And it was successful, we are making money, but it was like extremely difficult. And we just kept running into walls that I felt like, man, these walls should not be this difficult to, you know, push through. 

And I really kind of sat down and thought about, okay, what’s not working and what would need to happen in order for this to work in that business. I was a commercial mortgage broker. So a couple challenges were like, you know, a borrower could come to me, he was wanting to finance a 50-unit apartment complex in Texas. And we would have a lender that we would kind of be the middleman for. The challenges after we communicate and work with them, they could go directly to the lender if they choose to. They don’t have to, but that’s, it was just a part of the business. 

I was like, man, like, I want our product to be so valuable, that our customers love it. And they want to work with us for 10-20 years. And while I was at random kind of having this conversation, or you know, thinking through this, my business partner, Brandon Thornberry, he and I were communicating, and he has started doing private loans. So he was lending out his own personal cash to real estate investors in the area. And he was like, man, there’s a huge demand for this type of capital. And he kind of got to the point where he had run out of his own personal capital, in order to lend to, you know, close friends and real estate investors that he knew.

So I was like, if you think we could raise capital for this, do you think we could scale a business out of what we’re doing? He was like, Oh, yeah. So I already kind of made the decision that I wanted to move on from random to a business that really adds a ton of value. And I was in Knoxville, Tennessee, and Brandon was in Nashville, so decided to make the jump to Nashville and to UrbanGate. 

And then he and I partnered together to scale a private lending business, where we raise capital from investors. And we lend it kind of like a bridge loan to people that are buying real estate. We primarily land on fix and flips. So people who are flipping houses, well, we’ve also done a couple of bridge loans for larger commercial deals, whether it’s like industrial or commercial or apartment complex like that, we’re kind of a private lender that can do short-term bridge financing on real estate.

 

SR: So for investors who maybe aren’t as familiar, there’s some nuance in terms that I think I’m picking up on, or at least I hope by, but might be helpful for folks to have defined. Could you just walk simply through bridge financing, private money, hard money, you didn’t say hard money, but I think it’s helpful to kind of have that span. So people know where you guys sit on the risk-reward spectrum, and the type of projects that you’re lending against. 

WC: Sure. And it is tricky, because they’re all kind of the same thing, just slightly different context. So like bridge loans are typically… if you are buying a property, and you want to renovate it, and then go into a refinance, or sell. 

So like, if you’re buying up 20-unit multifamily apartment complex that it’s not kept currently cash flowing, and you need to put a ton of rehab into it, you could get a loan that would provide the purchase price some of the construction budget, and it’s on an interest-only basis so that you can renovate the property, your debt service is slightly lower, and then allows you to renovate it, lease it out and get your cash flow going. 

And then you can either refinance or sell it. So bridge that is typically referred to in that context of a bridge lender that’s providing a one-to-two year loan on a commercial property to take a property from non-performing to performing. 

Private money – it’s like, you know, borrowing money from your uncle. It’s you call up a local, someone, you know, and just say, hey, I need a couple 100,000. Can you lend it to me for 8%? Or, you know, kind of eight to 10% is kind of the private range for just kind of friends and family. 

And then hard money is kind of an institutionalized private lender. So it’s a company that’s raising money from individuals that want to lend their capital at eight to 10%. And then the hard money lender raises at eight to 10%, and then lends it out at 12 to 14 to 15%. So hard money and private money are kind of the same thing. It’s just once a company and one’s an individual that does it. And I say I’m a private lender, but everyone’s like, so your hard money lender I go, ‘Yeah.’ 

SR: Yeah, so there is some equivalency there. But I appreciate you walking through the distinction. And like you alluded to earlier, that your primary focus is likely fix and flippers, how are you guys structuring your loans to try to avoid the downturn that we’re we seem to be staring down the barrel of. I assume some of that is going to be on loan-to-values and, and possibly guarantees but what are you guys doing in that vein? 

WC: Yeah, it’s been fun to see the change in the market. And the fun part about what we do is we’re not making one to two big decisions like we’re making, we’re doing four to 10 loans a month. So we’re looking at three to four loans a week. So our changes vary, like we really kind of go with the market. And it’s kind of fun to see the differences in that, like some of our loans like 30 days, so we’re not making bets on what the market is going to be like two, three years from now, we can very in real time, say, Okay, this sold a week ago at this price. So we can actively change what our loan terms look like. 

But the main thing we’re doing is keeping a very close eye on recent comps. So things that sold in February, March, April, we’re like, alright, let’s almost discount those completely. What sold in August and September? And, you’re already seeing, you know, five to 10% discount on what sold six months ago or so. So, I was looking at talking to a borrower yesterday. And like, you know, there’s three or four comps that sold in August, at a certain price, and there’s one that sold in June at a much higher price, I’m like, Well, I’m gonna go off the ones that sold more recently. 

So keeping a really close eye on the recent comps, we do have all of our borrowers sign a personal guarantee. And then just making sure that even if it sells for five to 10%, less than what we think it will sell for that the borrower still makes money. And that’s really a huge thing that we look for. And we’re actually quite low leverage, like, we typically don’t lend on rehab funds. So we’re only funding the purchase price. And then our borrower is bringing the rehab funds. So our loan after the rehab has been done. We’re probably an average of like 65 to 70% loan-to-ARV. 

So we’re quite low leverage, we’re keeping a real eye on recent comps. And then just making sure if the deal sells for five to 10% less than what we’re expecting, it’s still in the green.

SR: Do you guys require that you’re put on title? Or do you guys just have a separate contract? 

WC: Yeah, we’re a first lien loan position. So we’re, we’re on title, we don’t do any second lien positions, you know. It all goes to the title company. We’re very secured in terms of the title. 

SR: Now,I really liked that model because you essentially have your partners, you’re working with a fix-and-flipper. He has his profit margin. And then if he’s bringing all the rehab costs, he has all that rehab costs before your loan is at risk. 

WC: Yeah, we’re very low-leverage, and our slogan is, ‘Your capital partner.’ So we definitely think of our borrowers as partners, for sure.

SR: So flipping that around, when you’re raising money for that kind of a vehicle, I would imagine that one of the selling points is somewhat consistent cash flow, but what’s the upside for investors like what’s, what are some of the main benefits of investing into a private money fund loans such as yours,

WC: There’s three main benefits that I really liked. The first is it’s a first lien position, meaning if you invest into the property or into the fund, your loan, your capital is secured by a first lien position. So if, if the borrower is not able to pay us back, if we do see, you know, 50-80% type drop in markets across the board, worst case scenario, we foreclose, and we own the asset. 

So we’re much better protected than an equity position or a stock, both my family has the benefit of cash flow, which I think is amazing, and affordable housing is in huge demand, the benefit to what we do is, if the worst case scenario, we still own the asset, whereas an equity investment in apartments or whatever it may be, worst case scenario, you get foreclosed on, you lose the asset. So the main benefit is it’s a very secured lien position. 

Secondly, it’s consistent yields. So we pay an 8% preferred return with four months of monthly distributions. So you can get a consistent monthly a percent yield. And then the third is we have, we have a liquidity option. So we allow you to withdraw your capital with a 90 day notice, we do have a six-month hold period. So we asked you to hold the first six months, we ask you to hold that in there. But after that, you can come to us and say hey, we’ve got a great deal in the pipeline, or, you know, my daughter’s getting married. So we want to spend some money on that. And we say great, we can get you to get your capital back. Just give us 90 days to get that to you. 

So first lien position, a high-consistent yield and a liquidity option. We think it’s a pretty great investment option. 

SR: How do you guys select the markets that you’re lending to? I’m guessing that some of that has been some personal relationships. How do you guys select markets? 

WC: We’re only in middle Tennessee. So Nashville is the market so my business partner Brandon, he’s flipped a hundred houses in Nashville. You know, he currently owns a pretty healthy amount of apartments and houses. He’s been doing it for 15 years or so. So 90%, what we do is just in Nashville, and then we kind of do the surrounding markets around Nashville, in some in East Tennessee with borrowers who trust, but we’re very much believers and being very dialed in on our market and really being experts. A lot of times like, we’ll get a borrower request and Brandon ‘Oh, I used to own that property.’ It’s pretty hilarious. 

SR: That’s interesting. So I see in your job description that you’re in charge of investor relations. What does that look like? What’s some things that you guys value or prioritize at UrbanGate that might be different from other firms? 

WC: Yeah, I don’t know if it’s necessarily different from other firms, I hope other places would do this as well. But I’m a big, big believer in communication and transparency. So like, you know, just being willing to hop on the phone with investors, whenever they need, we do a monthly update, which I’m actually recording after this, where we go through all the deals we funded that month, we send it out to the investors, and they can see it, we do a monthly report through a third party fun admin. 

So we’ve got our financials that are being created and look through third-party admin. We do a monthly report, and just, I spend a lot of my day on the phone, with investors, I get a lot of walks-in and just just chat with people on the phone. 

So I really put a lot of emphasis on communication, being able to answer the difficult questions, and bringing up the difficult topics and transparency. So if you have a question, I’m gonna give it to you pretty black and white without any fluff. 

SR: I think investors really value that transparency, right, that monthly reporting, the video updates, we’ve just changed our style to more of a video update with some financials. And that’s been very well received. And also, it’s a great format to be able to communicate concisely, without necessarily trying to write a paper on every deal every month. 

WC: Yeah, I’m curious how long videos do you guys shoot for when you do it?

SR: So we’re dialing that in right now. I think our goal is to have a three-to-four minute video or less on a per property basis. So obviously, as a multifamily syndicator. It’s a little bit different than what you’re doing. But really, there’s not that much new information on a monthly basis, you want to touch on the highlights of the finances. Here’s where we add on five to seven key metrics. Here’s where we’re at on some capex, and away you go. 

We are implementing some more resident programs and bringing in a ministry called apartment life that’s going to provide a community for people in our property. So we want to highlight some of those things as well. But all in I mean, investors want something that’s pretty pithy, short and sweet. And getting it out. 

WC: It’s funny, I have a bad habit of making videos too long. And I always ask for feedback. And like, almost all the time, it’s like shorter videos about my goal is like five minutes or less, because I think the last one he sent out was like 15 minutes or so. So it’s there’s an investment tip right there is the shorter and concise the video, the better. 

SR: It’s interesting, I will at times just go look up some of the bigger YouTube influencers and watch their videos just to kind of see how people are editing content and how that’s being put together. But the number of jump cuts that you’ll see in like a MrBeast video or something like that is pretty insane. It speaks to the relative short attention span of today. And not that I’m going to be doing jump cuts every three and a half seconds, but it’s something to keep in mind for sure. 

WC: Absolutely. I mean, it works. I like I watched my videos in 2x speed and I love when they’re sliced up. So it definitely works. 

SR: Everything at 2x right? Podcasts, YouTube videos – the whole nine yards. 

WC: Yeah, exactly. 

SR: Oh it’s fantastic. So starting a business well, lessons learned to this point, you know, probably related to challenge overcome, but do you have any stories that stand out of something that was a wall like you were mentioning your time at ran that you were able to run through or jump over or skirt around? 

WC: Yeah, I think there’s a ton of lessons but in terms of like, one of the biggest ones is just really making sure that whatever you’re providing to your customer, whatever product you’re offering, the customer actually wants. Like, you know, I think a lot of people get excited about I’m gonna make this and you know, it’s going to people are going to love it and I’m going to and you spend all this time building it and then you talk to customers and like it sounds cool, but you know, not super interested in it. 

So like having something an idea or product or business like talk to as many I’ve learned this lesson like talk to as many people run it by them and get to the point where you can say like if I if I did this would you buy or like if I offer this to you would you invest? So get advice and feedback from as many potential future customers as possible before spending money Anytime on building the business or the product or the idea, as, as I’m sure you’re probably quite entrepreneurial self, Sam, I, I suffer from the entrepreneurial bug. 

And I would start with building something before getting enough customer feedback. And then that’s one of the beautiful things about business is it’ll humble up quite quickly of you think you are going to dominate an industry and you think you’ve got everything worked out, and then you try and sell your product. It’s way harder than you thought. 

So yeah, just unsuccessfully selling things because I thought they’d be a great product before talking to the customers to make sure it would be a great product would probably be the main lesson I’ve taken from growing a business. 

SR: I think that’s it’s really valuable insight. So often, and I do suffer from the sickness. So I resonate with that. But we have this idea of oh, man, the marketplace needs this. And then you don’t talk to the marketplace. And you don’t realize, ‘Oh, that’s not what the marketplace needs.’ So, yeah, humility is an important piece of it. If you’re not willing to fail, you’re not going to succeed as an entrepreneur. 

WC: Yeah, humility is huge. And everything for sure. 

SR: Awesome. Well, Will really appreciate you joining today. Before we let you go, what’s one habit that you’ve cultivated that’s contributed to your success? 

WC: Yep, probably meditation. I haven’t done it lately, just because I’ve been waking up and grinding, but for a number of years, I meditated for 20 minutes every morning. And it’s really helped me be a more patient, mature, thoughtful individual. So I’d say meditation, and I only said one, but reading so meditation and reading would be my my daily habits that have really helped me improve. 

SR: All right, I gotta ask about your favorite book you’ve read this year. 

WC: Great question – ‘Multipliers’ by Liz. I think her last name is Wildermann. But the whole title is ‘Multipliers. How Leaders Make Everyone Smarter,’ or something like that. You can like, just, you know, as we’re growing a team, and as we’re scaling and bringing on more people, just how can I make the people around me? Leaders? Like how can I help them improve? How can I make them better? How can I give them, like, make them feel responsible for themselves and help them grow? It really changed? Like it becomes a service leadership mentality. I definitely think that’s the way to go. So yeah. How about you? I’m gonna ask you the same question. 

SR: Favorite book that I have read this year? I do read a fair amount. Oh, ‘The End of the World is Just the Beginning’ by Peter Zeihan. 

WC:  Interesting. I’m gonna write that down. 

SR: Yeah, I’ve really enjoyed that book. It took me a moment to come up with the title because it’s a little bit different. But it’s a geopolitical book that focuses on demographics, and raw material inputs. And just look at where we are in the world today. And basically posits that we’re at the end of the Golden Age that was secured by America’s Navy, and that a lot of the world is going to unwind over the next five to 20 years. 

WC: So I’m sure it’s very relevant to what’s going on now. So I’ll have to give that on a read. 

SR: Yeah, it’s a little bit longer. It’s like 550 pages, but I really enjoyed it. He goes through and traces the supply chain for all these natural materials and points out where there’s going to be sort shortages. And it’s just very interesting. I’m a little bit of a nerd. So stuff like that really gets going. But I think you’d

WC: Go down. Yeah, I’m sure we could go down a lot of rabbit holes. 

SR: Yeah, maybe read that. And then we’ll have you back on the show. We can talk about it. That would be a fun conversation. 

WC: A geopolitical one. 

SR: Yes, exactly. Yes. We try to stay out of politics. But if we put the geo in front of it, then we’ll be fine. So awesome. Well, well, thank you for joining us today. If folks want to reach out and learn more about what you’re doing at UrbanGate, how can they get in touch? 

WC: Yeah, so go to UrbanGateCapital.com. And if you’re interested in investing, there’s an Invest button. If you’re in student borrowing, there’s a Borrow button to UrbanGateCapital.com. And then if you want to shoot me an email, my email is [email protected] So it’s the easiest way. 

SR: Fantastic. Well, thank you to our audience for joining us on another episode of The Real Estate Syndication Show. I’m your host Sam Rust, signing off.

[END OF INTERVIEW]

[OUTRO] 

Whitney Sewell: Thank you for being with us again today. I hope that you have learned a lot from the show. Don’t forget to like and subscribe. I hope you’re telling your friends about the real estate syndication show and how they can also build wealth in real estate. You can also go to LifeBridgeCapital.com and start investing today

[END]