In this episode of The Agent of Wealth Podcast, host Marc Bautis is joined by Kevin Amolsch, President and Founder of Pine Financial Group, and author of The 45-Day Investor: How to Buy an Investment Property With Nothing Down in 45 Days or Less. Tune in to learn how to access the funding you need to elevate your real estate game.
In this episode, you will learn:
- Perspectives on the current real estate market.
- What hard money lending is, and how it differs from traditional bank financing.
- Which properties and project types are typically suitable for hard money loans.
- How real estate investors can get a hard money loan.
- Perspectives on the possible changes coming to real estate.
- And more!
Resources:
pinefinancialgroup.com | Bautis Financial: 8 Hillside Ave, Suite LL1 Montclair, New Jersey 07042 (862) 205-5000 | Schedule an Introductory Call
Disclosure: The transcript below has been lightly edited for clarity and content. It is not a direct transcription of the full conversation, which can be listened to above.
Welcome back to The Agent of Wealth Podcast, this is your host Marc Bautis. Today I’m joined by a special guest, Kevin Amolsch.
Kevin Amolsch is the President and Founder of Pine Financial Group, and author of The 45-Day Investor: How to Buy an Investment Property With Nothing Down in 45 Days or Less. He has spent two decades as a real estate investor and 16 years in real estate lending – his companies having closed on over 2,400 transactions.
He earned his degree in Finance after serving four years in the US Army. After college, Kevin spent two years working with Wall Street as a Mortgage Bond Analyst before leaving to work in real estate financing for investors full time.
Kevin, welcome to the show.
Marc, thank you for having me. I’m excited to be here.
I’m excited to talk to you today about real estate. As we know, the market experiences ebbs and flows. What is your perspective on the current real estate market, overall?
Perspectives On The Current Real Estate Market
Oh, there’s a lot to that question…
On the macro level, we’ve seen a slowdown for sure. I’m talking on a macro level because I have to, but real estate is very micro. It’s neighborhood-specific and even street-specific at times.
Also on the macro level, there’s high inflation. And it’s sticky because of jobs. The Fed is absolutely committed to bringing inflation down, and the way they do that is by attacking real estate. It’s just what it is. So they raise interest rates to slow the economy down and that directly impacts lending, borrowing, and demand. I saw this funny meme on Facebook for Halloween. It was a new costume called “Housing Demand,” but inside the package there was nothing – no costume.
There’s just no demand, right? Nobody wants to buy houses right now. But here is one saving grace for housing: There’s no supply, either.
If there’s a lot of supply and a little demand, there will be pressure on pricing to come down. If you have little demand and low inventory, they almost cancel each other out. So we’re not seeing a big correction – which so many people were predicting – in housing.
In fact, real estate housing nationally has gone up over 6% this year. So when everyone’s hitting the panic button that we’re going to be losing value and it’s actually been increasing. And that’s simply because of supply. And what I find very interesting about this is I don’t see a crash coming in housing at all.
I do believe there’s going to be a soft landing in housing. I do also believe there’s going to be higher for longer. We’ve heard that. So the Fed is going to keep the interest rate high and it’s going to impact real estate, but it’s going to have a much bigger impact on commercial. And we could talk, go into details on why I believe that, but we will see a correction in commercial. I don’t think there’s any doubt there. I just don’t think housing is going to see that impact. There’s a floor and you don’t see it, but it’s built by institutional buyers and money. On the sideline, I’ll be in front of a room and I’ll say, how many people here have money that they want to invest in real estate? Almost the entire room goes up. Well, how many people are buying right now? Everybody’s hands go down because they don’t think it’s a good time, but when interest rates come down and pricing starts to come down, you’ll see that money come in. Does that answer your question?
Yeah. Is the lack of supply, is that mainly because people are sitting on these 2%, 3% loans and they just don’t want to sell and go into, or is there other reasons why there’s a lack of supply?
It’s a very interesting question and complicated one because you hear about the lock-in effect, which is what you’re alluding to. Why would somebody put their house on the market and sell it when they have a 3% interest rate? I totally agree with that. What we don’t see though is if they add one unit of supply to the inventory, are they also taking one unit off because they’re upgrading or downgrading or buying another property? So we don’t really know what impact that would have. Now if they’re selling the house to go into a rental property, that would absolutely add to the inventory, but I don’t know that the lock-in effect, as we see has such an impact on the inventory levels. It absolutely has an impact on transactions. So we’re seeing transactions fall off a cliff. A big part of that is the lock-in effect.
And then you mentioned the institutional side, but before we talk about that on the buying side, if prices haven’t come down, but interest rates are going up, it obviously makes it more expensive to own a home. Is it the regular retail buyers are waiting or they’re not able to buy homes and then the institutional side can just swoop them up as they become available?
I think the institutional buyers are attracted to real estate because of the returns it provides. And if you’re looking at your other options, investment options where you could get a lot of money placed at one time, you’re looking at stocks, bonds, and government debt. I mean, that’s where you’re really going to be looking to place a large portion of money. And does anybody really have confidence in those markets right now? I mean, I’m reading everyday headlines that get out of the stock market, it’s going to crash. And when you start thinking about jobs increasing, there’s going to be well over a trillion dollars in corporate debt coming due in the next 18 months. Okay, what is that going to do when you have to start refinancing 4% corporate debt at eight or nine or 10%? What’s going to happen to these companies? I think you’re going to start seeing some layoffs, and then that’s obviously a spiral down. So I think that’s one of the ways that we see unemployment go up, which is exactly what the Fed is trying to do.
What led you to the financing side of real estate, and to creating Pine Financial Group?
I was reading books on how to invest in, well, anything. Everything was pointing to real estate. It’s no secret that more millionaires are made in real estate than in other commodities. Millionaires hold their money in real estate over other commodities. So it was just an attractive asset class. So I just was reading about real estate and at first it was just going to be an investment. Can I buy one or two or three rental properties and how would that change my life? How would that change my family’s life? So I started trying to buy properties, but I was 21 when I bought my first house. I was 23 when I bought my second and had my first rental property, and I’m this punk kid in college. I didn’t have money, I didn’t have credit.
I didn’t have the ability to qualify for a bunch of loans to purchase real estate, so I was forced to be creative. I had to figure out how to buy properties with no cash, no credit, and build a portfolio.
I started by buying one or two houses a month. But what I learned from going through that process was the financing side of real estate – the entire deal structure. I had so much fun negotiating a deal and putting it together. That’s what I enjoyed, not managing tenants and contractors. So I decided to migrate to the financing side.
Is that the point where you started Pine Financial Group?
Well, first I was recruited to be a mortgage broker. This was back before 2008, when there was no licensing and there wasn’t a safe act, so it was the Wild West.
As regulation started to hit, it became a very difficult business. I didn’t have control and things were changing so fast. So how can I help people? How can I help real estate investors but get control of my business? As an entrepreneur, you want to control your destiny. So what I learned was if I could bring in the capital and I could set my own common sense guidelines and service these loans, then I could make the decisions.
And so that’s what I did. I started raising private capital. That was in 2006 leading right up to the crash. So then we went through the crash in 2008, and the person I was working with, Susan, fantastic person. I owe so much to her. She wanted to teach real estate, she wanted to mentor people, and I like to do real estate. So it was no longer a good match. And so she went off to teach real estate and gave up her portfolio, and I wanted to keep going. So I started Pine Financial. So that was right at the end of 2008.
What kind of private lending do you do now?
Hard Money Lending
Pine Financial Group has multiple mortgage funds. The most recent one was a Reg A. For those of you that don’t know, that’s a public fund that is fully audited. The benefit to having a public fund is we could advertise it. I could say, “Hey Marc, I’ll pay you 8% return on your money, and it’s backed by real estate. I am allowed to say that most offerings and most funds don’t allow you to do that. So we are very proud of that. And we have that public fund, and we have three private funds in total. It’s about 140 million, maybe just a little bit north of that in available capital through private investors. And we’ve layered in a little bit of institutional money. So we’re like maybe 160 million total out in loans right now.
Is it all loans, or does the fund also purchase property?
We do own a few properties, but I wouldn’t say we bought them. Those are the result of defaults.
Our default rate is 1.7%, which is far below the industry average, and in the private lending space it’s usually closer to 3%.
What kind of properties do you look for, in terms of lending?
So we’re constantly looking at our guidelines and our appetite, and I could tell you with what’s coming, the store I see coming in the commercial space, I’ve got a high level of confidence there’s going to be some trouble there. So we’ve decided to pull back from the commercial a little bit and just make smarter decisions. One of those changes was our maximum loan amount. We reduced that to 4 million, so we will not loan anybody more than $4 million on one single transaction. So that’s on the commercial side, but we have an allocation of 80% residential, 20% commercial. We’re going to keep it at that allocation. As I opened up the podcast, I really like housing right now. I think it’s more liquid, it’s easier to cashflow, and I think that there’s a floor, there’s this invisible floor. So even if there’s a correction, I think we could limit our risk.
How does a real estate investor find a private loan?
Well, if they’re in one of our markets, they should go to pinefinancialgroup.com.
But in general, it’s not that difficult. It’s a hard money. That’s really what the industry is. So the industry as a whole doesn’t like the term hard money, although I have no problem with it. That’s what it was called when I got started. So it still is hard money. So if you just Google hard money loans or hard money lending, you’ll find plenty. It’s not like it was back in the day where it’s just a bunch of old white guys lending their own personal cash. Now it’s like a real legitimate industry, so it’s not that hard to find good quality lenders out there.
What do you look for when someone comes to you to say whether this fits your guidelines or doesn’t fit your guidelines?
Yeah, there’s two things that we primarily focus on. One of ’em is that it’s going to be a good quality deal. We have the saying that we’re only successful when our clients are, and we freaking live that we want our clients to be successful, and when they’re successful, they’re going to keep coming back over and over. The thing about lending to real estate investors is it’s repeat. It’s we’re loaning to a homeowner and they’re going to maybe refinance in five or seven years. Now these guys are buying multiple deals every single year. So we are highly focused on their success. So first thing we’re looking at, is it a quality deal? Is your sufficient profit in it for you? And if there is, we want to try to figure it out. If not, then, then we just prefer not to even do the loan at all.
Even if we could be safe, we’d prefer not to do the loan. Two, are you being safe as an operator or as a borrower? So we’re looking at liquidity. I could tell you it’s probably 99 out of a hundred investors on projects go over their construction budget. It’s ridiculous. Even if you build in contingencies, we still see people blowing their budgets. So do you have enough liquidity if you go over your budget to manage that? And what if, especially right now, what if it takes a little bit longer to sell that property? Do you have enough liquidity or runway to make payments until you can get it sold? So we’re looking at liquidity and a quality deal.
What’s the average length of one of these loans?
If you asked me this two months ago, I’d say it’s about five months. Now it’s getting closer to six, maybe six and a half months.
And I know you mentioned a couple of loans that have defaulted, but what happens, right? I’m sure at the beginning of the loan there’s some length of time and you’re saying it starts to go up. People are blowing their budget. When do you throw the towel in and say, all right, that’s it. Let’s move to the next step and call it.
Yeah, that’s a good question. And that could mean a couple of different things, but if we’re looking at just a maturity default, so we write our loan, our typical loan is nine months long, and that’s for let’s say just a fix and flip, but mostly what we do is fix and flip. So you’re going to borrow the money, you’re going to fix up a house and you’re going to resell it, and we’re going to give you nine months to do it. If it goes over the nine months, assuming the loans current and payments are coming in, we want to work with our clients again, we’re successful when they are, but we can’t just let this thing go forever. So we’re going to have some extension fees and we might bump an interest rate just to apply a little bit of pressure so you can get through the project.
Some investors are super greedy and they’re not willing to lower the price to get rid of an asset or whatever it is. They think that it’s worth more than maybe it is or whatever. So if we apply a little bit of pressure, sometimes they’ll bring that price down appropriately and then it’ll sell. I shouldn’t say this, but you ask the question. We wouldn’t foreclose on somebody for a maturity default if the payments are current. I mean, that just wouldn’t make sense for our portfolio, but we do want to have maturity dates so that we can keep an eye on that.
What are some of the mistakes or issues that you see investors who are doing fix and flips?
The Biggest Mistakes People Make When Flipping Houses
One of the biggest ones is not pricing it correctly, like I previously mentioned. A year ago, you could price a flip at almost anything and it would sell. It might have even sold for more. Now it’s not like that. And if we start seeing some softening, what I’ve seen, because now I’ve gone through a couple of recessions, what I see is investors don’t keep up with the price decline. So it’s much better to do a lower price and have multiple offers and get that price to push up than to price at too high and have people coming in under your list price. So that’s a mistake. I see investors make a big, big one is just overdoing it. You make money on a deal or two, and now you want to do two or three deals at a time or four, and you build up this big house of cards and then the cards crumble in. So I think just having a good foundation of being humble and taking on what you could actually handle is probably the way to go. I do see some of our defaults because of just taking on more than they could handle. And then just getting into wrong partnerships. Partnerships are tough. They’re necessary to reach potential. I a hundred percent agree with that, and they could be a freaking disaster. So if not every partner is adding the appropriate value and you don’t have set tasks and responsibilities, then the partnership won’t work.
You mentioned someone taking on more than they can handle, but how does someone go from one fix and flip to maybe growing? How do they scale? Do they hire the team? And I guess obviously that comes with its challenges. Do they put systems in place? What do they need to do to get to that point?
All of that really. So I don’t know if you’ve read the book, the E-Myth and the E-Myth Revisited, but there’s a real estate investor, so it’s revisited real estate investor or something like that. I think that’s a fantastic book if you’re serious about scaling a real estate investment company. But yeah, it’s people and processes. That’s how you scale. But it’s slow. It’s got to be a slow, methodical growth, not just taking all of this on. So I’ll give you an example. The guy’s name was Greg, really nice guy, but he was just too aggressive and he hired the wrong person. He hired a project manager to manage multiple new construction projects. Greg lost touch with his company. It was too much going on, and he didn’t have the right people in place to manage it all. So this guy easily started embezzling money. I mean, it wasn’t even a challenge for him. Greg had no freaking idea, and it was just money just getting siphoned, and all of a sudden there’s not enough money to pay the contractors and all the projects stall. Now what happens when you have 12 new construction projects stall, you don’t have money to do any of them. You got to get one finished, sell it, produce some money to do it, and then you have to go through. It’s just very, very challenging. So that was a real life mistake that I saw.
What should an investor do to prepare for approaching a hard money lender?
How to Approach a Hard Money Lender
On the fix and flip side, I mean, we want to proforma either way. You absolutely need that. The fix and flip is super easy. There’s only a couple of numbers there. On an income producing asset, we want to see a full proforma. We want to see what is this going to be when you’re done. So a lot of what we do is value add bridge lending. So if you’re going to tell me you’re going to take this apartment building and turning it into a performing asset, well, how are you going to do it and what’s a performing asset look like to you? What’s your vacancy? What’s your expenses? What’s your average rent per foot or per unit or whatever it is? So yeah, start with the proforma, make sure the plan makes sense and it’s profitable, and then you’re going to want your financial statement.
And most hard money lenders right now, because it’s an industry are, it’s not the wild West anymore. We’re looking at tax returns and bank statements. So we want to see that you actually have the ability to perform. So for me, I keep a net worth spreadsheet. I track that and it’s once a quarter. I update all my bank accounts, all my values of all my assets, all my liabilities. So when I get asked for a financial statement, it literally takes me like five minutes to move it all over into their form. Or I oftentimes spend my own or use my own form, but I’m always prepared to send those.
I’ve seen a lot of performers before and they almost always look great on paper. How do you look at one and kind of weeded through it and be like, I don’t know about this one. It might be numbers might be off a little bit.
So the numbers are almost always off. If we’re talking about residential real estate, it’s almost always off on rent and maintenance. People are just too optimistic about those. But because I’ve been doing this for a while, I know what those maintenance numbers are going to be, depending on the asset, the type you’re talking about, a property B or C or what those are and how much common area there is. So I can get really close on the maintenance number, and I see nine out of 10 of those are wrong. So it’s just experience there. We like to get a full appraisal, and that’s also very common in hard money lending right now. And that appraiser is going to verify your income numbers. Can it really rent for what you’re saying it is. And they have all the industry numbers on maintenance and taxes and insurance and management and all the fees that you would see on the performer that the appraiser can verify all of that.
How do you decide what markets to go in? Do you have one that, do you have a couple and that’s the ones you’re sticking with, or do you expand? And then how do you determine? Yes, we feel comfortable going into this new one.
On the residential side, we’re in four markets. We’re very geographically specific. On the commercial side, we’re more following great balance sheets, good quality borrowers. So I’ll just speak about the residential side. So we are in Colorado up and down the front range. Why? Because we’re here. We are in Minneapolis in the Twin Cities. And the reason for that is because my former wife’s family was from there. And so I had people that I could trust and rely on that understood construction, understood finance, and could go out and visit the properties. For me, one of the biggest risks in rehab lending is are you actually doing the rehab? We’re issuing draws. We’re making loans based on what this property is going to be worth when it’s all completed. How do I know that you’re doing a good job on the construction and you’re even doing the construction?
There’s a lot of fraud around that. So we want people that we could trust on the ground. So that’s why I moved into Minnesota. Well, we moved into Wisconsin right across the border. The Twin Cities is right there on the border of Wisconsin. So we slid over into Wisconsin, and then we had some borrowers up in Milwaukee. So we do quite a bit of business in Milwaukee because we followed a client up there. Now we do business in Washington dc. That’s an interesting one. So years ago we had a hedge fund following us around, always wanting to learn from us, always wanting to get involved, and we finally figured out a way to try to make it work. And now it was an expansion into dc. Now they had relationships in dc It was their money that was going in. We were only originating and servicing the loans.
We had zero risk. So that’s why we decided to go into dc. Now that partnership dissolved because they decided to pull out, and we weren’t willing to put it in our money into that market. So we pulled out. Now we went back in because we already have all the relationships. We have a bigger, stronger team, and now we have a lot more confidence that we’ll have success. Now we’re back in DC and it has been, it’s been a great couple of years. We’re producing a lot of loans out there. As far as the next market, I don’t really know. We’re exploring some technology to help with that. AI has come a long way. So can they help us identify a market? We’re definitely want to know what our competitors are doing and the pricing. What is the most we could charge for our loans and be successful? How long is the flight? What’s the foreclosure timeline and the regulations? So it’s kind of a lot to it. I dunno if that helped answer your question, but it’s a complicated Yeah,
Yeah, yeah. And looking at it from the investor side to the fund, how do you quantify or how do you analyze risk in the portfolio? There’s obviously default rate, but do these loans, are you putting a quantitative score on each one and saying, all right, this has a risk of this or this has a risk of that, or how does the investor have any visibility or transparency into what kind of quality loans are in there?
Yeah, so there’s two questions there. The first, is there a score? Gosh, if I could figure that out. I know that some people have done that. I have not been able to figure that out quite candidly. So we don’t do that, but we just have really strong guidelines that we adhere to. So here’s an example. We do not want to take too much exposure to any one borrower. So we have maximum loan limits, but we also have maximum borrower limits. They can’t do too many deals at a time, for example. And those have been tightening. We reduce loan to value on entitled land. We don’t do any raw land anymore. If it’s fully entitled, we’re down to 50% of the value. So I feel pretty safe at that level. So we’re doing things like that. As far as transparency, yeah, real estate’s the most transparent commodity that there is, right?
I could get on my phone and I could tell you every single property that you own and how much you owe on it. If I could figure out what LLCs you own, I could look up those LLCs and tell you everything that LL C owns and what you owe on that too. So it’s just super transparent. It’s all recorded in public record. As far as transparency, we could provide lists of our loans to our investors, and they can go verify that we actually have the loans on. It’s a bit of a manual process or for our fund, our public fund, it’s all audited. So they’re looking at all of this, they’re making sure that we’re making the loans. And then there’s full lists of all of the loans in the financial reporting. What
Do you see coming up next for Pine Financial Group?
We’re growing. We’re bringing in about a million and a half a month in new capital. So investors are seeing the benefit of private lending. Look, it’s 8%, so you could get five or five and a half in a cd. I get it. It’s not a huge spread right now, but it will become bigger as interest rates start to go down and it’s still eight, not five, and it’s backed by real estate, which some people, I’m not saying I agree or disagree, but some people think that’s safer than even a bank right now. Banks are in trouble and is the FDIC going to come through? I happen to believe that they will. Not everyone agrees with that. So they would rather be in a real hard asset like real estate. The investors are enjoying the private lending sector. And look, debt’s the safest place to be. If you are interested in real estate,
Are you seeing the same, like you mentioned, the amount of money that’s coming in, are you seeing the opportunities on the other side to actually deploy it?
Yeah, look, the bank’s pencils are down. I read a report and you might’ve read the same one. 186 banks are in trouble right now. If there’s any type of run on non-insured deposits. So that would be anything over $250,000 in an individual account. Anything over that is not insured. So if the bank collapses, all of that money is at risk. You could literally lose your money that’s in the bank. So if there’s any kind of run, the risk is it’s going to be on the uninsured deposits. That’s the money that will come out of the bank. So in this study, 186 loans have long-term low interest rates assets, which is exactly what took down Silicon Valley, and they do not have the liquidity to return deposits, depositors’ money, and if there’s any type of run on, then non-insured deposits 186. Now, that’s not a huge number when you talk about the entire banking system, but that would definitely put some fear in the market.
And we’ve already seen what banks do when their peers start to fall, right? So if you’re one of these 86 banks, 186 banks, which they did not disclose who they are, those banks aren’t lending right now. They’re hoarding liquidity so that they could pay deposits if there’s a run that keeps ’em safe and keeps ’em from going out of business, how many other banks are doing the same strategy? And I know it’s a lot because we’re getting calls all the time. The bank rejected me. I can’t get this loan done. Can you help? So the demand for the money is through the roof.
Yeah, that’s good. Well, we’re just about out of time. Kevin. I’d like to thank you for being on the show today. You provided some great info on how investors can better fund their real estate projects. How can listeners reach out to you and find out more about what you do at Pine Financial?
Your first question was about the market and the economy, and there’s a lot of fear right now. As we alluded to in the conversation today, there’s a lot of resemblance between the 1990 housing softening and what’s happening today. I did a detailed report on the similarities between that crash and what we might be approaching. I’ll give it away to your listeners for free at pinereport.com. Otherwise, you can reach us at pinefinancialgroup.com.
Great, we’ll link to both of those in the show notes. Kevin, thank you again. And thank you to everyone who tuned in to today’s episode. Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review of the show. We are currently accepting new clients, if you’d like to schedule a 1-on-1 consultation with our advisors, please do so below.
Bautis Financial LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
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