Ask a Private Lending Risk-Taker: Demystifying Fund Creation | Brock VandenBerg & Matt Podesto

LL Ask a Private Lending Risk-Taker: Demystifying Fund Creation | Brock VandenBerg & Matt Podesto

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In this episode, Kevin Kim engages in a dynamic conversation with Matt Podesto and Brock VandenBerg, two successful private lenders who have taken the leap into fund management. From the early days of local hard money lending to the influx of institutional capital and white label programs, our guests provide valuable insights into the changing landscape and how it has affected the present. They emphasize the importance of proper underwriting and servicing while cautioning against entering new transactions without sufficient knowledge. Matt and Brock also share their invaluable personal experiences, mistakes made, and lessons learned, offering an inside look into their journeys. They dive into the challenges of scaling a lending business, the significance of segmenting functions, the importance of choosing the right partners, and the need for good service and ethical lending practices in the industry. Get ready to dive deep in this captivating episode of Lender Lounge.

Brock VandenBerg established TaliMar Financial in response to elevated uncertainty within the banking industry and to provide an innovative alternative to the restrictive practices of traditional lenders. With more than 14 years of experience in real estate finance, Mr. VandenBerg has earned the trust and respect of a strong network of clients and business partners. Mr. VandenBerg’s experience includes serving as Vice President of KeyBank’s Private Equity Group, where he assisted in funding more than $200 million in mezzanine debt and joint equity investments, and three years with the FDIC, where he supervised the orderly dissolution of failed financial institutions and was responsible for the sale of more than $500 million in performing and non-performing loan assets on behalf of the FDIC.

Matt Podesto has been involved in real estate since 2016, where he initially partnered with other investors to fix and flip properties throughout Texas. In 2018, Black Label Capital was founded to deploy personal capital on the side as a true private lender while still being involved in renovations. After gaining the attention of several investors, Black Label Capital eventually evolved into a day-to-day operation deploying personal and investor capital. As the CEO and Fund Manager, Matt manages the debt fund, asset management, loan sales, construction draws, marketing, capital raising and investor relations. Matt is also a former U.S. Marine Corps Scout Sniper, serving several combat deployments overseas, until being Honorably Discharged in 2009. Matt continued his service overseas for the next 7 years, providing Diplomatic Security for the U.S. Department of State, and most notably serving on the U.S. Ambassador's Protective Detail in both Iraq and Afghanistan.

Episode Transcript

Kevin Kim: Hey, guys, Kevin Kim here for another episode of Lender Lounge. We are now in season four. Super excited. We changed the format. Today I have two people I would like to call my friends. I hope they think of me the same. And they’re both clients of mine. And I really wanted them to join me because today we’re talking about entrepreneurship. We’re talking about taking the leap, taking the leap into scale and scaling your business. So first of all, before we get started, I want these two fine gentlemen to introduce themselves to our audience and then we’ll get started. Who wants to start first?

Brock VandenBerg: Matt, go for it.

Matt Podesto: Matt Podesto, owner of Black Label Capital, private lender here in Dallas, Texas

Brock VandenBerg: Brock Vandenberg, owner of TaliMar Income Fund, TaliMar Financial, here in San Diego.

Kevin Kim: All right, sounds good. So, both of you are private lenders, both of you are local private lenders, Brock, you’re in sunny San Diego. Matt, you’re up in Dallas. Best state of private lending I feel like in the union. I want to ask you guys, give me a little bit more about your respective businesses, what you concentrate on as a private lender, how you’re set up, and we’ll go from there.

Matt Podesto: Yeah. So we really focused on trying to be that true private lender. We have grown over the years. But we focus on the core values of being the private lender and giving our clients exactly what they’re looking for when they’re looking for that private lender. That high touch, the good customer service, local lender who understands their market. And that’s who we are. We do most of our deals, almost all of our deals here in Texas, the vast majority are within driving distance of our office. So as we continue to grow, that’s what we strive to keep, is that the core values of private lending, we don’t want to get so big that we get away from that stuff. And that’s what we really focus on here.

Kevin Kim: One of my clients in Arizona says, we don’t want to kick our borrowers in the nuts every time they want to get a loan. Right?

Matt Podesto: Right.

Kevin Kim: How about you, Brock?

Brock VandenBerg: Yeah, so I established TaliMar Financial back in 2008, lending my own money out primarily for fix and flip loans. At the time, obviously we were going through the financial crisis, banks were taking properties back. And I found that a lot of investors needed capital to purchase those properties. So I ended up just started lending my own money. And that’s where we got started. And then have grown through individual trustees to our mortgage fund. And today we primarily focus on the fix and flip market here in the Southern California market and bridge loans as well, both on residential and commercial real estate.

Kevin Kim: So the theme of today’s episode is talk about kind of entrepreneurship as a private lender and building the business and then taking that next step. Right. So can you take me back to both you guys. You guys are both young guys, right? You’re both entrepreneurs. You started your own business, right? It’s not like you were working for someone else and took over the business. You guys started your businesses. Tell me more about that and what that story was like, because we don’t oftentimes cover that on the show. We don’t talk enough about entrepreneurship and risk taking and all that. And I like, you guys are to me, are two top of mind people when I was thinking of this show. So please tell us that story a little bit and then let’s talk about it.

Matt Podesto: Well, for us, we just kind of fell into it, and it happened over time and snowballed. We started the company in 2018. We always kind of wanted to get into the real estate space, and kind of the private lending just kept popping up. But prior to that, I was in the Marine Corps. I was a sniper in the Marines. I worked overseas for seven years with the State Department, doing diplomatic security, doing that type of stuff in Iraq, Afghanistan. Spent my whole 20s overseas. Finally came home, kind of decided to start a family. Got a six year old. It was his birthday yesterday, so time is flying by. So I came home, kind of quit working overseas, cold turkey. Didn’t know what I was going to do. Had a buddy I was working with overseas. He was on my team. He got into real estate probably a few months before I did, and I was kind of bugging him. I was like, hey, let me come help you. Let’s do some of these fix and flips together. Let’s work together. So eventually I started working with him. Doing that for probably a year or so. Got some other partners that I was working with doing fix and flips. And my original partner, his family ended up winning the lottery. The Arkansas lottery.

Kevin Kim: The actual lottery. Oh, wow.

Matt Podesto: Won the Arkansas Lottery. I think he still does kind of fix and flips today, but took those earnings and rolled them into being a private lender because he already had those connections. So he started lending out his own. You know, I’m watching that, you know Melissa, my spouse, girlfriend, business partner, we were kind of watching him do his thing for a little bit, and we said, well, why can’t we give this a shot? She had experience in the hard money lending. So we funded our first loan as a true private lender. Did a cash out deal on a new construction project in Fort Worth. That was late 2018, I think we just formed the company probably three weeks prior. Just so we had the entity. And then that loan went well, and I had an investor come to me, and he saw what we were doing, and he’s like, hey, how are the returns looking? Tell me more about it. And so I told him and he’s like, well, you got any more of those loans? I’d love to invest. And I’m like, well, not really. I mean, it’s not really what we were looking to do, but I’ll go find you a loan, I’ll do it. And so we did that, and then it started to snowball. He went and told some other investors and those investors told other investors. So now I find myself being the matchmaker, right? With trustee investors and putting all these deals together. So we continued down that path. I got out of the fix and flip, focused on just building the business, understanding everything in general. I knew nothing about it aside from what Melissa knew about the business. There were still some pieces we need to put together. I had no idea what an assignment was. Nothing. So I’m online, I’m googling, I mean, I’m trying to figure everything out. I’m watching YouTube videos and then I start kind of putting the pieces together and then just over time just really started to educate myself because I had no one to go to other than my friend that was doing it as a true private lender, but he wasn’t really doing it as a business. Like we were starting to get into.

Kevin Kim: More of as an investor. Right. He wasn’t really operating a business. Right?

Matt Podesto: Well, he was a true private lender. He was writing the loans and doing the loan docs and all that, but he wasn’t bringing in any outside capital or anything. He didn’t need to. So it was a small family office for him, so I couldn’t really go there and learn about the industry as a whole. So eventually I think I came across AAPL and did my first conference 2019. And then that really opened my eyes, like, okay, this is a real industry and I think we can actually turn this into a day to day business. And that’s really kind of how it started. And a couple of years goes by, obviously volume continues to increase and increase. And I always kind of told myself, I don’t know if the fund is right for me. I have no background in this. I’m not a financial guy, no banking experience. The only skill I had was shooting something at a distance, being a sniper coming out of that world. So I think I kind of doubted myself a little bit, but I just kept pushing forward. And then eventually last year, a couple of hundred loans into the year, we’re like, I think we need a fund because this trustee investor model isn’t working. It’s not sustainable. And so that’s why we went down the fund route and that’s where we’re at today. And we’re four months into the fund and it was probably the best decision we’ve made to continue to grow this business and keep chugging along.

Kevin Kim: Brock, how about you?

Brock VandenBerg: Well, Matt, number one, I want to say thank you for your service. I really appreciate it. I don’t have as great of a story.

Kevin Kim: I’ve met a few veterans in the space. They all have a little bit of a financial background. No one went from exiting service directly into private lending. Has never happened before.

Brock VandenBerg: I don’t think anything is going to scare Matt, I have a feeling. So yeah, I got actually into the real estate finance industry back in 2001. I worked for a private equity fund. We were doing what was called mezzanine debt. And for listeners that don’t know what mezzanine debt is, it’s essentially second position debt. And we were focused on doing residential mezzanine debt for large development projects. We were investing on behalf of some big for calustras calipers and whatnot. And so it was a good run. I was an analyst running spreadsheets, whatnot, all the way through about 2007. Housing market obviously came to a standstill. They decided it wasn’t something they wanted to invest in any further. So I essentially found myself out on the street. I called it that time, really not a good time for real estate bankers. Nobody was hiring anybody. So ended up my wife said, hey Brock, why don’t you go down to one of these real estate networking events? I did. I met up with a guy that was buying up houses at the foreclosure steps. He said, Look, I’m doing well, I just don’t have the money to keep continuing to grow my business. Well, I did. So I started lending him the money again. Kind of similar like Matt’s story, where I didn’t really know there was a business behind it. I didn’t know what I was doing. I literally think I took my first deed of trust, like the physical document off Google and put my information in there real quick and shot it off, had it signed. Do not recommend doing that to anybody, okay? That’s not the way you start a business or this business. And then at the same time, I ended up working. Took a two year engagement with the FDIC, the Federal Deposit Insurance Corporation, where I would go out and actually on a Friday evening, we would go out and shut a bank down. So that was the time when the FDIC was stepping in and shutting banks down. I was part of the team that would go in, take that bank over over a weekend, and then be tasked with opening that bank back up on the following Monday under a new banner, under either if it was the FDIC or an assuming bank. And then in the meantime, I started really exploring the opportunity on the trustee side or on the lending side. Similar to Matt, I had individual investors that I would lend their money out, and I did that all the way for about a decade, for about ten years. And we just grew too big. We got up to about 60 million in loans that we were servicing on behalf of individual investors, investors we were raising money very quickly. Investors couldn’t get involved in the loans that we were underwriting, and we were posting on our website that investors could get in. So they were getting frustrated that they couldn’t get invested. And it just made sense for us, for our investors at least, that we took that step into launching the mortgage fund and make it a much more efficient process for our investors to get invested in these trustees that we were originating. And then for us, it was a much more efficient closing process and managing our capital process. And those were the two main factors why we decided to go that fund route. And it was one of the best decisions I have ever made.

Matt Podesto: Well, Brock, I find it interesting. You said about 60 million is about where you decided you had to transition, right? Because that’s almost exactly where we were at that volume. And it was like, this is too much. So now I know the answer. When people ask me, hey, when should I transition over to a fund? 60 million is the answer.

Brock VandenBerg: Yeah, I would say that that’s a good point because, again, we had a little over 500 investors that we were servicing. And trying to service that number of investors is very difficult, and especially if you’re starting to see your volume pick up, you said you were a couple of hundred or 100 or so loans in a given year. Trying to match all those investors for all those loans and doing it efficiently, it’s near impossible.

Kevin Kim: Burning cats, man, burning cats. And especially with these high net worth investors, you can’t reach them sometimes, and then you’ve got a closing and sometimes they get wishy washy on the loan. Right? I got to ask you both, though, because what I’m hearing a common thread and I’ve been here myself. You have something to fall back on, right? And you take this leap into setting up your own private lending business. I mean, Matt, you got out of the Marine Corps, out of state. I was working overseas, and then you basically just started doing this stuff. Right. And same with you Brock. When was it, that light clicked on that, okay, I’m going to actually take this seriously. And what was the circumstances around that? Because it sounded like you guys both kind of waded in a little bit, right. And when you waded in, okay, now this is real. And what were the circumstances around, okay, now I’m going to put all my time and energy behind this.

Matt Podesto: Well, for me, I think it was after the first couple of loans and seeing how relatively easy this business is to generate profits compared to what I was doing previously, doing the fix and flips. You got to be at these projects every day. You’re babysitting contractors. You’re doing all this. Yeah, I got a kid on the way and I want to be able to work from home if I want to one day, I don’t want to have to go check up on a project. So I think being able to see those initial profits come in and be like, man, I had to work so much harder as a general contractor. I had to be overseas to make those profits. So it was just the ease in which we were able to see the income, and that’s what really kind of triggered it for me.

Brock VandenBerg: Yeah, I think there’s this misconception if you’re trying to get in the business, that the money is the most difficult part of it, and it really isn’t. After we got our first couple of trustees had run their course and were successful, the money just started to come in, and people were calling me up and say, hey, Brock, where can you place my money and can you put it in the next trustee? And for us, at least for personally, it was more difficult to find the right opportunity to place these people money than it was the trustees. And again, that was kind of the triggering effect of why we jumped into the fund. But when I finished my engagement with the FDIC, I could tell that there was going to be enough deal flow here for it to be a very profitable business.

Kevin Kim: And tell me more about your respective lives when you guys kind of jumped into this, right? Because you both have families, right? And this is now your business. This is your business. You are the owner, you are the CEO, and this is all you’re going to do. And how did that impact your personal lives as you’re now doubling down on this new venture, if you will? Right?

Matt Podesto: Yeah. I mean, it certainly wasn’t easy for us. There were struggles along the way. I was up till midnight, 02:00 A.m., just figuring stuff out. When we started the business, we did everything in house. We built the website, we ran the books, we generated the leads, we built out salesforce. I mean, everything.

Kevin Kim: Your wife? Or was it anybody else? Just the two of you?

Matt Podesto: It was the both of us. Yeah. Just figuring it out.

Kevin Kim: No employees, just the two of you.

Matt Podesto: Right. Honestly, we didn’t hire an employee in probably for about two years or so.

Kevin Kim: Wow.

Matt Podesto: Yeah. So ran it ourselves, 100%, closings, loan docs, everything pretty much for the most part. So that was tough. But I wanted to do that for a couple of reasons. Obviously, I’m still trying to figure out, is this a business I want to be 100% committed in? So if I got employees, I got office, I got all this. You’re committed. Right. So I’m kind of doing things to make sure I still got that warm and fuzzy. That okay, let’s go 100%. But also, I want to know how hard it is to do some of this stuff. How hard is it to run the books? How hard is it to build a website edit the website, build out our sales force, do the marketing, do all this stuff. So when I do go and outsource all of this, I know what I should be paying for and I know how hard it is to do some of this stuff. So I was in the trenches with all of that. And so know, when I hire somebody to do something, I’m like, yeah, take my money. I know how hard it is because my time is more valuable elsewhere and it’s worth paying you what you’re asking.

Brock VandenBerg: Yeah, I think Matt brings up a good point, being up at 02:00, I think almost like any business owner in any industry probably finds himself doing that. And I still remember I hit a wall and it was like I was up super late. I’m trying to put out loan docs, I’m trying to handle the servicing. And I’m like, literally, there’s no way I can do all of this on my own. And so you start to segment. I found out you got to kind of segment the business in certain aspects of it. You got your loan origination, got your loan closing, loan servicing, investor relations, segment that out and then find the right fit. So maybe if it’s outsourcing or finding the right person and I slowly did you know, Matt mentioned two probably that’s about two years before I ended up bringing in my first employee. And actually she’s still here with me to this day and has been really being a huge part of the growth of our business, as kind of crazy as it’s been. And then you have to bring in people that are knowledgeable for certain aspects. And Matt brings up a good point of how much it costs, but for me it’s like, how much do you know how it’s supposed to be done? I have a good idea because I did it at one time. Now things have changed because I’m not in every aspect of the business anymore and I’m pretty much taking out loan servicing, outsourced that and a couple of other functions. But at least I understand how that process works and then have an understanding of what is working and what’s not.

Kevin Kim: And I want to ask you guys thoughts on this because right now especially, and we saw the same thing during, I would say late 2020, early ‘21, when COVID was still really affecting the market. And right now when interest rates and this weird economic I guess you can call it a recession we’re in.As local lenders, we’re seeing a significant increase in interests of new market entries, right? Not just local guys, but also new market entries up and down the flagpole when it comes to middle sized shops, institutional shops. And the interesting part is, you see some have failed and some haven’t, right? And some are starting to get traction and some are really getting really having a lot of trouble. Have you guys noticed anything like that lately. People come to you and said, hey, you built your private lending business and you got any feedback from me and what are you seeing out there on the street? Because I’ve noticed a significant increase in interest in jumping into this sector. We see a lot of people in real estate all of a sudden start looking at this sector now, right. And just like we did in ’08, right? Same story and same in 2020. What have you guys been seeing lately in your local markets and amongst your networks?

Matt Podesto: I think the new companies and the new guys, it all comes in waves. Right. We’ve seen it through COVID and all of this stuff is we see a lot of guys open up shop or they’ve had a shop, and it really depends on their business model too. Are they pretty much self reliant or are they originating and selling all their loans? Are they relying on somebody else? So we’ve seen a lot of those people shut their doors temporarily or permanently, depending on what relationships they have. So I think that’s probably one of the biggest factors as far as that is how are you operating your business? Are you self reliant? And that’s what we try to be, is almost fully self reliant, where we don’t, no matter what we were lending during COVID if everyone stops buying loans, we’re still lending. And that’s how we have really built our business model around.

Brock VandenBerg: Yeah, Kevin, if I look back and when I really started taking this business seriously in 2010, you’ve seen so many people come into market and so many people leave. I remember right about like 2013, when that institutional capital, that national institutional lender, started to come on the scene and they were undercutting pricing. I mean, they were wanting to build out their platform. They wanted to win markets. And as a regional or local lender, that made me super nervous because now we’re having to drop our pricing. We’re having to explain that to our investors, getting concerned that, you know what, maybe we lose our investor sources because they don’t want those lower returns. We found that our investors were flexible. They understood kind of what was going on in the marketplace. And now we’re almost back to where we were when I was lending back in 2010 in terms of rates and fees that we could charge. And so there’s always going to be a segment or an opportunity for local lenders, because I think on a national level, it’s really hard to scale. There’s only a couple of institutions that we know that have been able to do it successfully because it’s a local it’s a local industry. I mean, you have to know your market, you have to know your borrower, you have to be able to move quickly. You got to make decisions. Sometimes you don’t have all the data that you need to make a decision on a loan. Because it’s got to close so quickly. So I always tell people, if you’re looking to get into the industry, I wouldn’t be so consumed looking at what the other guy is doing or what the big institutional guys are doing because there’s plenty of business at a local level.

Matt Podesto: Yeah, and you bring up a good point that makes me think a little bit is for guys like us and you got the big shops out there and their interest rates are much lower than the ones that we want to originate and hold in our fund or whatever it is. Focus on other avenues we can beat them. Speed, communication, service, maybe it’s a deal that’s right across street from our office and you got to close in two days. Title works clear, everything’s open and we’re good. Maybe I could just waive the BPO, I’ll go check it out myself. And some of these big shops can’t do it. So when we get borrowers who come to us and they start comparing term sheets with some of these big lenders that have a lower interest rate. Okay, well, interest rate is one thing. Let’s talk about all the other things that we can beat them on. Speed of draws. We can, all sorts of stuff. So interest rates are just one part of the equation that I think too many people get focused on it.

Brock VandenBerg: You know, Matt also brings up a good point. It’s what deal types as well. You know, we do both fix and flip and bridge loans. A lot of those institutional lenders won’t chase just standard bridge loans. Bridge loans that may go two or three years or three years, that’s not in their wheelhouse. So that’s when we can be a value add service there. And Kevin, that’s an interesting thing. I’m going to bring up a question to you. All right, so we go back and forth. So I do fix and flip loans. You can churn that money pretty quick. Average fix and flip for us is like every six months. Okay. And so that’s a good deal because you’re taking short term risk, right, a market risk. You understand where the market is and where rates are. However, if you’re trying to build a large portfolio of loans, it’s hard to be churning deals all the time. So we’re peppering in stuff that peppering in loans that are good, solid local loans at 24 months. And considering 36 month loans. What are your thoughts on that strategy if you’re building a larger portfolio?

Kevin Kim: This is the weird phenomenon we’ve had in our sector recently. So for our industry, if you look back at the way the industry looked like from 2008, right, 2008 onwards, right around 2013-14, most private lending was local, most private lending was still very hard money lend and I want to be very clear about this. I was going to ask you guys this question. I have no philosophical issue or marketing issue with the term hard money lending because I think that it’s important to think of it as well, I don’t personally care what I call myself. If my borrower thinks of me as a hard money lender, I’m a hard money lender, right? So it’s all about what the borrower thinks. There’s no negative connotation if you think about it. So up until 2013, 2014, most local lenders were very diversified and they were doing a lot of small commercial bridge and the sector was initially designed after what a lot of the commercial bridge lenders were doing. And so you started to see similarities, right? You started to see institutional capital coming into the sector, lines of credit coming into the sector, much like you did in commercial. But the big difference was we started to see kind of echoes of consumer. These corresponding programs, white label programs, hable funding programs didn’t exist in commercial. And so to me, if you are a truly independent private lender that has your own debt fund and has your own balance sheet and has your own leverage, I don’t have an objection to taking on two year, three year, I have clients who do five year. It’s a business judgment issue. If you can underwrite it, you can service it and it produces a good solid investment for your portfolio and your investors. I have no objection to it. The challenge that we run into is, and what I have a problem with is that people pursue these types of transactions without knowing how to do that. Good example is ground of construction. We had a lot of people jump into ground of construction. It was like something you wouldn’t touch until 2016. And all of a sudden in 2016, 2017, by 2018, everybody was doing rental construction. And it was fascinating to me because I was trying to help place some of these construction loans for clients. I couldn’t find a home for them in ‘14 and ‘15. In ‘18 it was just like, oh, go talk to these guys, they all do it. Right. What locale is it? It’s same philosophy. Right? So if you can underwrite it well and you can service it well, why not? Right? I don’t like to pigeonhole my clients because my view on private lending is it’s actually more along the lines of what Matt said, right? We’re doing good deals. It doesn’t necessarily right what the terms are, as long as we like them, because we’re the ones that are balance sheeting them and what values do we have that we’re extending to our borrowers? And that’s important. So yeah, I don’t have an objection at all. I have clients that have diversified debt funds, that have five year term paper because they’re in the commercial sector and they do loans that they can’t find refis for. So they’ll do a term loan eventually and the goal is to get it off the books within a couple of years. That’s fine, I don’t have a problem with that. Yeah.

Matt Podesto: Brock, what’s the longest bridge loan you guys write?

Brock VandenBerg: I always tell clients that I’d prefer to stick around 18 months. It’s one of those things again for me, and it’s you too, as our credit line. It’s much easier to have longer term stabilized assets or loans secured on these stabilized assets to use them as collateral for any type of credit line. So I’m not constantly churning new loans into the credit line and you just kind of a stabilized credit line. That’s why I like to look at kind of longer term loans. But I’ve always had this philosophy that, look, you might as well do a shorter term, maybe a shorter term loan. Twelve month term. Give them the opportunity to extend that loan maybe another twelve months, or give some extension options to them so that you don’t have to take a full risk of 36 months. You have the opportunity of somehow to get out of that loan earlier. So I go back and forth on it. If it’s a good borrower, good property, I like the location, there’s a good story behind it. Yeah. I’ll definitely consider a little longer term than 18 months.

Matt Podesto: Yeah, I’m a big fan of writing them a little shorter. Even our fix and flip sometimes six months. New construction, nine months. And really the reason I do that is because at that six month or nine month mark, it gives me the opportunity as a lender to step in and reevaluate everything instead of having to wait a year or 18 months. Maybe I want to order a new BPO or say, hey, it’s been six months. You haven’t even broke ground on this. What’s going on? So it gives us a better opportunity to get out of the deal, too, if we want to.

Kevin Kim: Well, you also have the benefit of being able to build fast in Texas, right?

Matt Podesto: Yeah, they put them up quick.

Kevin Kim: Six months to even get started.

Brock VandenBerg: I was just thinking that’s the permit yeah.

Kevin Kim: Oh, there’s some areas where you don’t need permits. It’s fascinating out Texas is a whole it’s a country into and of itself. And even the Dallas Fort Worth area has its own unique market features. It’s very fascinating out there. And also, you have the best foreclosure process in the country. So, I mean, you can write a six month loan. Actually, I’m sure your borrowers don’t mind that at all because they can also find other financing if they want to get out at six months, seven months, eight months. But if you want to do it, do it, right? That’s my view on it. Do it if it’s a good loan. Because you guys are value driven, right? You’re borrower driven. You want to provide good service if it’s a good loan. Like I said, we started the podcast. You don’t want to kick your borrowers in the nuts. Right. And then that goes to my question to you guys, is this whole thing about hard money versus private lending when this thing came out. And it goes back a lot longer than you guys may have seen because when Anthony founded Anthony Geraci, the founder of our law firm founded AAPL back in nine, it was the National Hard Money Association. We switched the name to American Association of Private Lenders. So even back then, there was this weird connotation, right? And negative connotation. And I come from the banking world too. And I was like, this is really dumb because bankers don’t care that it’s called hard money. Borrowers don’t care that it’s hard money. And when I go to an industry event and I meet a real estate investor and they ask me who my clients are, I represent hard money lenders. What’s wrong with that? I lean into it because it’s an asset based calculation and that’s what it’s meant for, right? So my personal philosophy is I’m not against it. I wanted to hear what your guys thoughts are because you’re following that same philosophy when it comes to your borrowers and your loans. So I want to hear what your thoughts?

Matt Podesto: Well, what I find is a lot of borrowers, they don’t even really understand what they’re looking for, you know. I see a lot of people maybe on on I’m on some Facebook groups and they’re like, hey, we’re looking for a private lender and maybe I’ll chime in. So what I ask is, well, what are you looking for? Are you looking for speed? Are you looking for the lowest rates? Are you looking for someone local? Because if you’re looking for pretty much all that I can do all mean, we’ve got our own capital in the fund and I’ve got other investors capital. I’d still consider it private lending. We’re a hard money lender with private money. So it really comes down to what exactly are you looking for? People think that, oh, I’m going to go find a private lender. It’s going to be so easy, they’re just going to wire to title, not even look at the deal. And that’s just how easy private money is. And I think that’s really where the confusion lies. I don’t care if I call myself a private lender or hard money lender. Makes no difference to me. I’m doing the same. My business is the same no matter what. It’s, hey, what are you looking for? Can we deliver what you’re looking for? That’s all that matters.

Brock VandenBerg: Yeah, I think the term hard money lender kind of, for me, resonates with investors that are doing deals a lot, a little better than maybe private lender. I always think of private lender as like your mom and pop that’s just going to lend money to you and again, here’s some money and hopefully I get it back. That’s why I’ve always defined us as a hard money lender. But then also you got to consider, what does Google SEO say? That’s what I always say.

Kevin Kim: Isn’t that weird, though?

Matt Podesto: That’s what matters.

Kevin Kim: It’s a weird, weird phenomenon. I just don’t understand. Also, I really don’t care about labels. I always joke about this at the firm. Defined terms and legal documents. Technically speaking, you can call it a potato if you want. Right. I don’t really care about labels, but at the same time, there’s a weird expectation, I feel like, on your guys’ end, because you have so much control over the business when you’re facing this kind of pressure. Because this whole private lending debate is about pressure, right? The pressure to institutionalize or formalize or fancy up the business. Right? And there’s got to have been temptation on your guys’end to lean into this more national, you know, institutional type model. What is your view on that? Have you guys thought about that? Contemplated? I’m sure it’s probably come up. The aggregators or the institutional guys probably been knocking on your door. Sell me your loans, tell me your right. So, like, how have you guys thought through that as business owners? For a long time, until last year, it was pretty easy to use, right?

Matt Podesto: So, yeah, I mean, we fund in other states, but we love to just keep things local here in Texas. There’s so much business here that I don’t necessarily need to go and do these other then, you know, it’s like when you start looking at these other states and now you’re kind of forced to grow. I’m not saying that’s always a bad thing, but is that always the right thing? If you’re getting into this space, do you need to go national? Do you need to get bigger? Because getting bigger doesn’t always mean better. And that’s what I see as a problem of maybe some people who start a business is in this industry, what do we compare? Maybe total volume originations for the year or whatever it is. Well, okay, well, if I triple that or whatever it is, I got to hire more staff. And really, in the end, I’ve got a goal for how much money I want my family to make and all of that, and we hit that goal. So it’s like, will I still hit that goal if I really explode this business? Maybe. I don’t know. But now that comes with more headaches, more people.

Kevin Kim: You’re talking about the entrepreneurs dilemma, right? Because it is that’s that constant balancing act of having to scale. And you’re taking the approach where we’re focused on sustainability, it sounds like. Right, sustainability and what manages for us, what works for us, because you don’t want to have to take too much on. Now, Brock, I’ve talked to you probably I know you have visions to get TaliMar a lot bigger and talk about your exits and all these kind of stories. So it sounds like I know that you have a little bit of a countervailing perspective on this, and this is all okay. Right? Let’s talk about it.

Brock VandenBerg: Yeah, I don’t know if there’s a right or wrong answer on this one, Kevin, because you and I have talked in depth, right, on which strategy do you use? Do you go down the mortgage fund route and start to raise capital, hold those loans, or you could use the fund as a bank as you sell off all the loans. My viewpoint on this is number one, I think it’s harder for me to raise capital if I’m telling my investors that I’m lending nationwide. Because I’ve always had this discussion with them and said, it’s a local business, and you have to know your market. You have to be able to meet your borrowers. You have to know these people. And all of a sudden TaliMar is out there funding loans in Georgia, Florida. I mean, it kind of would fly in the face of kind of what my beliefs are in terms of how to create a healthy portfolio. Also, I think it’s really hard to go national because you’re going to look at a lot of loans and you’ve got to scale up. Matt brings up a good point. You got to scale up with a lot of people to go through a lot of bad loans to just be able to find that gem.

Kevin Kim: But a countervailing perspective on this issue, there are a lot of balance sheet lenders that are very big now, multi billions in origination. They’re giving these institutional guys a run for their money, and I’m proud to call some of them my friend. And they only lend in a handful of states, right? We just had Greg on the show from Arixa. He only lends in like three states, right? But they’ve exceeded the big beat. And they’ve got a huge staff now, right? They got a huge staff. And to Matt’s point, they want to grow and scale and get it up there. And it’s not really what Matt’s looking for right now.

Brock VandenBerg: But you also have to look at the markets that you’re in. So they’re up in the LA market. I’m down here in the San Diego market. My average loan size is a little over 900,000.

Kevin Kim: They’re doing much bigger deals.

Brock VandenBerg: Yeah, well, they’re doing even bigger deals. But what I’m getting at is if you go to some of these Midwest states, deal sizes are much smaller and you’re going to have to go through a lot of loans and you’re going to have to probably go to multiple states to be able to do something of scale, of get to that 50, 60, 70 million. I can get to 150,000,000 just lending in San Diego alone. That’s how much business there is just for us.

Kevin Kim: Right, and I don’t think it’s a volume perspective, though, right, guys? From my perspective, it’s a scaling perspective, right? Total volume of origination, regardless of whether you lend in one state or 30 states or 50 states. But that comes with its own dilemma, right? Because like Matt said, if you’re starting to get to a billion in origination, the staff that you need to service that business is going to be pretty substantial. And now you have to face that dilemma of being responsible for that. We call it souls on board, right? We were very concerned about that during COVID Right. And we were growing. We were trying to figure that out ourselves. And you’re responsible for all of those employees, and it’s scary as an entrepreneur. Right. And also, is it necessary for me to maintain what I’m looking for as a person? Because I’m hearing the competing interests. And Matt, on your end, do you ever think from your perspective you’re an entrepreneur? Do you ever think that you’ll find yourself in a situation where that might change and like, you know what, I’m going to go for it. Right. I’m going to take this thing to five billion. Like, that kind of perspective.

Matt Podesto: I think easily, yeah, because there’s been a couple of times in our business where I literally just wake up one day and I say, this is what we’re going to do. Hey, we’re going to go hire this person. And sometimes I just feel it in my heart. And that was kind of how it was with the fund model. I was so against it for the longest time. I don’t need that. And plus, I don’t know anything about it, right? And then it was just like one day it’s just like, no, we’re going for it. And I reached out to you and I even think you told me I was probably the fastest guy to sign and wire for the agreement

Kevin Kim: He knew exactly what he wanted. That day It was basically, all right, cool.

Matt Podesto: I wasn’t prepared. We still didn’t even have like a pro forma for the fund or anything like that, but I knew that’s what I wanted, and so if I wired the money to Kevin, I’m not getting it back. So now I’m forced. So I think there easily could be a day where it’s like, hey, we’re going to go and expand into 10 more states this year and we’re going to hire 20 people. Not saying it’s not going to happen and it easily can. So it’s just one day. I could wake up and say, this is the right moment, everything’s falling together.

Kevin Kim: But there had to have been a level of comfort psychologically that, okay, this is the right next move for me. And it sounds like you had that gut feeling that told you you followed your instincts.

Matt Podesto: Yeah, I did, because at that point last year, like I said, we were already a couple hundred loans deep into the year and just chugging along and it’s like, well, we could maybe do double this if I have the fund. Really the trustee investor model was slowing us down, so we just pushed forward and said, let’s jump into the fund and keep growing.

Brock VandenBerg: Matt okay, so I’d be interesting question. When you made that transition though, was it difficult for those trustee investors to follow for people to transition from trustee model to the fund model? Did they follow you? What was your experience?

Matt Podesto: Well I called up all our trustee investors and told them what we were planning on doing, told them why we were doing it and gave them the whole rundown. And I said if we do this are you on board with us? And pretty much everyone said yes, we already had a track record with them and that’s really what mattered was they’ve been with us for years and if you want to move to the fund model and that makes things easier let’s do it. I will say I do have a couple of guys still on the trustee side. What I kind of put together and realized once we started the fund is that it’s a whole new business. I got to prove myself again because doing things on the trustee side, we did that for years and we had a track record. Well now I’m telling you this is the structure of the fund. These are the returns we’re aiming for. Now I got to prove myself again and we’ve done that and we’ve got guys to now come back over to the fund side who waited a couple of months. But I do have a couple still on the trustee side. It really has nothing to do with the fund’s performance. It all has to do with they just don’t want their money locked up for the lockup period because they’ve got other stuff going on and other investments that they may want to put that cash in. That was probably talking to those investors. That was what gave me confidence to say okay if I move over obviously I’m going to get the money and you got to have the money to have the fund.

Brock VandenBerg: Worst case scenario you could always fall back to the trustee model if the thing just didn’t work.

Matt Podesto: Yeah, it’d bean expensive mistake.

Brock VandenBerg: And I asked that question because I was actually at and this is not a plug for the AAPL and Kevin’s group, but I was actually at that conference when we launched our fund and I was sitting at a table with another hard money lender that had launched their fund a couple of years back. And they had mentioned to me that if you go the mortgage fund route, okay, if you go that route, you got to be committed. And you can’t let your trustee investors you can’t keep offering trustee investments because they’ll continue to stick with the trustees and they won’t make that transition. And I think that I took that train of thought. I went all in, and I got about probably 75-80% of my investors followed me at some point. Matt brings up a good point Kevin, that some people waited a little and I think they were hoping that it would not work out and that they would be able to get trustees again. But I think they figured out, hey, we weren’t going the trustee route.

Kevin Kim: Interesting phenomena that I’ve seen is that actually for Texas lenders it’s easier to convince for fund because in Texas it’s not as common to do the fractional as California. In California, trustee investing is so I’ve been surprised so many times. I’m at a private personal dinner and I’m talking to a cousin, he does it and I was like, what? And the fascinating part is here you talk to anybody you meet randomly at any kind of event in Newport Beach, everyone invests in these things. And so that’s the weird thing in California and it’s a very hard transition in California and in Texas, what I’ve noticed was there are a lot of private lenders that do trustee but the vast majority of private lenders still mostly have debt funds. That’s a dynamic change, but at the same time you have to overcome that big objection is that lockup, oh, I feel handcuffed, I feel tied down. But you can get out. It’s just a little bit longer of a process. Right? Or be tied down to a foreclosure.

Matt Podesto: My counter to that is, well, you’re willing to put your money in a nine month loan that I’m originating right now, so why not just throw it in the fund? You’re already locking it up. Because I can’t pull your money out in the middle of the loan unless you want to sell it off to me or whatever it, so, but I like your point, Brock. I think there will be a time that we should have a kind of a drop dead date. Hey, we’re not doing trust deeds anymore because we got away from it for a reason. Right. Because it’s weighing us down. It’s slowing us down. Now my CFO has got to handle that type of stuff and also handle the fund at the same time. So yeah, we got to have kind of a drop dead date, I think.

Brock VandenBerg: And you’re not doing the investor a service for most. Vast majority of my investors are better off in a mortgage fund than they are off in an individual trustee. That’s my viewpoint. Because number one, they’re investing in multiple loans, not just that one loan. Many of them being that our average loan size is 900,000. We’re in a fractional loan. That in itself has inherent risk. Right? And then if you’re here in California and you’re going through a foreclosure, I’ll tell you what, you don’t want your name on that trustee because there probably is going to be some litigation involved.

Matt Podesto: Yeah there’s so many benefits to a fund you almost can’t even argue it comparing to a trustee. In my opinion, the best use case for a trustee is for guys like us who are starting their company from scratch and getting their feet wet because you can pull out. I mean, if you’re like, okay, I’m not doing lending anymore. You can pull out of it much easier than if you’re already up and running with the fund.

Kevin Kim: I always tell people first when we talk to a brand new sponsor, crawl, walk, run. The crawl is either find some people that can fund the loans for you as a trustee investment or broker it out to someone else or use the aggregators. That’s your crawl. You got to get some deals done first. You cannot just jump headfirst into raising up a debt fund. It’s too risky.

Matt Podesto: With the trustee investor model, you have less pressure to put capital to work. You don’t have money sitting in your bank account. That’s got to be earning interest every day. With the fund, there is much more pressure. So on a trustee you’re just like, hey, we’re not really funding anything right now, or whatever it is, you can control that 100% or hey, we got a deal. Let me go find a trustee investor and match them.

Kevin Kim: Right, well, I actually wanted to ask, were you guys ever onboarded with any of the aggregators during your whole lifecycle? Like the loan selling model or the Halo funding model? Do you ever get into that?

Matt Podesto: Yeah, we do some of that. But again, going back to the core model here is if they call me up tomorrow and say, hey, we’re not buying loans, our fund is going to be just fine.

Kevin Kim: You are self-reliant. You do not rely.

Matt Podesto: Yeah. So my mindset is I’m going to sell a loan when it’s convenient for me. That’s how we go about it.

Brock VandenBerg: Yeah. Our model isn’t set up to sell loans. We’ve done DSCR loans. We did that in 2020, in 2019 and 2020 and did very well on the DSCR loans. We just found that now within the markets that we’re in, DSCR loans are pretty tough to underwrite based upon the metrics you got to fall within. So we haven’t seen a ton of DSCR loans. But again, my focus, my vision as I build this fund is really to hold much of this debt to maturity.

Matt Podesto: And we do DSCR loans, but we do it all through kind of the table funding model and I will never hold it on a balance sheet because we’ve seen how quickly that can go south.

Kevin Kim: Right. Which makes sense to me. One of the questions that I wanted to kind of head towards our closing with is now more the entrepreneur’s advice. Kind of corner of the interviews. Like I said before, we have so many new market entries in the space and they’re coming from all over. They’re coming from the real estate world, jumping into the sector. They got the staff, we got these solo operators that are breaking off from their last shop and doing their own thing. So many different types of new market entries. And I’m really excited for it because the industry needs new blood. But at the same time. I get this question a lot personally. Are there any pieces of advice that you can give me? I’m trying to get my private lending business off the ground. Of course they need to do loans, right? They don’t have any loans. They don’t have any loans to fund. We got a problem on our hands, right? But beyond the loans, is there any points of advice that you can give our listeners who are really contemplating either jumping into the space or even transitioning into a more permanent model?

Matt Podesto: If you’re getting into this for the first time and you’re telling yourself, man, I know nothing about private lending and I can’t do this because I literally know nothing, I’m going to tell you, I was that guy. And like I said earlier on the show, I was literally googling stuff and getting on deed searches and figuring out what lenders were doing with their loans and how they were selling loans and who they were selling to. I did all the research myself. I am not the smartest guy in the room. I have no background in banking or finance or anything like that. So I think if you’re looking to get in the space, just know that there’s people out there like me who have absolutely no experience, period. And we’ve been able to build something pretty decent here and also kind of find your reason and your why to why you want to get into this space. Is it to support your family or you got a kid on the way or whatever it is? My son was kind of my biggest why and I had to figure things out quickly. That’s what I did. And if you can find something to motivate you and keep you up till 02:00 A.m., that’s going to keep you going.

Kevin Kim: Very good reason.

Brock VandenBerg: Yeah. Matt brings up a couple of points of why you want to get involved. I love the industry. I just love real estate finance. It’s just something that I enjoy being a part of, enjoy know solutions to know problems on the real estate side. So I’d also recommend a ton of good conferences. I know Kevin, your group at Geraci have two great conferences. Every year I attend those, and what I like about those is that they’re educational. So you can go in and really learn from other industry experts about what’s successful for them and what’s not. AAPL has a conference. If you’re here in California, California Mortgage Association has another great conference so you can learn from industry experts at these networking events. When you first start out, you really need to be able to do it yourself. I mean, just trying to get involved in every aspect of the lending business so you understand it. And then as you grow, as you get more and more deal flow, you’re just going to know, I don’t know, there isn’t like a metrics or a number. It’s funny, Matt said like 60 million was like the number. I don’t know if that’s a magic number. It’s just I knew it was time for me to take the next step. You’ll just know when it’s time to go bring somebody in to take over some aspect of the business as you’re growing, so you can focus on growing the business further. And then here’s the big thing. Choose the right people that you’re going to involve with your vendors, from your attorneys to your servicers to if you’re going to have somebody that’s going to do your fund management. Talk to everybody in an industry. Everybody’s more than willing to tell their story, who they use, who they prefer to use and whatnot. So again, I’ve made some mistakes by going down the cheaper route and not aligning myself with the industry experts that I should have would have taken me a lot further, a lot quicker.

Matt Podesto: Yeah, it’s a great point about vendors. You’ve got your in house people, processors, loan officers that you’re hiring that you can kind of control, but you’ve got all these other vendors that are still an extension of your team, inspectors and loan servicers appraisers, all that type of stuff. And how they’re doing their stuff reflects on you still. So if they’re doing a poor job, your client’s going to think you’re doing a poor job. So surround yourself with the top quality vendors and they’re out there. You just got to find them.

Kevin Kim: I really like the whole ask the question, right? Brock, what I really found very interesting about our space is very different than a lot of other spaces, especially banking. A lot of our clients are competitors technically, but they’re all friendly and they ask each other, they’re all asking each other questions and trying to find information from each other because they need resources, right? And what I really enjoy is that there’s an abundance mindset in our space. It’s probably because it’s full of entrepreneurs and not a bunch of institutional types. So I really appreciate that of our sector, and I can’t echo that enough. There’s so much camaraderie in the space and if you’re unlucky enough to run to someone who’s very kind of closed-minded about that kind of stuff, there’s plenty of other people that will help you and answer your questions and be a resource to you.

Brock VandenBerg: And it’s just not a one off question and you just know what you’re talking about. This industry is so dynamic, things are changing so quickly that you have to stay on top of who’s doing what. Because like I said, even vendors are coming in and out of this industry so quickly. So you got to stay on top of who’s doing what, who’s successful and who’s not.

Kevin Kim: Vendors, capital providers even, and also lenders too. We’ve seen it, the past two years have not been kind. Many of these big shops are shuttered, sold off. It’s been turbulent and you got to stay on. Top of it, because you’re going to get those questions right. Your borrowers and your investors, too. All right, guys. Well, you know what? I think that’s all the time we have for the episode. This has been probably our most dynamic episode ever. I really appreciate you guys joining us for the show. You guys can tell everyone where they can find you online and we’ll close the episode off.

Matt Podesto: For us is blacklabelcapital.com. Or you can send me an email at matt@blacklabelcapital.com.

Brock VandenBerg: So find us at TaliMarfinancial.com. Also, post a lot of good content on YouTube. So check my YouTube site out. Post a lot of industry information, what we’re doing. So yeah. Kevin hey, thanks for having me on.

Matt Podesto: Yeah, I really appreciate it. Kevin thank you.

Kevin Kim: Absolutely. Guys, this is a really fun one. I really appreciate you guys joining us. This is another episode, Lender Lounge with Kevin Kim. This is Kevin Kim signing off.