Far-removed from the hustle and bustle of 5th Avenue and the sandy chaos of Santa Monica, sibling duo Bill and Wendy Fairman’s company Carolina Capital Management serves the financial needs of investors in North & South Carolina, Georgia, Virginia, Tennessee, and some areas of Florida.
While some firms focus on dominating the hard money field on a nation-wide level, Fairman said Carolina is content with focusing on the company’s ‘backyard,’ providing the best service possible to the clientele he knows best. Carolina’s website states that they serve real estate investors and ‘small builders,’ or those who are striving to build wealth and generate income.
Although Fairman is the first to admit that he hasn’t spent the majority of his career in the private and hard money space, he said the experience he has garnered throughout the first half-decade of Carolina Capital Management’s existence has been invaluable. Fairman also said his former job as a loan officer did prepare him for the ‘private money world,’ and he sat down with Originate Report to discuss his career, working with his sister, and future trends in the hard money space.
Originate Report (OR:) How did you get involved in the private money sphere? Were hard money loans always on your radar as a viable career path?
Bill Fairman (BF:) Well, I have a 30-year mortgage history behind me – I started off as a loan officer in a small broker shop, and then moved onto the wholesale side of the business, where I was calling on other brokerage shops. Back in ‘those days,’ whoever had the larger line of credit was the larger lender; when we started off, we didn’t have the largest line of credit. I worked for the same mortgage company for 11 years which is somewhat unheard of, and then I worked for several wholesale lenders, and my last step in that journey was working for a wholesale lender, and that was right before the Stock Market crash of 2008-9. Before the crash when I was working for that wholesaler, we would hold half-day seminars on how to underwrite or originate commercial loans so they could utilize that additional revenue stream; we still do that today at Carolina Capital Management.
What got me into the hard money space was after the crash, I got out of the mortgage business completely; I was very bitter that 30 years in the industry could shrink almost overnight. But my sister Wendy was also in the mortgage business – I did a few commercial jobs and audio/video integration, but there was a need for financing for small businesses; as you know, the banks pulled out of that space after the crash, but it wasn’t their fault, it was the fault of the regulators who limited what they could do. We saw that there was a need in that space for small businesses and small contractors, in that they didn’t have the money to fix properties. We were involved with folks who had money in small IRA accounts, and they wanted to get a higher return on their money; we knew people that needed money and people who wanted more money – that’s how we got started; frankly, hard money and private money is similar to being in the insurance industry, because it’s all about risk. It wasn’t a big jump from conventional financing to private lending.
OR: Did that transition play a significant role in the formation of Carolina Capital Management?
BF: Well, it’s kind of a funny story – when we started this, it was easy for someone to cut a check for $50,000. But as the business grew and people wanted bigger margins, there was also more that came with that – when we first started off, many projects just required new paint, etc. but as we grew contractors needed more resources to add square footage. It became more difficult to find foreclosures; with that said, it was more difficult just to have one person working on a loan and servicing it – eventually, we met Fairway America at a conference in Las Vegas, and they helped us get our fund started. It added a new job, of course – managing a fund – but it eliminated a lot of headaches trying to have just one person on a loan trying to put the pieces of the pie together. At the same time, when you’re running a fund, it diversifies the risk for all of the investors, so it becomes less dangerous for them.
OR: What were some of the ‘growing pains’ associated with building Carolina Capital Management into what it is today, especially in the aftermath of a brutal financial crash?
BF: There weren’t many huge challenges with the aftermath of the financial crash itself; they were just trying to find the bottom of the market and scrape up available properties. With starting a fund, however, what we didn’t count on – or what we underestimated – was the task of raising capital. We knew a lot of people with money, but those people were active investors; when you put money in a fund, you have no control as an investor, you have to trust the management of the fund. The challenge came with trying to convince active investors to ‘convert’ to passive investors; even though that was difficult, once we got going, things began running more smoothly.
OR: After those initial funding concerns, how have you seen your company grow since its inception?
BF: The team around us is the most important part – it started out as Wendy and I in a single office and then a bookkeeper which made three of us. We grew in four short years to 11 staff members and were able to purchase our office, an old farmhouse with a wraparound porch only three blocks from the town square. In terms of our location, we are perfectly situated halfway between Miami and New York; the Carolinas are a great place to be – we have way more people moving in than moving out, and this place is growing like crazy and has been for a number of years – the need for what we provide has never been higher.
OR: When you first started your company with Wendy, did you find yourself surprised that you were managing a business with your sister? Growing up, did you ever envision becoming her business partner?
BF: No way! We are a family of five kids; Wendy is in the middle, and I’m the oldest. Wendy has always been entrepreneurial, and I have always been commissioned or self-employed for most of my adult life. We are a good Ying and Yang, but we both have to agree on something before we move forward with it – that process works well because Wendy is more aggressive and I am the ball and chain; sometimes she will come up with great ideas and I have to step in and say “maybe we should hold off on that for a little while.” If an idea sounds good to both of us, we move forward – and having that connection and trust with her is incredibly important to our company. There is no rivalry or animosity between us when it comes to problems some businesses face like one-upmanship, but our relationship is very strong, and we move on from any problems we may face.
Fairman said like himself, Wendy has not always been in the private money space – for over 35 years, she has worked as a licensed real estate broker. Since 2001, she has been working with both borrowers and lenders; Fairman said both of their ancillary career experiences have helped contribute to the success of Carolina Capital Management.
While some professionals come into the space with no experience in another field, Fairman said his time as a loan officer (and other related fields) helps him solve problems from different vantage points.
OR: Looking forward, what trends in the private money and lending spheres do you think will play a role in the continued development of Carolina Capital Management?
BF: You always need technology to help you be more productive; I’d like to see, in the private money space at least, an end-to-end investor software, and I think there are a few good programs out there right now. When I think about the market going forward, we have already changed our model – we see properties as overpriced. A new construction broker or ‘fix-and-flip’ buyer has a difficult time right now; it’s not that there aren’t deals out there; it is just incredibly difficult to buy right. We have changed our focus towards the professional who has been out there for quite some time, has been through the ups and downs, and knows how to seek out those deals. We’re also cutting back on the financing of higher-priced homes because as markets slow down a little bit, it’s typically the luxury market that gets soft. We’re playing that field defensively and focusing our efforts on affordable homes, because those are the ones that will always sell – as a lender, first and foremost, the question is “how can I sell this property in a timely manner, get a return on my investment, and take that money and re-invest it in other properties?” Even though you don’t make as much money per property, you are able to diversify your holdings and at the same time, have more manageable backup plans. If you can’t sell a property right away, for example, at least you can gain some capital until you are able to sell.
OR: But is it difficult to manage those changes as the field and the marketplace adapt to lender and buyer needs?
BF: The most important thing in managing a fund is communication with investors – we just made the change in our focus to more affordable properties – away from the luxury market – and we presented those shifts to our investors. We allowed our investors to vote on shifts in our Private Placement Memorandum (PPM) and implement those adjustments. One of the things we had to change was we were not going to be expecting a high return as we did initially for the reasons I explained before, as the focus shifts away from individual property return. Our investors work with private money lenders because they understand those relationships and it’s easy for them to work with – but at the same time, you have to remain competitive because they could go out and raise their own funds. That’s one of the reasons we make sure to keep in constant communication with our investors. Going forward, we’re going to be more defensive in our posturing, and we’re looking at preservation as opposed to changing yield, and the vast majority of our investors agreed with us and voted in favor of the changes. But overall, I can’t emphasize enough the role of communication within not only the confines of the company but with the investor pool as well. What we aim to provide is a safe return to our investors – capital preservation is at the top of the list, and we all know that in real estate that you have decent security in the assets you’re loaning against. With that said, however, there are too many folks out there who are simply chasing yield.
OR: With all of those changes in mind, what are some of the most rewarding aspects of your position?
BF: Just like when I was conducting seminars so many years ago, I love teaching – I love the feeling of watching people’s eyes light up when I explain how they can utilize compounding returns over time. Again, I was trying to convert active investors who were receiving payments every month whose ultimate goal was to grow their account, not necessarily live off of it. In the fund model, at least in our fund model, you can take those earnings and roll them over to the next quarter. Over time, you can take those 5, 7, or 10-year investments and outpace annual returns by 3 or 4 percent by taking that money and utilizing compound interest.
OR: You’ve already touched on this, but where do you see Carolina Capital Management moving in the future?
BF: We’re happy being a regional lender – our goal, first and foremost, is to have a win-win for our borrowers and investors. If both of those folks win, the money takes care of itself for our business; what I love doing is watching neighborhoods turn around, and I love helping people take their retirement savings and invest that into real estate. We have a system here called EOS that helps our staff contribute in the best way they can; we want to make sure everyone’s butts are in the right seat, and they’re happy to be there – if an employee loves what they do, we can help encourage them and help them grow in huge ways. We are happy to be regional because we know our backyard and we are not trying to be ‘all things to all people.” We want to service the Carolinas and their surrounding states in the best way we can.
While some may not understand a regional approach to hard money in the real estate sphere, Fairman said focusing on the Carolinas and their surrounding states allows his company to serve clients with laser-focus.