Originate Report caught up with Beth P. Johnson, co-founder of Flynn Family Lending and co-author of Lend to Live: Earn Hassle-Free Passive Income in Real Estate with Private Money Lending, where she discusses the recent establishment of a private debt fund, her “lazy” approach to lending, and how this all fits into today’s dynamic real estate and private lending landscape.

OR: The last time OR caught up with you, you had just published a book about how to become a private money lender. How have things changed in the last year?

Beth: It’s been quite a whirlwind since publishing Lend to Live through BiggerPockets. I receive emails and outreach on social media from people who’ve read the book, listened to my podcast guest appearances, or heard about me through word of mouth. Being hyperlocal in our lending business and then receiving such acknowledgment on a national level wasn’t something I expected — the positive feedback has been tremendous. I also wasn’t prepared to field a growing number of inquiries from people interested in becoming capital partners with Flynn Family Lending and Lend2Live Management. This heightened level of interest in working with our companies led to a major shift in our business model to accommodate growth without sacrificing performance.

OR: In what ways has your business model changed?

Beth: Initially, we operated our private lending business as whole trust deed investments. My husband, Matt Flynn, and I have operated Flynn Family Lending as essentially a private money matchmaker, or a broker for all intents and purposes since inception. But we grew so quickly over the years and had amassed a large circle of capital investors that lend through us. Based on sheer volume, we couldn’t continue to do individual trust deed investments and provide the same level of support … so we established a pooled mortgage fund, enabling us to aggregate our clients’ capital into a single source to fund loans with greater operational efficiencies while providing a more consistent source of passive income for our capital partners.

OR: Is this something that just happened this year?

Beth: It started last year (2022) when we published the book, and I realized that business growth was inevitable. … I needed to streamline how we managed existing clients’ capital while building on the Lend2Live brand. What I didn’t want to do was turn away good deals from not having a single trust deed investor that had the right amount of money at any particular moment in time. As a result, we launched the Lend2Live Private Debt Fund (L2L Fund I LLC) with the help of the Geraci securities team to capitalize on the success and business leads generated by the book.

OR: What’s the difference between the book, the fund, and your company’s brands?

Beth: The book is called Lend to Live: How to Earn Hassle-Free, Passive Income, and Real Estate with Private Money Lending and is an evergreen resource for passive investors seeking alternative ways to invest in real estate without the hassles of tenants or general contractors. It’s the ultimate guide, in my humble opinion, to learn how to find and fund a private money loan opportunity safely and securely. However, we’ve heard from many readers that the challenges of learning all the ins and outs associated with private money lending feels too daunting a task, so the opportunity to invest in a private debt fund like Lend2Live is a perfect passive income alternative. Naming the fund after the book was fitting, and Lend2Live Management was born.

As a loan originator, Flynn Family Lending has a strong brand reputation among active investors in Washington state but doesn’t have Lend2Live’s national presence. I wanted our branding consistent with borrowers while expanding Lend2Live’s name recognition among passive investors wanting to become capital partners.

OR: How has the real estate and private lending market changed post-Covid and what looks to be a prerecession with high interest rates across the board? How is your business handling this?

Beth: I would say that we’re handling it quite well. Since Covid, the landscape of real estate financing has changed dramatically. With Fed rate hikes and the cost of capital increasing, there’s been some market contraction where a lot of lenders have either paused their lending activities indefinitely, or permanently. Many are just closing altogether from capital constraints and liquidity challenges.

True private balance sheet lenders and fund managers, particularly those without leverage, are thriving in a high interest-rate market right now because competition has somewhat disappeared at regional and national levels. … We’ve been a perennial market favorite for offering reasonable rates while always honoring our commitments to close on time and with the terms originally agreed upon. That’s because we use true private capital and plan to always remain as such.

Q: Where do you find private capital investors?

Beth: We’ve built up strictly through word of mouth and have never had to actively invest in capital-raising activities. We started slowly and wanted to remain intentionally small — a small mom-and-pop business. My husband and I were just seeking financial and time freedom. We had small children, and we wanted to be present for them and for our aging parents. We started literally with two investors, and it was really an investing club of sorts for everyday people. When you invest in whole trust deeds, at least in our state [Washington], you don’t need to be an accredited investor. So, I could work with decidedly middle- to upper middle-class families — hardworking people who wanted to invest wisely and safely. We grew year over year almost exclusively by referrals to where we built our capital under management up to about $50 million, which isn’t huge, but certainly isn’t small, and is very manageable for us and our busy family life.

OR: Everywhere we look, there’s so much advertising and marketing noise thrown at us. It’s refreshing to hear that your business has grown naturally.

Beth: In all honesty, it’s the lazy lender approach, and I’m cool with saying that. If I let our business speak for itself, if I let our clients share their stories and successes and appreciation for doing business with us, isn’t that an easier and better story to tell than me having to hard sell somebody with a pitch deck over coffee in a dank conference room?

I also liken our business approach to how a slow cooker works — we’re just slow and low. … While other lenders may have “juiced” up their profits in the past several years when cost of capital was cheap, their dependence on the capital markets or credit facilities make them more susceptible to temporary closures or permanent shuttering. We may not make headlines with magnificent growth, but you also won’t hear about us shutting our doors anytime soon, either.

OR: What’s next for Flynn Family Lending and Lend2Live?

Beth: Right now, the transition from whole trust deeds to a fund model has been an opportunity for humility, education, and self-reflection. Matt and I needed to be honest with ourselves on what we were capable of doing and, most importantly, wanted to be doing within our private money businesses. There are more considerations with a debt fund that do not exist with private placement of trust deeds: Capital redeployment, cash management, risk modeling and mitigation, and so many other factors. These are things we never had to really address on a macro level.

Ultimately, we partnered with an experienced hedge fund manager to provide the necessary support and oversight to ensure we stay legally compliant, are actively managing portfolio risk, and are maximizing profitability and security for our fund participants. Matt and I are excited to partner with someone who provides the expertise and financial acumen needed to safeguard our clients’ capital while we continue to focus on the loan origination and investor relations side of the businesses.

I’m also excited to continue to educate and support other private money lenders who want to establish, stabilize, and grow their own practice. Lend2Live is co-hosting a pre-day event at Captivate this summer, targeted at small to midsized emerging private lenders. I’m grateful Geraci supports private lender education and look forward to creating a community where small, independent lenders can network, share best practices, and grow their businesses with peer support and guidance.