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Doug Dvorak is our VP of Capital Markets, And we are lucky to have him. From origination to brokering to private investing, he's seen real estate capital in all of its forms. On this week's episode of Real Estate Investing Unscripted, we get elbow-deep in the piggy bank and follow the money with Doug, David, and Brendan to talk shop and help you understand how it all works on the Private Lending side of Fund That Flip.
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Brendan: Welcome back to another episode of Real Estate Investing Unscripted. I’m your co-host, Brendan Bennett, and with me is your other co-host David Duggan. What's going on, David?
David: Brendan, how are you man? It's good to be back in studio. Ready to get after it again? I think we had a good last episode with our guy Donovan. He dropped some solid knowledge on us about what he's doing down there in the Houston, Texas market and how he's become uber-successful as a 25-year-old developer.
So for those of you that didn't have a chance to tune into that one, I'd recommend going and checking that out. What'd you think of that one, Brennan?
Brendan: Yeah, I think Donovan's a super interesting guy. All of his engineering background, his experience with Fund That Flip, he's a builder himself. So I feel like last week's episode kind of had something for everybody. And Donovan’s just very charismatic and a knowledgeable guy.
[NOTE from the podcast team here: We clearly don’t release these in order they were recorded all the time! Definitely check out our episode with Donovan Adesoro, as well as the episodes we launched most recently with serial real estate investor and entrepreneur, Dawson Gant!]
So great episode. Definitely tune in. Kind of a good segue to this week. So we're picking from the Fund That Flip pot again, so we have another Fund That Flip guest coming on with us shortly. Super excited about this one because while it's also going to be for all audience members, whether you're an investor, whether you are a real estate developer, if you're just passionate about real estate, this episode will have something for you.
But I think what I'm really excited about, David, is to really kind of peek behind the curtain of how does capital work behind a business like Fund That Flip. How how do things move and shake? How does the money get to the developer and back to the investor?
So, without further ado, I’ll have you intro this week's guest.
David: So today we’re talking to Doug Dvorak. Now, Doug is the true — I would say — brains behind the whole operation here. Like, we got all our Territory Managers out in the field. They're the guys everybody sees. They're the handsome faces out there. Doug's the guy behind the scenes making everything move and tick.
So excited to get his perspective. He is our VP of Capital Markets here at FTF. His background includes 13 years in the mortgage and lending industry, four years as a broker, and he's a real estate investor himself. He's done some private money lending. He's in the process of earning his Master's degree in Urban Planning and Development. Doug! Welcome to the show. Happy to have you on, man.
Doug: Yeah. Thanks, guys. Happy to be here. Appreciate it.
Brendan: So Doug, if you will, for those listening… David gave you a quick background, but if you could just give us your 30-, 60-second, who are you, what do you do, and what brought you to Fund That Flip?
Doug: Yeah, absolutely. Currently the VP of Capital Markets here at Fund That Flip as you guys know, and also simultaneously building out our long-term rental product as well. So it's been a great six months here with the team thus far, helping to build a market leader here in my hometown that I'm so passionate about — in Cleveland.
My wife and I are parents to two young kids that keep us busy. And like you'd said, Dave, I spent the previous 12 years working throughout the mortgage industry, was out in Chicago until about two years ago after attending Loyola University and ran right into the housing crisis. After college managed our property preservation department and post-default department for $50 billion residential mortgage servicer in the aftermath of the housing crisis. Transitioned over to origination in 2013, 2014, including most recently spent a few years as an independent mortgage broker.
I've originated over a billion dollars to cross that threshold in the past, well, last six months of my time as an originator, over a billion dollars of residential mortgages during my time. But yeah, now here with Fund That Flip leading the Capital Markets team, an incredibly unique role due to the diversity of our capital, as you guys know. So, it’s been great.
David: So Doug, let's unpack that a little bit. The VP of Capital Markets. Big title, what does it mean? Tell us, tell our listeners what that job actually entails.
Doug: Yeah. Yeah. Trying to live up to that title. It's Capital Markets at Fund That Flip. It's managing the end buyers, the end investors of the loans that we originate. So, we utilize certain short-term capital that's then replenished when we sell whole loans or raise money through our platform. Replenishing that short-term money so we can lend it back out again.
What we're trying to do is offer our developers a singular access point to the variety of capital that we work with, from hedge funds to insurance companies, to REITs to individual accredited investors through our platform, and ultimately allow our sales guys like you to run and finance the projects we believe in, the developers we trust in, the markets that we have confidence in.
You know: Providing these developers with the lowest cost of capital, the best leverage points possible in the industry. So, while many other originators and our competitors are limited to one or two singular points of capital, institutions ultimately that limit what they can originate, we have a pretty incredibly diverse capital stack that includes multiple institutional partners, securitization, our retail platform where individual accredited investors from all walks of life can land or invest as little as a thousand dollars into a project.
Brendan: Yeah, so to kind of just oh… maybe an oversimplification, but David and I are kind of focused on the developer, the guy finding the project, the guy or gal finding the project, bringing it to Fund That Flip and you're more focused on the different spaces that we pull that money from to then deploy it.
You're focused on that as your sole customer. And how we service them —um how we present their new opportunities in this space. Is that a fair summation?
Doug: Yeah, exactly, exactly. It's a, it's a balancing right of what you guys do. And obviously that's why we have the meetings that we do, but there's also a little bit of a salesmanship to it as well in terms of making sure investors understand the projects we're lending in and why we believe in them. But also coming back to you all and keeping the reins tight there, too.
Brendan: Yeah. Yeah. So I think it'd be really good to dig into. The different stacks of capital we have at Fund That Flip, but also just in the greater marketplace. So obviously this is a Fund That Flip hosted podcast, but I also think that speaking about it in the market-at-large will be good for the listeners.
So I'll start macro, Doug, and then I'll probably zoom in to Fund That Flip. So a typical lender that does what we do in our space, where do they get their capital from? Is it the same as ours? Is it different? Start there just kind of on a macro level.
Doug: Yeah, sure. Most other originators they will securitize, they'll have perhaps one aggregator that finds end buyers for them. Others will go through one end buyer ultimately that they trust to provide the capital that they need. But obviously it's a limiting factor there.
So, where we set ourselves apart. While we do offer both of those options as well, we have the crowd. So, not many options out there where the originator is also the crowdfunding provider. So the deals that we post up there [on the marketplace] are deals and projects that we are obviously originating and underwriting ourselves and servicing through the process as well.
Brendan: Got it. So other lenders, they'll do a mix of securitizations if they're a larger, more established firm. They'll do institutionally raised capital similar to how we do and then, I think there's a couple originators out there that also do a crowdfunding model. I don't know if many people do all of them at the same time, so if you wanna go over our three different capital stacks, just give like a high-level into each of those, and that'd be really good.
Doug: Yeah, sure. So institutionally we have multiple end buyers from hedge funds and insurance companies and family offices and other capital that they aggregate, that they collect and deploy into this asset class. So that's one option there. The other, as we've said before and it’s something that we're doing more and more of is our UNEC securitization and then the third being the crowd.
So accredited investors who have to meet those SEC regulations to be considered accredited can come in and lend with as little as $1,000 into a particular project. So those are the three different capital stacks and access points that we offer.
Brendan: Okay. Very cool. My question is, if I'm a borrower, if I'm someone who's looking to come to Fund That Flip for capital, why do I care? Why do I care that you get institutional money, you get accredited investor money, you have all these different avenues of funding?
Why does that matter to me and the borrower?
Doug: Yeah, it's a fair question. It's a resiliency. So from a borrower's perspective, diversity of capital allows us to offer more competitive pricing, more unique leverage points — a more expanded buy that's not limited by the ebbs and flows and feelings of one particular partner.
Including the geos that we originate in as well — they're markets that we believe in. They're typically close to the top 300 MSAs in the country here. So we feel strongly about those markets and we don't want to be controlled by somebody who may differ. But it ultimately allows us to offer that broad [capital] offering to a multitude of developers via one point of contact.
One consolidated point of service for each.
We are that access point and developers really shouldn't ultimately feel who invests on the backend. So it's a huge benefit that we provide is one point of access to basically all types of capital that exist.
David: On the flip side of that, Doug, I'm curious to hear your perspective on the institutional side. So there's billions of dollars that are being put to work from those institutional partners. Why choose this space. Why choose the residential investment property asset class for those those people on the fund managers or whoever's putting those endowments forward?
Doug: $30 to $50 billion in the space here, nationwide. So the return-and-risk profile simply… it makes sense. And they're filling a housing shortage void in many of the largest MSAs nationwide. You know, we've talked about this at length, but household formation continues to outpace new home construction and it has been that way for quite some time.
For the institutions we partner with, we feel strongly that we have a broad range of channels that allows us to remain a consistent provider in this space and attract the best clients. Therefore we're attracting the best projects. We've been told as much by our partners. [Institutional partners] don't want to be the only option that we have.
[Institutional partners] feel that limits us and our reputation and our offerings to our developers and ultimately would bring a less-quality developer to them. Many originators simply have one channel, or even one end buyer, and that limits their depths of their relationships with those developers who in turn demand the best originator, which we would consider ourselves to be.
I'd like to also point out — the loans that we do originate are mainly sent to each channel, including the institutional partners, as well as our crowd, in a round-robin type style. So it's almost like a vertical slice of the loans that you originate.
Institutions typically take time reviewing one loan tape or a collection of loans packaged together at one time before deciding to purchase. And they do their own underwrite. So sometimes that can take a few days, a week. We don't wanna be slowed by this.
So we move to the next partner and then move to the next channel. We keep our offerings uniform and across the the variety of projects that we believe in. So it's in our best interest as a company to give equal opportunity into the loans. We originate to all investors.
Obviously if we were to adversely select [certain projects to fund], that would show up on the scoreboard and be pretty shortsighted of us. So we're incentivized to originate good loans, but also offer each channel an equal split of those loans based on the types of loans that they believe in. We're geared towards thinking long-term in this regard.
Brendan: Doug thinking about the accredited investor channel. These people are high-net-worth, high-income-earning individuals. They have options. Like they could [invest in] — in light of FTX and everything else in the crypto world, it's not the most attractive thing right now — but there's crypto, there's the stock market, there's all these other things.
What makes someone invest? Whether they're one of our acccredited investors or just aprivate lender on the street lending out to their local developer. Why would they do that?
Doug: There's a lot of reasons. I mean, honestly, personally, being a private investor myself, it's a hands-on way to see the before- and after-effects of your money being put to work. It's passive, but it's a little bit more active than just giving your money to a financial advisor and seeing where it ends up.
But ultimately most investors are simply looking to diversify. So many individuals in this country and everywhere are overexposed to the stock market and to the equities market. And we're confident that the access we provide to this asset class is unique and is a wise decision for these investors to explore.
Experts suggest a 70/30 split between equities and fixed. And we're offering a first-lien against a tangible property with developers we believe in, with limited leverage exposure and at high rates of return. And so it's found incredibly attractive. Obviously many of our investors have already invested in this asset class with back-channel private lending, golf-course type investments to people that they know within their personal networks.
This of course has its limitations and its headaches, and [the investors] may not have experienced underwriting projects if they do any underwriting initially at all. They may have trouble navigating the lien recording process, or release of that lien at the end of the process. They may have issues collecting payments or may not collect any payments at all until things are are complete if and when they're complete.
And we're slowly issuing draws on projects as they progress. We're verifying that progression. We are navigating any type of delinquency issues that we may face or maturity issues that we may face. And making sure projects are continuing. We still believe in them as they extended a little bit longer than we may have initially expected.
So investors are able to trust us to develop those relationships with these borrowers, underwrite the project and the developer's credit worthiness, and service the project through its term payment collection and remittance back to them, obviously [through] inspections and draws, maturity extensions if needed, and payoffs.
And then the following lien release process there, too. We offer this one point of service. We have the boots on the ground as you guys help lead with strong sales relationships. You know, we have our account management team that has their eyes on each project through the life of the loan and life of the project, and a dedicated collections and asset management team experienced in the space, committed to maximizing principal recovery, which we can boast about a 99% recovery rate — above 99% recovery rate there.
So it's an incredibly valuable service that we're offering here. So accredited investors. We also have insurance companies and family offices that utilize our… You know, we've been through rigorous due diligence and auditing by large, experienced institutions that have been in this space for years that we're currently partnered with.
So if we just had the crowd, you wouldn't have this reassurance. They’ve given us the green light on the way we lend, the way we service the performance of our projects. All of this due diligence has been done and should give confidence to investors that this should be the platform and the way for them to get actively passively invested into the asset class and into this.
David: Doug, that's incredible stuff and I wanna stay down this path just a little bit longer. Because you touched on a couple things. One, from the institutional side, you said they like the projects that that we offer them. And then it sounds like [on] the retail side, accredited investors and family offices and insurance companies that invest through our platform, they like the projects as well.
And you touched on a few of those reasons. If you could, what makes a really attractive project? Like why the projects that we offer them, from an asset perspective.
Doug: Quite a bit. So, One, the credit worthiness of the customer, the vetting that we do, the experience levels that we… that we require, and — you both can probably talk on this a lot more than I can in that regard — what you're seeing when you're on the ground and walking through the projects that these developers have done previously. You're a good developer from a tier two or tier three-type of developer. So you're able to come in with that confidence and guns blazing and ready to show off the customer.
Two, our underwriting team where credit levels are set high and leverage points are set reasonably. And the customer actually is coming to the project with their own skin in the game and their own belief in the project, obviously to complete it within the timeline that we set, and the inspections process. So we have our construction risk analyst team analyzing all of that.
[Also], the underwriting team. I know I skipped over them originally, but they are doing a thorough vetting and pushing back on you all (the sales team) when maybe something isn't as great as it seems and as shiny as it seemed initial[ly]. And getting it to the right place and making sure that the deals are fully vetted and the appraisal looks good and the values are verified, and all of that as well.
So there's a lot to the rate of return at the end of the day — 11% plus, 12% plus, it just makes sense. So it's a relative difference from the safe money they are able to borrow to then deploy over here. And they continue to [invest] because simply, it pays off. So it just makes sense and it's good to be a trusted partner for all of these investors.
David: Yeah. You know, from my perspective, which has always been on the front-end of the business, it's been putting as thorough of a file together as we can for our underwriting team, so that file can make its way to the finance side of our business, and ultimately, into your hands… Or your team's hands to market that to our investor base. Right? And, the more thorough of a file, I've gotta imagine the more attractive that loan is when you have all of those data points, like potentially an appraisal.
And a good credit score.
And a high net worth individual.
And the project pencils out really well.
And you start to stack all those up.
What would be deemed normally as the kind of high-risk money, the hard money. That's high risk. We've almost kind of de-risked that. That's my perspective on it. You can correct me if I'm wrong.
Doug: No, you're a hundred percent right. The only other things I would add is it's the first lien against a tangible asset. And with feasibility studies on construction budgets, there's a lot more that goes into it behind the scenes that gets us comfortable profitability.
We'll turn a customer away if it just doesn't make sense from a profit perspective. So there's a lot more that we do to get comfortable with the deal first. And I think a unique stance we have is that we are more involved in the performance of these deals then I think other originators are right?
So we want to build a sustainable business. We don't want to burn bridges with the investors that are investing through our platform. So I think we have a little bit more skin in the game, and so we take it a step further and don't just wash our hands after the loan has been sold. We're in it for the long haul with these customers as well.
What stood out to me in terms of joining Fund That Flip was just the relationships that we have with the developers. And I think that's truly where we set ourselves apart on the front end. Um, and that's not something we wanna lose.
David: Love it.
Brendan: So, Doug, if we can kind of… in light of today's environment, we've — David, you and I — have talked about this on nearly every podcast at this point, just ‘cause it's hard not to. The rate hikes in 2022. So we went from 2% to 3% conventional mortgage rates. We're now approaching 6%, 7%, 7.5% mortgage rates.
All this money comes from the same place. It's all — it's not directly tied to whatever the 30-year conventional mortgage rate or the 10-year treasury yield is — but it's pretty close. They're definitely correlated. Maybe not just unilateral[ly]. How has that changed the capital market space over the last nine months or so?
What have you seen, [from] the accredited investors, the institutional investors, the different channels we get our money. What are they saying and what are their reactions? How's it differ [in each channel]?
Doug: Yeah, I mean on the front end — just quickly and you guys could speak obviously to this a little bit more, of course — but borrowers are being more judicious. And profitability has to really make sense now in the current environment. We're helping to evaluate for these, for these, for these developers.
But for our industry obviously with borrowers being more judicious, that means less projects for us to compete for. But we feel well-positioned there because of the diversity and the resiliency of the capital that we offer. So, for these investors, they need to see the relative spread between safe money and our asset class, for it to make sense for them.
And they're getting it. We're offering 11%, 12% plus rates of return for six to 12-month notes. And obviously that's a pretty big climb from where we were six months ago, pretty dramatic climb from where it's been six months ago. But this is short-term, these are short term notes and so, the level of service that we provide, the closing speed that we provide still attracts the best customers.
And as you said, Brendan, like the money's coming from the same place. And so it's not necessarily unique to us to offer these rates. It's simply that relative difference between safe money and our asset class and making sure that risk-return profile makes sense. But there's a lot of uncertainty everywhere.
So you touched on crypto — don't wanna necessarily get into all of that, but even equities. So there consolidation. You know, I think markets aren't necessarily, the money's not necessarily as widespread in the market as it was before. And so, this asset class continues to be incredibly attractive.
David: Love it.
Brendan: So Doug, we've talked about all these different opportunities for investment: Accredited, institutional, and the retail institutional outlets.
So if I'm an accredited investor, because obviously that's probably the bulk of the people listening right now. So people who have earned over $200 grand for two years in a row or that have a net worth over $1 million, if they wanna get started in our space and whether it's with Fund That Flip or with another hard money lender that has a similar structure, like what's the first step that they would take to be able to deploy their capital into this space?
Doug: Yeah, FundThatFlip.com, the tab at the top, invest. It'll take you to our page. You don't have to be logged in to see what we have available there, too. If you're just interested, log in, give us a call, email us email@example.com. You can email me directly, doug D-O-U-G dot firstname.lastname@example.org. It's like the composer for all you musical folks.
D -V-O-R-A-K@fundthatflip.com, and I'd be happy to share more information there. But once you are logged in, you'll verify your accreditation. And it's also if you're a financial advisor and hold licensing in that regard, you can also invest through the platform without the net worth or income criteria being met.
But, yeah, once you're verified as accredited, you can begin investing. And, one thing I do want to touch on here, Brendan, is the the series note funds that we do have available through the site. So we offer obviously the individual projects that you can invest as little as $5,000 into.
There's also diversified funds that are termed series notes. There's a Pre-Funding Note Fund (PFNF). This is basically a warehouse line of credit. So it's invested money that is solely used for origination, that again, as I mentioned before, is replenished when we sell the loan on the backend. [...] It's also used for construction draws that again, is replenished when we get reimbursed from our investors or increase the amount of investment into that particular deal as it's progressed and become more attractive and closer to payoff there.
And then there's a Residential Bridge Note Fund (RBNF) currently that diversifies your money across all of our bridge notes. And so it's a small amount of dollars into individual deals across the spectrum of, of region and, and property type. And so just wanna touch on those very quickly because those are incredibly attractive projects, a as well.
Obviously with that diversification, less rate of return. So just to be cognizant of that, the bridge notes, those individual projects you will see higher rates of return on those. Um, but yeah, so once you log in, the invest tab will show you all of those deals and verify your accreditation.
You can begin investing right away and link up a bank account with deposited interest directly into your account as it’s received on a monthly basis. And an email to me, a phone call to me, reach out to us. Let us educate you or share more information. And hopefully I'll have some good conversations coming from this!
David: This last question about the principal investment from our investors, how long should they expect that to be in these deals before they receive their principal back on average?
Doug: Anywhere from, from six months to 12 months is the original term, right. But as we're issuing draws, we may need to raise more money. And so there will be deals up there that mature in two months, in three months that may be a hundred percent complete. So there's a lot of options. We're talking short term. We may — you may see the occasional 18 month, but you know, you'll see a commensurate rate with that.
And, so nothing longer.
Brendan: 10% to 12% returns, diversification, improving communities. We got it all here at Fund That Flip with Doug. Doug, thanks for joining us today and giving us the breakdown and the peek behind the curtain of all that is capital markets. Um, I think it's, again, really good for everyone to see the back end of the business.
We talk a lot about the front end of the business on this podcast and just about real estate in general. Um, just really appreciate you you joining with us and Duggan, go ahead and take us out.
David: Yeah. Real quick, Doug you mentioned your email address. Where else can people find you if they wanna find you?
Doug: I am not active on social media. You can find me on LinkedIn if you'd like, other than that, posting the occasional baby pic on Instagram. But yeah, it's a personal account there, but otherwise I'm on LinkedIn and email me email@example.com.
I'll reply back there and we can schedule a conversation.
David: Awesome. Doug, thank you again for your time. Incredibly insightful. Uh, love having you on. I will sign us off here. So for Brendan and Doug, I am David Duggan. Thank you for tuning in to Real Estate Investing Unscripted. You can find us at fundthatflip.com or on all the the social media platforms across Instagram, Twitter, Facebook, TikTok, et cetera.
Thanks for tuning in.
Thank you for listening to this episode of Real Estate Investing Unscripted. For more resources or to fund your next project, head on over to FundThatFlip.com.
The views, thoughts, and opinions expressed are the speaker’s own and do not represent the views, thoughts, and opinions of the Fund That Flip. The material and information presented here is for general information purposes only. The "Fund That Flip" name and all forms and abbreviations are the property of its owner and its use does not imply endorsement of or opposition to any specific organization, product, or service.
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