Revolutionizing Real Estate Financing with Saurabh Shah - REIA - 469

Welcome to Real Estate Investing Abundance, the show for busy, fulfilled professionals like you to learn how to develop financial independence built on solid passive real estate investments. Now, here is your host, Dr. Allen Lomax.

Hello, enlightened investors. Welcome back to Real Estate Investing Abundance. I'm your host, Dr. Allen. We have a very interesting topic that I know many of you're going to be interested in today. We're going to look at accessing high leverage in order to flip real estate properties. And Saurabh Shah is with us today, and he is the co-founder of InstaLend Corporation, which was recognized as one of the fastest-growing companies in the US for 2022 and 2023 as part of the Inc. 5000 list. Through Sharab's vision and leadership, InstaLend has empowered thousands of real estate entrepreneurs to access capital that allows them to redevelop neighborhoods. And Sharab was chosen as the HousingWire's Rising Star for 2023. So welcome, Shahrab. We're glad to have you with us today. And let's just start off, if you would, with telling us just a little bit about InstaLend and primarily what it is that your company does.

Hi, Allen. Thank you for having me. InstaLend is a private lender where we allow investors to get financing for short-term as well as long-term when it comes to buying investment properties within the US. Just to give you a little more about what I mean by access to financing and investment properties, like you rightly mentioned, short-term investments where investors want to buy a house, make some upgrades through a rehab, and then either sell it Or rent it. That's where we step in. We finance up to 90% of their purchase. We cover 100% of their rehab and upgrades. And then if they flip the house, that's when they pay us back. If they look to hold onto it as a turnkey rental, we can then also refinance into a long-term 30-year mortgage. And we're doing this nationwide across the US. We are lending on single-family homes, 2 to 4 units, PUDs, townhomes, and we've also started lending on commercial multifamily apartments. So anything which is 5 units and more, and also mixed-use properties. This program is completely no-doc. What I mean by that is we don't qualify the income of investors. These go out as business purpose loans. So the loans go out to your business entity like an LLC or a corporation, and our underwriting is completely asset-based. So we won't ask you for a tax return or a W-2 or a pay stub. We simply want to get an appraisal done to make sure there's value in the property you're looking to invest in. And that's how we make our determination on whether we have to approve a loan or not. So it's pretty quick. It's usual turnaround time is 7 to 10 days. So we understand the essence of speed and execution when you want to make an offer and get a property under contract, especially when you're making your money on the buy.

Right, exactly. Well, Saurabh, how long have you— have you all been in business?

We've been around for 5 years now, just a little over 5 years.

And you did say that you do this nationwide in all 50 states, I presume. How about Canada or Mexico? Do you do any international work?

We don't do anything outside of the US, but we do lend to foreign nationals. who want to invest in the US. Okay, if you're based in Canada, you're based in Mexico, or any other part of the world, and you're looking to buy investment properties in the US, we can finance those acquisitions or refinance you from your existing investments within the US.

Well, what was the— just kind of give us a history of InstaLend. And what was the impetus for forming the company? And how did you all come together to form that?

Sure. So my background is investment banking and private equity on Wall Street. And, you know, during my days when I was a banker, I started investing in real estate, more in the sense of flipping real estate. And the only avenues of financing outside of my own equity that I had available was either going to a bank or going to a local hard money lender.

Mm-hmm.

You know, doing one deal a year was fine if I'm paying the exorbitant rates with hard money. or waiting for a couple of months for the bank to make a full doc loan. But as I started scaling, as I started doing more than one property, I realized that I was losing out on a lot of good properties, which I couldn't get under contract or couldn't close on time because these were good properties with many investors making those bids and typically had to close within 2 weeks. So my experience from Wall Street and my affinity for real estate as an asset class were predominantly the driving factors in terms of what motivated us to start Instaland. And seeing these gaps firsthand as an investor, we knew exactly what Instaland would have to offer to bridge this gap. So that's the solution we came about with. Today we are doing fix and flips, we are doing new construction, we are doing 30-year rental loans, we are doing a very popular strategy called BRRRR, which is buy, rehab, rent, refinance. And we also do portfolio loans for, you know, extremely skilled investors who want to make more than one property as a purchase or have a bundle of properties and are looking for one single blanket mortgage. So it's been a good evolution in terms of our journey, starting out as investors, identifying the problems, and then providing a solution, which is how we started Instalan.

Well, you, you all do also do commercial, 5 units and above. Do you have a cap on the types of commercial properties that you would lend to? Would you start at 5 units? How about 250-unit properties?

That's fine. We have no specific cap.

We—

our minimum loan size on anything commercial, which is 5+ multifamily or mixed-use, is $250,000. both on the acquisition and CapEx, as well as a long-term refinance or a buy-and-hold. So as long as we meet our minimum loan amount, we don't really have any specific cap on the number of units.

And so a lot of investors have found themselves in hot water these last few years who have acquired institutional bridge loans that are coming due with much higher interest rates than what they had gone into or what they had underwritten for. What are you able to provide solutions for these individuals or solutions essentially for individuals who are out there kind of picking up these properties?

Yeah, I mean, like I said, we underwrite basically the underlying asset. We work to a DSCR of 1.1. So that's pretty aggressive in my opinion when it comes to, you know, underwriting what your cap rate is, how you're looking at your net cash flow. So we have seen a lot of deal flow, you know, come to us which typically would have gone to your conventional sources like a bank or a credit union just because of the rate hike, the current environment that we're in. And we're still able to support based on the DSCR we underwrite. So yeah, if there are listeners who currently are in a situation where they have an institutional lender and they're looking for either a bridge solution or a long-term patient capital solution, we certainly would be happy to, you know, look at that, provide some terms, and see what we can do to help them out.

Many of our more sophisticated investors certainly know what you're talking about when you're talking about the 1.1. Explain to us what that ideas, right?

So when I say DSCR of 1.1, what I'm saying is the DSCR essentially is your debt coverage service ratio. What I mean by that is your net income on your property, what you're generating through rents, should cover at least 1.1 times your property expenses. And typically your property expenses would be your taxes, your insurance, and then whatever is the loan amount that you have to service the mortgage. So we just wanna make sure you have a cushion of that additional 10% that can come in handy in case tomorrow there's any deferred maintenance that comes up or some sort of vacancy comes up and you're not completely cash-strapped. So it's just some sort of reserves that helps you work through a difficult situation. And for us, being as aggressive as a 1.1 DSCR as compared to a 1.25 or 1.3 is allowing us to give you a higher loan amount to work on special situations like, you know, an exit with an institutional lender that you currently have a loan with, or any other situation that you may be in. So yeah.

Enlightened investors, if you haven't done so already, be sure and click that like button and also click that share so others can take advantage of the content. And finally, be sure to subscribe so you don't miss a single one of our upcoming episodes. Yeah, that is quite aggressive. Most of them are about 1.3%, and certainly hardly ever see anything below 1.25%. The question just slipped my mind there. So anyway, maybe we'll come back to it. So there, so certainly that is certainly one thing that is going to set you apart from most lenders. But what are other things that set you apart from other typical lenders?

I mean, if you're an investor who's focusing more on the single-family homes, either fix and flip or 30-year rentals, our minimum loan amount is only $50,000, which includes purchase as well as rehab. So across the US, there are many states which have lower property values but extremely high cash flows, and most lenders can't really offer you solutions there because most of them have a minimum loan amount of $100,000. So by reducing our loan amount to technically half of what the market is at, we're able to also work with a lot of investors who typically would not qualify with other lenders. That's basically one thing that comes at the top of my head. Outside of that, we are direct-to-appraisers, so we have appraisers empaneled with us across every zip code. That allows us to work quickly, have a better control, better visibility into the turnaround time of an appraisal report, which is what we've identified has been more or less a situation which is difficult and challenging for many investors. So we've tried to work through that. In terms of our draw process, we allow for self-inspections. So technology has enabled us today where you can take pictures on your mobile phone, which get geotagged through our technology portal, and you can just upload it to the portal. So you don't need to have an inspector come out, schedule time, then the inspector comes back, writes up a report, goes through QC, and then we know how much we have to release, right? So it's more of if you do everything right the same day, we send you the wire the same day. So we've really tried to work and identify these sort of hurdles that most investors, whether you're a flipper, or your turnkey investor would run into and try and provide solutions for these.

I just remembered the question. So with the 1.1 DSCR, that's certainly aggressive for you as a lender. It's really aggressive for an investor as well. Do you, do you provide interest-only loans, particularly on the Those short-term bridge kind of opportunities?

All our short-term loans, which is either for a fix and flip or a ground-up new construction, it could be 12 months, it could be up to 18, or it could be up to 24 months depending on what your scope of work is. They are interest-only monthly payments and they come with no prepayment penalties. The reason I say this is because if you're doing a cosmetic rehab where your exit is not to flip it, but to just fix it up quickly, do some cosmetic work, and bring in a tenant to keep the property rent-ready, you don't have to carry that interest-only monthly payment for a committed term of 6 months or 8 months or 12 months. You can be in and out within 2 months or 3 months. And that's again a feature that helps us stand apart is that we have no seasoning requirements. So if you're finishing your rehab within 3 months, and you want to bring in a tenant, we can refinance into a 30-year mortgage, cash you out up to max LTV within 3 months. If you buy a property all cash, say you closed on it yesterday because it was a cash offer that you had to close on a property with, and we make a loan to you today, we'll reimburse you up to 90% of your purchase price which you closed on yesterday. So we have no seasoning requirements. All, you know, we offer interest-only monthly payments on the short term, and we also do offer the interest-only monthly payments on the long term loans as well.

Up to what, 5 years or so?

Uh, we have the 5/6 ARM interest only, we have the 10/6 ARM interest only. So 5 years, 10 years.

Okay, well, some very liberal offerings there for investors. So how do we find you? Is this at instalend.com? Is that the best place to go to find information about you?

Absolutely, yes. The best way to reach us is through our website. If you're an investor looking for proof of funds, you know, you can find a section at our website at the top. It says request pre-approval. If you have a deal and you're looking to get some terms on a scenario, you can send that over to us by just hitting apply for a loan, which is again on the website on the homepage at the top.

So we are talking today with Saurabh Shah. And he is with InstaLend. And if you are looking for money to purchase investment properties, an excellent and wonderful place to turn to. So, Saurabh, tell us, get out your crystal ball and tell us, what do you— where do you think the real estate market is going in the next year and even up to 2 years?

I wish my crystal ball predictions come out right, but from what I've seen so far, you know, we've really seen through the tougher times come through with the rates peaking out over the last, you know, 12 to 18 months, which has, you know, put a lot of investors on the fence because, you know, interest rate costs of capital is something that you have to bake in as your most important, you know, financial metric when you're buying a property, flipping it, or renting it. The guidance that we all know the Fed has shared is that we expect the interest rates to start coming down from this financial year. So with that rate reduction, I do anticipate a lot of buyers coming back in the market, which means we're going to see the market heat up. And of course, as we know, there's always been a fundamental demand-supply gap. We're also seeing a lot of investors now churn out new construction as compared to just rehabbing houses to meet that demand. So, you know, at Instalent, we are really excited. We do see us in a very good place to continue to build a good book of business. And we hope the reduction in rates, you know, kind of sets off a trigger with more investors coming off the fence, jumping back in, more volume coming through. So that's what we are pretty excited about.

That sounds good in a lot of ways, but of course the future, who knows what that is going to hold. But thank you for sharing that with us. I'm also interested here in, You are a private lender. And so what are the differences in terms of how you are regulated? I'm sure you're regulated by the Securities and Exchange Commission like real estate syndicators are. But what other regulating bodies are you regulated by, like credit unions and institutional banks have various different regulation requirements. How is that for you all?

So to my knowledge, because we operate as a private lender and these go out as business purpose loans for non-owner occupied investment properties, we don't fall within any licensing requirements or any other regulatory aspects. Of course, we are mindful of any usury laws. You know, we, we don't usually— that's, that's what also helps us be apart from hard money guys. we don't charge those kind of rates, but it's been a pretty flexible environment for us in terms of being aware of what regulations we need to comply with or how we operate our business.

And in terms of really how do you actually operate, institutional lenders, their cash to lend essentially comes from depositors. Where is your capital? Originating?

So we have a couple capital partners who we have partnered with. And that's, that's the source of the capital that we have, which we have deployed and continue to put to use.

Okay. So we are talking today with Saurabh Shah, and he is with Instaland, and you can find him at instaland.com. Well, Saurabh, you've been in business for about 5 years. What have been some of your biggest challenges and how did you overcome those and what were the lessons learned from that?

I guess sometimes, I mean, or rather I would say real estate, in my opinion, is a very local market, very locally niche specialized area. And because we're nationwide except for the Dakotas, every market is different in itself. So I think what we've learned is, you know, it's not the one One box fits all approach, right? So we've tried to keep ourselves pretty customized. You know, we don't really go by a box. So it's not like, hey, you don't fit my box, I can't lend to you. We do bring in some common sense to our underwriting approach, and that's where the minimum loan amounts come handy. That's where our metrics like LTC or LTV, which is your loan to cost or loan to value, you know, when we're looking at deals which are lopsided, which means your rehab is more than your purchase. So these are things, you know, these are the metrics Metrics that we've, you know, at our end engineered and, you know, kind of, you know, put together through our five years of being in business, through learning through different markets on hey listen this is a market which is closer to the flood zone or hey this is a tertiary market versus a primary market so this is what we want to kind of restrain our leverage to so I would say not really challenges but a lot of learning curves you know that hey one. One, one-box-fits-all approach doesn't work, and you need to be a little more customized to your underwriting guidelines, to your clients, especially if you're a nationwide lender.

So just a point of clarification, you said you are nationwide with the exception of the Dakotas. Did I get that correct?

Correct.

And what is it, both Dakotas, north and south?

Correct.

That— so you You don't lend in those, in those 2 states. Other than that, you do nationwide. What's, what's the issue with the Dakotas?

The Dakotas, you know, technically there are 2 fundamental reasons that we have. One is the regulatory requirement where there is a requirement to have a physical brick-and-mortar presence in these states to operate as a lender. And secondly, you know, the zip codes, a lot of these Come back as rural, which is tertiary markets. And like I said, these are the two things we've stayed away from.

Okay.

That's the reason we're not in the Dakotas just yet.

Yeah. Okay. Yeah, there's very little population in either one of the Dakotas, particularly North Dakota. It's a very sparsely populated region there. Well, Sarab, it has been a delight having you. Thank you so much for being our guest today. Very informative conversation, and it sounds like a very wonderful alternative for investors in need of lending opportunities. Thanks for being with us, Saurabh.

Thank you, Allen.

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