#369 - Catching Up With Kaleb Bryan

This is the Independent Dealer Podcast, Education by Dealers for Dealers. Now here are your hosts, Luke Godwin and Jeff Watson.

Hello and welcome to the Independent Dealer Podcast brought to you by Buckeye Dealership Consulting. Luke, we're doing a check in with one of the busiest guys in the industry.

I tell you, he is, he is busy and I stopped by his dealership about three weeks ago and I can tell you I see why he's busy. He's got a lot going on. I've never seen such a massive structure of buildings and, and property that just has so much going on. So I'm so glad we get to talk to Caleb today. Thanks for. Actually, I don't know if I've thanked you, but thank you for letting me stop in and see your location. That was. I tell you, I had so much fun out in Dallas, Fort Worth and Arlington, meet you talking to dealers and seeing their operations. I really enjoyed seeing your operation.

Yeah, Caleb, introduce yourself to the community. Anyone that doesn't know you or hasn't heard of you.

Yeah, I'm Caleb. Brian. I have been a buy here, pay here dealer in the space since 2015. I'm going on 10 years, 35 years old. I got in the business when I was 25 and prior to getting into the business, I lost my ass. I lost about $240,000 on a, on a tech, on a mobile app launching to the App store that went viral but I couldn't figure out how to money. I had that money that I was able to invest into that app because I was flipping cars throughout engineering school. The way I got the money from flipping cars was because I sold a TV business when I was 21 years old that I started when I was 19. The reason why I got in the TV business is because I, I failed to make it on a college baseball team. So I got back to my apartment and I was like, man, I need to find some way to make money because at that point I lost my scholarship. So that's a little reverse of where I am today.

Yeah. Well, Jeff, do you know the episode that we first 90.

So episode 190, if you want the full story and background on Caleb, that is a great episode. Talk about just like just a windy road to get to where he is today. But yeah, what it shows and from that episode and the updates we're going to get from you today is Caleb's a, he's a, he's a pedal down type guy, man. This is, this is not, it's from what I look at on the outside. You're not the kind of guy that's just going to put it in cruise control and, you know, take home a check and be. And be content and. And, dude, I. I give you all the respect for that. It's got to be. It's got to be painful.

It's. It's. It's uncomfortable, but I'd rather be uncomfortable. Luke knows this. Luke knows this. It's. It's like the running motto. It's like I'd rather lean into my discomforts than sit around and let something, you know, come at me. I'm going to stay proactive, and I'm going to look for. I'm going to look to stay uncomfortable. I'm going to look to push the needle. But, you know, all with good balance, you know, I'm going to take care of. I'm going to put the right time into my family, the right time into God, the right time into the people that work in my business and the right time for myself, too. You know, nutrition and sleep is big, big for me.

Yeah. And you probably not getting much sleep because you got two young kids, too.

Yeah. Yeah.

So I took a pause. I've been. I've been doing a little bit of podcasting this the past couple of months. We launched it at the end of last year, Hustle Moss, because of my Spanish roots. So Hustle Moss podcast, where I get people on entrepreneurs like myself. But, yeah, I took a little pause because I just had a baby in. In. In January, and you're right, my sleep is impacted.

And he's running these long races. I mean, he's got. Got too much going on. He makes me tired just talking to him, man.

We were.

Yeah.

Luke came to visit my dealership, and I was. My cousin was. He's working in the. In the Paint and Body Collision Center. We have a franchise on the same property. And. And Luke's walking with me, and I see my cousin, and literally the day before, we ran a 50 miler, and I'm telling my cousin, like, hey, how do you feel? You know, him? And I ran it together. And. And we just kind of talked a little bit and. And I. I told Luke, like, I turned to Luke. I'm like, yeah, like, you know, we run. We run. And Luke's like, oh, yeah, I ran. I've ran this many marathons. I've done this, I've done that. I'm like, wait, what?

And what.

In what decade? Luke? Like, this is crazy. I didn't. I didn't know that about Luke back.

When he was spring chicken a decade ago is right. Fifteen marathons. Iron Man. Multiple. Multiple half Ironmans. Yeah, I'm done. I'm tired. I'm ready to go to sleep. And that is the reason I'm a consulting now. Yeah.

Yeah.

So, hey, Caleb, you touched on the. The body shop. Let's talk about that first. So you're getting into these things that are. I mean, it sounds like you get into a lot of verticals of the industry, which is really interesting because we talk about it on the podcast so much. Not getting distracted by shiny objects and trying to chase, you know, something or some new profit center or doing, you know, car rental or, you know, investing in Bitcoin or some crap. Like, just kind of stay in the course. But talk to us about your strategy and how does this body shop kind of play into that?

Yeah, yeah. And before we started recording, we were talking about real estate. And. And this will. This will go with that real estate component. So as I was telling you all earlier, you know, a few months ago, and at the end of 2024, we sold a property across from Six Flags. And. And the buyer was actually a paint and collision multi roof operator. He has a franchise. He has seven franchises called CarStar. And Carstar is basically Caliber Collision's competitor. And. And so the buyer of my property, he, you know, he comes in, he's like, hey, this would be a great location across from Six Flags. I think I can service Arlington. And, you know, he strokes a. He strokes a check. And, and it's. And no financing, no contingencies, no nothing. Came in strong. And I was like, man, this guy came in strong and, and had the cash to pay for it. I'm wondering, like, what business are you in? So my partner and I, we. We. We get with him, and when we see him in person, we're like, wait a minute, I've seen you before. Like, 10 years ago, 12 years ago. He used to be in the mechanic business, the auto. Auto shop business. And. And. And then he moved into the body shop business.

And.

And we said, why did you move? And he's like, man, the margins are incredible. You're making gross margin 65% on revenue, net margin, 40%, 35 to 40% net margin on revenue. And. And, you know, he's running numbers. He's like, yeah, each of my stores is doing $200,000 in revenue. Some. Some are doing even more. You know, if it's a big store, they're doing more. And those are my numbers. And I was like, holy cow. And you don't hold inventory. So with the car, start with the, with the franchise. Basically they're partnered with State Farm as their main insurance provider. And any claim, any wreck that happens within a certain radius of your store, they're basically sending that, that wrecked car straight to your shop and you're just servicing it. You're just running your team. There's no marketing, no nothing. You're almost like, like not open to the public. So you're just servicing all these insurance claims and, and yeah, you're just running a team. So you're not holding inventory. So really the capital that you're, you're, your workflow. I'm sorry, your, your working capital that you need is really to just cover parts, like covering parts and payroll. So it's really low, you know, really low in terms of like cost of entry, working capital and then, you know, really low in terms of like, like launching. Because they give you the DRPs, they give you the insurance companies and connect you with them and send you business.

And if, if you're in Texas and you have a large portfolio, most of you are, have high penetration of CPI and you're kind of running your own body shop anyway. So that's kind of vertically integrated, right?

Yeah, yeah. So, you know, with our portfolio, we've been, we've been hovering around 17 and a half for a long time. I mean we were 20 and we, and as we deleverage we sort of shrunk a little bit naturally. But with our portfolio size, it. And we're selling, you know, 90 cars on average, 95 cars on average for the last three years per month. So it made sense for us to run a small body team. And so we already had a paint booth, we already had a, a whole separate warehouse on our Property, about a 6,500 square foot warehouse on our property to run a body team. And so when we ran into this guy who, you know, purchased our building, we said, man, you want to give us an intro to the franchise? And he said, yeah, absolutely. I mean, he really did us a favor, took us under his wing, negotiated with different vendors, Sherwin Williams, etc. And yeah, through the process, what it did was it created more efficiency for our body team. And now, you know, it opened our eyes to not only the, the, the profit that you can create by doing retail bodywork, but also saying, you know what, I have a couple of repos that I'm going to put into, I'm going to, I'm going to throw at that team that I wouldn't have built prior because the, the, the work is just so much. And now we can go to the auction, we can go raise our hand and buy something that's been hit hard and buy it way, way back a book, send it to the body team, have the body team get it right. And now we're fixing the mechanics on it and putting out on the front line. And now we're weight. We're still way back a book. So there's some, there's some good, like, like you said, some synergies between that model and this model, the Buy Here, Pay Here operation.

Hey guys, real quick, of course we're going to break in the middle of this podcast and make sure you know about one of our amazing sponsors this time, Luke. It's going to be Buy Here, Pay Here United, because time is of the essence to get signed up for the Buy Here, Pay Here United and Compliance Unleashed joint convention conference going on down in Vegas, April 24th through the 22nd.

Through the 24th at Caesar's Palace. It's going to be great. And I was actually on a call today and I think you have until March 22nd to book your room. Great rate at Caesars. It's going to be great. We're going to be there. Caleb's going to be there. We're going to talk about all kind of things you don't. What's great about these conventions, Jeff? There's so many wonderful Buy Here, Pay Here dealers there that for one, they're going to be handling a lot of the sessions. But also you can talk to them outside of the actual meeting space. So come out there, talk to us, learn all you can. And also you're going to have a chance to meet with Steve lavine because he's going to be putting on his, his compliance conference while at the same time.

Yeah, you know, it's so interesting. It still reminds me of the fact that I've got to get with him and get some of my documents looked over. It's been maybe three years since he went over all my sales documents and so much changes. You know, sometimes we create new packets for lenders and we forget to add documents or remove documents or some little checkbox stops getting checked or marked off. And so I'm going to reach out to Steve and have my documents revisited because it's just one of the like he, he has so many great services. You know, my guys all, they're all doing the compliance, his compliance class. So they're all getting certified to be like to know the red flag rules. And everything else. So that's been a real help because we tell our team members all this stuff, but until they really sit down and go through the class and kind of take the test, they're not really learning it.

Yeah. And just to have that compliance portion of your dealership up to date when, when you do get sued or if, if an inspector comes in and you say, well, hey, check all my people have done their compliance this year. And that's what Steve and his group helps to facilitate in your organization. So get that going, see Steve, see us, and be in Vegas in April. And my only concern with, with getting into the body shop business is the, the, the hiring of the staff and, and the running of, of that business. But you, you, you were lucky that you had somebody that you trusted kind of ready to jump and do something with you, right?

Yeah. So, you know, part of our business that we've been doing for about four years is, is commercial lending. And, and the name of the business is Asset Lending Partners. And it's not just commercial lending. It's identifying operators that almost like a private equity approach, I, identifying operators that are great operators. They need capital or a strategic partner and, or both. And we had a friend that we knew for, you know, 10 plus years. My business partner went to high school with him and, and I've known him personally for seven, eight years prior to this. He was already doing, he was already doing the body work. He was already running a body operation. He was doing around, you know, 50 to $75,000 a month in revenue. And you know, it was great. It was just him and a main painter and a body prep guy or a body guy and, you know, small operation. And we said, man, what if, what if you wanted to scale? What if we could take you from 75, 000amonth to 200 or $300,000 a month in revenue? And you know, we spoke to him, kind of talked about the structure, about what we would bring to the table, the franchise, the real estate, the capital, the strategic partnership in terms of just giving him the support and the backbone that he needs. Because a lot of people, as you all know in our audience, these buy here pay here dealers, even when they get in the buy here, pay here business, I mean, what, what are some of the things they need most? They need a, you know, someone to watch their back when it comes to financials, operational metrics, and say, hey, you know, adjust. They need partners like that to support them because they're so busy, just head down. And that's what this Guy was so busy head down and he said, you know what, I could build something bigger with this team, even though I'm giving a little slice of the pie for it. So that's what we did. Because, man, at the end of the day, as I grow and as I, as I evolve, money is great and all, but what matters to me the most is time. And my time honor is so valuable. So, you know, I'm not going to go operate a new business unless I have, unless there's a very big opportunity in front of me. But a business like that, I'm not going to go head first and operate it. I would rather find a good partner who, that's his dream and support him along the way because I don't want to exchange. You know, I already have got a lot of lot going on at the buy here pay here dealership. So we're looking for good partners, owners so it doesn't take my time away.

That's, I mean, that's a great opportunity for someone who's not very capitalized either. So I think that's, that's really neat to that you're able to do that.

Yeah, it's. What else, Caleb, when you, when you say you're partnering with these people, do you have other kind of irons in the fire inside this same, you know, kind of the automotive space? Are you doing other stuff in addition to the body shop and the buy here pay here?

Yeah, I mean it's not a, there's not, there's not a lot inside auto at that point. It's a lot more real estate. You know, we're funding real estate deals all the time. We're, we've, we've got a, we've got a team, an operator who is, I mean, it's a partner really. They're a partner. They, they scavenge Texas, Florida, California and a few, a few other states for distressed property, distressed owners. And we're going out and identifying, identifying opportunities within those, those properties and saying, look, we've got cash, we're willing to buy it at a discount and then we will go in and remarket it. And so we buy land in several states and then we buy, we buy single family residential all over Texas. When we buy a single family residential, we are renovating it and you know, putting lipstick on it and then remarketing it and reselling it. But we're the capital partner behind that. And so you gotta imagine like, so if I put my lender hat on, because we are a commercial lender in a lot of cases, someone wants to borrow hard money, we've provided that as well. But I put my lender hat on and I say, man, this guy's got a lot going on. You know, if you, if you're partnering with good operators to run those entities or to run those operations and you have good parameters in place, you know, I'm all for it, I'm all for supporting it. Because if you put your lender hat on, you could also say, is he taking his eyes off of the, the beast, which is called buy here, pay here. And, and, you know, I look at myself and I ask myself that question a lot of times. If I'm not deleveraged entirely and I still owe, you know, I still owe some debt to the bank, I have a commitment I need to follow through on, and that's my number one priority. And so that's why I don't go operate an entity full, full time. Because my focus is completely deleveraging, you know, down to maybe a million. Just a relationship deleverage this portfolio. So I don't have that pressure and I don't, I don't have any way of, you know, just any exposure in that aspect. Otherwise, some, some people, if I were more leveraged, I wouldn't be doing these things. But the benefit, the benefit is, is that when I do, you know, do these transactions, I'm generating more revenue outside the business, and I'm using that revenue in a lot of cases like that real estate scenario. So take a million bucks and pay down, pay down my debt, another million.

And that's, and, and that's really, I'm glad you, you went down that route because there's so many dealers out there that are, are leveraged, you know, highly. They're, you know, they're in Trouble. They're at 60% of portfolio or 55% of portfolio and at high rates. And we've seen what interest rates have done in the past four years and what that's done to people's profit because margins have not grown in our business. Margins didn't grow and interest cost doubled for a lot of people. What was your most leverage you were ever on your portfolio? And besides just that real estate deal, how would you explain to dealers to get that thing paid down? And, you know, your goal is a million. So that's about, you know, probably less than 10%. Is that where you want to get to?

Yeah, and that's a really good question. I'm so happy to dive into it because this is, I think, a question that every dealer Right now needs to be asking themselves if they, if they're over, you know, in any real, in any leverage at all. You know, I'm on the phone with a lot of dealers and they're asking the same question. So the answer to the question is if you don't have outside, outside levers to pull, you know, first ones are, well, what do you own, what assets do you own, what equity do you have in real estate and this and that, and can you use that equity to pay down your debt without it affecting your, your top line revenue at, at your buy here, pay here? Right. So dealers can look at that, at what, what outside levers do they have to pull? And in a lot of cases they don't, they don't have these outside levers because they've been so honed in on their business. So one of the biggest levers that they can pull within their operation. And you'll add to this because I'd love to hear your comments as well. But one thing that we've done that's been, that's been huge is you have to start building more, building your repos more, investing in your repos. Because if you continue to buy new units, let's just do some very simple math. Let's say a dealer continues to buy, I don't know, let's, let's say for simple math, 20 cars. And those 20 cars are, call it $8,000 each. RACB is about 8, 600. Okay, that's a, that's a hundred and sixty thousand dollars for every 20 cars you decide not to buy. And so dealers like, well, you know, what am I going to do? I've ran through the scenario with a few dealers and worked through the mechanics of it. But the day that you decide to stop buying new units, you have almost this capacity of $160,000 that you can play with. And now you ask yourself, okay, what am I going to do to produce those 20 cars that I need to keep sales revenue up? Well, dive into your repos and spend a little bit more, build a little bit more of a budget to build out those cars. And now, you know, it does get tough because there's some, there's some very specific points to this. Some dealers are leveraged on both a floor plan and, and a line of credit. And so now if they decide to build cars, that's actually coming out of their working capital. And I would, if I was in a position where I was so leveraged that I had a floor plan that I was leveraged with on my Inventory and then a credit line that I was also leveraged on that, that answer right there, that solution doesn't make a lot of sense because now you're saying, well I got to use my operating capital to pay for those builds on the repos, on the repo reconstruction and instead of just flooring new units because that's the way they think is I've been there, I used to floor new units and say, well it's not my capital but you're increasing your leverage that way.

Hey Jeff, you know Caleb was talking about one of the ways that he helped deleverage his portfolio and that's using reinsurance. We say this over and over again but Buckeye does an amazing job setting it up and then kind of helps you figure out how to run it. And they can also try to help you figure out how to deleverage and using your reinsurance company.

Yeah. What I wanted to talk about in the episode more that we didn't get to now we record this in the past. We'll stick it in the episode somewhere is I want to talk to the small dealers that listen. We hear these stories about guys like Caleb and Luke and they got all this money and their reinsurance and they're buying jets and properties and freaking. I don't know what else small children with all this reinsurance money. But what you got to understand is it's a slow, it's a slow path, man. It's, it's a slow path. And I know putting money every way in your reinsurance company is scary because it sucks cash out of your dealership. Right. Even while it sits in your reinsurance company long enough to vest so you can borrow it back. That's. That sometimes is too long for a lot of dealers. So just start small. Start with something small like reinsuring for your, your warranty which you should be providing anyways. Reinsure for Gap. Of course, start doing cpi. That's kind of a, that's a just a no brainer if you're doing any more than 20 cars a month. But just start small and know that it will build. It's not going to happen overnight. You're not going to be borrowing back a bunch of money to buy real estate in a, in a month or in a year. It's going to take a couple of years but you got to start somewhere and eventually you will get to that point.

Thank goodness. Dave Keller told me. I was, I was first into the, to the reinsurance and I was probably two or three years in and it was sucking all my cash on my dealership. And I said, Dave, this is killing me, I gotta just stop. And he said let's, let's put this to paper. And he showed me the difference in using reinsurance or just paying straight all your taxes. And, and immediately I saw the advantage of it. So I stuck with it. Now, you know, 12 years later, 14 years later, we're killing it in reinsurance. And that's what everybody out there should be doing. It is your retirement key. And let's pause for one second because dealers need to understand that a floor plan and a line on your, your inventory is a dangerous stew. You don't want that.

It is, it is, it is. And I didn't have a choice, man. I mean I'm, I'm in the same boat. Like I didn't have a choice at the time that I was in there, you know, with floor plan and, and a line of credit. I mean I was paying, I was paying next year capital crazy money. I mean just effective interest rate was in the 30% percent range on, on floor planning my cars. And then I got with, you know, a couple of other companies to help me leverage my portfolio also expensive money. Before I found banks and established myself. But at one point, man, I owed $11 million on $21 million portfolio. On a $20 million portfolio, 11 million. And I've more than cut that in half. So I, I know how to strategically deleverage, but it's hard because you're selling buckets at that point. You're getting into the bucket game and there's a lot of levers that you, you have to play with to keep your banks happy and, and keep, keep your employees level headed and grounded because now when you start selling buckets, you have more, you have more customer service impact to that department and people. Yeah.

You know what's funny is I've, I've never been an advocate of recon and repos and, and when we, we decided to stop buying cars and get out of the buy here, pay here business, all of a sudden I said maybe I was wrong the entire time because I did. See if you're bringing in, we don't bring in a lot of repos, but let's say we're bringing in eight a month. And out of those eight, six of them, maybe five of them are, are decent cars. Even if I've got to put a motor transmission in it, I'm still way less than what my normal ACV would be. And so I can see how that cash generates really quickly, especially with mine because our average ACV was $13,000. Well all of a sudden when you can, you're essentially in that for, you know, $5,000. That's a, that's at worst, you're in it for $5,000. That's A big difference in your cash flow. Yeah, yeah.

And one thing we've done too, this is to help Deleverage. There's another lever that you can pull. Not a lot of dealers think about this. I worked with Neo, Naveen at Neo and Naport at Neo to create the break even calculation on Neo. And what that does is it takes your payment that you've created for the customer and it's divided by your total cost in the vehicle and it's telling you break even point in months when you're going to break even on your investment. And dealers, if you get this break even point low meaning below 12 months, below 11, below 10 if you're in the single digits, that's a great break even point because what you're doing is you're capturing your investment sooner and you're, you're increasing your cash flows to your collections department. And that when you increase your cash flows to your collections department, that's going to help bring more cash into the business. Obviously to help you manage the cash flows and pay down debt if you, if you choose to do so, that's another way to do it.

That's a really smart observation. And people don't think about this. And you hear so many dealers talking about their, their monthly payment. Let's just say monthly is $400 a month. Yeah, that's, that's too low. Let's just say you're dealing with a thousand accounts and you really should be at 500amonth. You're talking, you're talking serious money now. So you've got to, you've got to make sure that your payment is in line with what people should be paying per month, per car. Don't you, don't you agree with that, Jeff?

Yeah, I do. I think obviously the other flip side of that in Nio is your payment to income, right? So it's like, okay, I'm trying to push my payment as high as possible to get my cash in deal down to break even. But I'm also trying not to overload them with too high of a payment income because they're going to agree to anything and they'll say, yeah, I can do an $800 a month payment. They can't do an $800 a month payment. So I would Just push it into a repo. So. But, Caleb, it is super smart because I think sometimes our underwriters and our salesmen just automatically default to the lowest possible payment they can get away with. Right. Like, what is my manager not going to be mad at me for? Oh, I, you know, they can do 450 or 500amonth. No, no, no, let's push him to 550 or 600amonth because guess what? That, that gets me out of that car like three months sooner from a breaking standpoint.

And you can use PTI to mitigate that. So, you know, if you want to maximize payment, you can use PTI. Our PTI is 20%. And so you can say, okay, do not exceed a 20% PTI. Now, what's the other impact? Gross margin?

Yeah, Also don't go under 15% PTI. Yeah, like, yes, maybe it's like the goal is 20 to 25 or 20. So I know you want a lower payment, but you got to have a 20% PTI payment.

Yep, yep. I like that idea. Caleb, is there a way to leverage reinsurance to pay down the money you owe to, you know, to the bank?

Yeah, yeah, yeah. And a lot, a lot of dealers have done this, and I'm sure y', all, y' all have known this as well. If you have the additional cash flow. Some dealers don't. Right. If, if you have the additional cash flow after your claims. Let's, let's use CPI as an example. For us, we collect around 155,000amonth in CPI and we mostly on a rolling 12, we have somewhere around 35% claims. That leaves about 65% of net, net of 150,000. You know, call it $90,000 to work with per month. And, and what we can do is we can always. So that that net 90 grand, call it will hit the reinsurance account. We can then take that $90,000 and we can contribute it as sub debt and we can pay down the, we can pay down the bank debt, but then as a line item on the balance sheet, it becomes sub debt owed to us, the reinsurance company, which is owned by us. And so in a sense, what you're doing is you're replacing the senior debt, the debt that the bank has given you. You're replacing that debt with your own debt. So now you're becoming your own creditor, in a sense. Now, that's not the end of the story because that's, that's, that's kind of our track record is now we've almost bought out our senior debt. We bought out our banker, our bank's debt. But that's not the end of the journey. The, the journey is, is getting the business to cash flow outside of the reinsurance company and being able to pay yourself back. Because you're still a bank, you're still the creditor in this case, you still need to get paid back. So the business, even when you do pay off your bank, there's almost like this second phase of life, the second journey that you go on. And it's like, all right, now, you know, because you still have debt service, you still owe yourself that debt. So you're servicing that debt now. Your business needs to pay you off. And that's, that's a really good place. I know several guys that, that have paid off their debt with their bank and they're in that place and now they're getting, you know, market rates, they're getting 5%. Or we can choose. That's, that's the, the luxury of being able to be your own bank is we can choose what interest rate to give ourselves. But I, I know, you know, several guys that are paying themselves a nice interest payment to the reinsurance company, and then that's captured as income and taxed accordingly.

Yeah, yeah, we, we did that along the way and it worked out great.

Yeah, I sometimes struggle with the paying down debt. That's cheap debt, right? I've got some debt that is, you know, 5, 6%, even if I can borrow it from my reinsurance company. It's like, do I really want to pay that debt down or do I want to use this capital to be on the offense or to grow? And so I struggle with the, like, get out of debt, you know, deleverage, you know, pay off your, even your. I mean, like, my real estate is an SBA loan at like, 5%, right. Like, I really have no urgency to pay down my real estate loan. Am I thinking of that right or wrong or. Because once that debt's paid down, like on my real estate loan, I can't borrow it back when I find an opportunity very easily. Right. I mean, it's an SBA loan. I can't. I could go refinance it, but now you're paying points, and it's a whole process. So what I'm saying is I'm sitting on some cheap reinsurance money, and I don't really know what to do with it. Hey, guys, just one more time real quick. Of course, Blitzpay, if you're in the buy here, pay here. Industry you must be, if you stuck around this episode this long, they are the folks to go to for your credit card processing. Your merchant services fully integrates with all the major DMSs. And the collections platform is something we don't talk about a lot, but it's, it's a really, really easy interface that basically replaces the collection interface inside your DMS and it just links directly through API automatically updates instantly. So you really only have to work through the BlitzPay platform to communicate with customers, to take payments, to set up auto pays, to set up promise to pays. It's really a smooth situation.

It is great tool, great tool for your collectors, great tools for you. You see what your collectors are actually doing and it sticks it back in your DMS if you're on the right dms. So call blitzpay, get your credit card processing fees down to a point that's actually manageable and yeah, give them a ring.

Yeah. And that's where you know, if you don't need to pay down your debt at your, on your portfolio, you, you look at outside opportunities. And like that's kind what led us to do what we've been doing with Asset Lending Partners, getting into the commercial lending space. And, and you know what started it was in 2020. We had, we obviously with stimulus checks and all that. We just had so much money being collected through our department. We had, our CPI was, was, was just higher than, than ever because our portfolio was, was bigger than ever and.

Nobody was driving and nobody was wrecking. Yes.

Yeah, yeah. Claim claims were down, but we were putting away more money than we, we knew what to do with at least at the time. And we asked ourselves what do we do with this? What do we do with this capital? And it felt like irresponsible not to deploy it. And at the time we also weren't thinking that interest rates were going to climb over the next several years. So we started deploying capital and, and until we needed, until we saw a really big need to deleverage, we were deploying capital and that started, you know, 2020. And we would say okay, well who needs money? And you know, people that were looking for hard money loans and it was backed by commercial real estate. We said well, what's your commercial real estate worth? If it was worth a million, I would give them, you know, I'd give them up to half a million or $600,000 against that value. So I'd keep LTVs safe because if they defaulted, you know, I would, I would want to go get it. I would want to go get that real estate and go through the foreclosure process. Now, I've never had to foreclose. I've came close. But that's the way I look at it is what's the value of the collateral? Much like buy here, pay here. Yeah, but yeah, we diversified and deployed and that's, that's been able to create, just compound the, the funds over at the reinsurance side in building that up and then giving us even more, more options, more opportunity. Do we need to deleverage? Okay, let's start deleveraging more.

I want to dig into Caleb, the philosophy of diversify. When I think of that and I say, yeah, I've got this reinsurance money, I should go do commercial lending, I should buy this, I should buy that. And you look on the roi, even at a hard money stamp point, if you're getting a point a month or something, it doesn't, it doesn't really beat a buy here, pay here operation. Like I think our ROI per dollar on a buy here pay here operation is, you know, 20, 25% somewhere in that area, all in after, you know, losses and things like that. Maybe slightly lower for some of us, but yeah, how do you balance that and say, you know what, why don't I just put this extra million dollars from my reinsurance company? Because I mean, in Texas you have an unlimited customer base. You could literally open another rooftop across the street and do another 90 cars a month. I bet. Just because you have unlimited potential there, why not just double down on what you're doing now that you know and has a good ROI as opposed to stepping out into these other areas?

Yeah, I mean, it's great points, great points. But that's what diversification is about. It's about diversifying your risk and diversifying your time as well. It takes so much time. There's so many complexities about buy here, pay here that, that it takes so much time and experience and lessons and mistakes and failures to learn all of that. And you know the beauty of commercial lending, for instance, you can go. So every loan that we create is. And we'll get into the numbers in the ROI if you want to look at just dollars, but if you look at just the ROI on a commercial loan, for instance, these are all short term loans. So we'll do a three month loan and it'll be 12% on the hold and it'll be two points in, two points out. So meaning two points, two points to originate the loan and then two points to exit the loan. So there's four points there, and it'll be anywhere between 12 points and 14 points to hold it. So you're making about anywhere from 16 to 18 return on your money in those three months. But here's the caveat. There's origination points and exit points, right? And so if you do the same loan, because it's every three months, so you're going to do that loan four times in a year, how many points are you making? Let's say you make 4 points per deal. That's an additional 16 points for an entire annualized. It's an entire 16 points for the year. So you're making 16 points on origination fees and exit fees, plus the points that you're making on the hold, which is your interest income. You're making 16 plus 12 at bare minimum, or 16 plus 14. You're making 28 points to 30 points on your money. So then it becomes a, a perspective of, okay, how much time am I contributing to this?

And no head and, and no brain damage.

Bingo. Yeah, bingo. Yeah, the brain damage. The employees, the administration have loaner cars. Yeah. I mean, there's. The complexities are, are few and far between when it comes to commercial lending. It's just less, less hassle. And that goes back to kind of the comment earlier at the beginning of the podcast is, what do I do with my time? You know, like, I look at investing, I look at time as a huge factor of part of my investing strategy at this point. I've got a lot of time that I put into Buy here, Pay here, so I'm not going to walk away from it because it took a long time to learn these lessons. So it would be really, it'd be really funny for me to walk away at this point instead of squeezing the juice on all the time I've invested into this thing. But now am I going to put the same amount of time into a different model? The only way I do that is if we're talking 10x, we're talking about, you know, 30x the revenue or EBITDA. Right.

Interesting. Because for you to put that kind of effort, and I completely understand what you say when you say, yes, if I were to spin up another buy here, pay here operation, it would take exponentially more time and effort than it is to just do four hard money loans a year that fit this criteria. And granted, you're putting all your eggs into one basket, which again, it's a pretty safe basket to be in when you talk about commercial real estate. And obviously you're you know, a fraction of, you know, they're bringing in money all the way. You set the deal up makes a lot of security in that. So I, I completely get that. But you're saying you're not going to really kill the golden goose at this point. You're not really just shut down the buy here, pay here operation and kind of cut that off. That is what's kind of funding you stepping out into these commercial areas. It's really.

Yeah, yeah, we, we have not reaped the reward yet, you know, and a lot of dealers, they don't reap the reward. You, you've got to have, you gotta have the willpower. Luke knows this from running. You've got to have the willpower to, to survive the journey. And the journey is effing hard, man. The first five years of buy here pay here is a beat down. The next five years, depending on what kind of economy you're operating in, it could be a beat down or it could be an upswing. Like the last decade we were in was freaking incredible. Lowest interest rates ever. That's the, that's the economy that I lived in. And I built my buy here pay here and luckily now we're talking about the last three years, some of the hardest years ever for our business. So yeah, the season swing right now I'm in a season where luckily we built a business in low interest rate climate and now we adjusted and we started deleveraging heavy and we diversified along the way which created different eggs, different baskets. So I'm in a season right now where, yeah, I look at my investing, I look at time as a heavy factor in my investing. And I say, you know, I have not, I have not still squeezed the juice yet in the buy in my buy here pay here journey. I'm not done yet because once I'm deleveraged completely, that's when I'm going to have certain freedoms to be able to squeeze the juice in a sense. And what I mean by that is I'm not expending, you know, $750,000 for interest expense for a credit line. Instead, I'll be paying myself that additional 750, 000 a year. Right. Just an example.

Yeah.

Makes a lot of sense, Luke. Anything else?

No, I, I mean, thanks for the conversation, Caleb. I think a lot of dealers will get a lot of knowledge out of this. And you're right, the journey, the journey's long and arduous in, in our business. But if you, if you turn the knobs exactly right, you can spend money off and do other things. And. And I think dealers need to look at that. And putting your. All your eggs in this basket can be rewarding at times, but it can also be a suffering journey at times, too. Yeah. Yeah.

With the right support, too. Because I would never tell a dealer, a buy here, pay here dealer to turn and say, hey, go diversify, man. Dude, there's a. That. That thing can get sideways so quick. Buy here, pay here can get sideways so quick if you don't have your eyes on the bowl. So you gotta be able to have, you know, the right support to do so. You have to have yourself positioned properly. And if you're going to partake in other businesses, obviously have good, strong partners to support you, because you still need your eye, your touch on the buy here, pay here. Unless you're, you know, deleveraged, then do what you want. It's your risk. Right. It's your money. It's your money. But if you still. If you're the bank, your ass is on the line.

Yeah.

All right. Thanks, buddy.

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