Welcome to Mortgage Talk with Mark Hairston, the program that not only talks about mortgages, taxes, and interest rates, but Mark and his guest talk real estate trends and your home. He also answers your mortgage questions to help you make the right financing or refinancing decisions. Now here's Mark Hairston. Happy day,
everybody, and welcome back to this week's station of Mortgage Talk. I am your host, Mark Hairston, and I'm really really excited about today's today's show because, as I've mentioned in the past, I really do this show primarily to learn, you know, so I bring on speakers that I can learn from as well, and we want to share information to the marketplace that can help you make very good decisions around your investments, particularly in real estate.
And today I've got a couple of guys who work in a field of lending that I don't. We're both in the same space of lending, but I'm more traditional in the mortgage space of doing residential mortgages, and these guys are in a different area called hard money or private lending. And I wanted to douce Ray Walter and Curtis Simpson, who Ray owns Capstone Funding and Curtis is sort of his right hand man, his chief lending officer, and I'm
just really excited to hear what their story is. A matter of fact, I'm pretty sure we're gonna do this more than once because there's so much meat on this bone to choose. So give me Ray. I want you to kind of both of you actually spent a little time a few minutes here whatnot, introducing yourself and your experience in this world. Sure, so Ray Walter with Capstone, and thank you Mark for having us on the show today. We appreciate it. And So I've been in the lending business its nineteen ninety
eight. I grew up in Orange County, California, moved to austin ninety eight. Started with Countrywide Homelands, I remember those, Yeah, started in wholesale, yes, definitely, And and so I was there for about three years and two thousand and one. So from nineteen nine two thousand and one is when I launched out and I opened up my actually I got my loan officer's license and eventually opened up my own conventional mortgage lending company. It was
just, you know, did conventional loans. I FH loans and I do today that like you do today. That's correct, yes, And about two thousand and five, if I remember correctly, I started seeing this need for private lending. I always heard about it. I didn't really understand a whole lot about that, but I just I researched out that industry and I wanted to understood out here. I am as a loan officer, I'm already doing conventional loans here, what is this private lending? How do you fund private
loans? How do you what is hard money lending? So I learned everything I could, and I just scoured the internet and I even ordered you know, classes that you can this is that. This is actually a DVD if you could believe that before it was on YouTube. And I learned everything I could, and I was fascinated with that industry and what hard money lending, private lending also known as bridge lending, what it's really it's gap financing,
and that's why they also called bridge lending. And I started seeing this need for for individuals, let's say, for renovation properties, for example, because that's the most common asset that people understand on the conventional side. Single family primarily primarily single family, that's correct, and if and if and I'm not sure how much it's changed in the conventional lending world because I haven't been in that uh you know, it's certainly not recently. But at that time I
couldn't find good financing available for someone who wanted to rehab loan. And I would work with roles to agents and occasion, I think get a lot of
them, but I just was fascinated with that need. And what I realized is that there are individuals that would buy a property that was you know, needed maybe you know, twenty five fifty thousand dollars or renovation, and there really wasn't a good program there, especially on the conventional side, for someone to get financing for investors for investors only investors, not let's be clear about that. Yes, that's correct, Yeah, for only for investors. And
and so that's what really propelled me into the hard money lending industry. And I started a little bit with my own capital, and then I worked with some of our family money and clients, and it just organically grew in fifteen or plus years, right because in two twelve is when I when I launched Capstone, primarily only as a hard money lending company, and I ended up leaving the conventional lending industry went completely. That's correct, And tell us about
your background. So Ray and I met early two thousands through some ministry things, and and I ended up actually becoming what is now Capstone's largest bar work. Okay, you're a client one time. Yeah, I was doing luxury flips from everywhere from Ocean Drive and Corpus to Santonio and the Dominion Wow wow, gated communities, Kenya Lake and even here in Austin. Okay, So we've been friends for a number of years. Done done quite a bit. I actually come out of the I was part of the tech boom. I
was working for a technology company. From there, I rolled out a venture capital firm. Okay, tell you've been in Austin. I've been in Austin. I came in eighty six. Wow. Wow. Uh played football ut wow, and got a degree and never left. So I play football, but yeah, yes, I still go to games, you know. So anyway, I guess two thousand and seventeen, I had kind of been consulting.
I have my own capitol company that I do development deals with and such, and I started consulting and I actually in two twenty twelve, I actually wrote the business plan four Capstone awesome, So our wells in two thousand and twelve, yeah wow when he started so uh he or Garret started growing it for the next five years and then twenty seventeen it was just kind of meant to be. Yeah, that's fantastic and came together and start working. We'll
tell us a little bit about the typical profile of your clients. I know you all do a variety of types of loans in different industries, if you will. You know, you talked about a winery as an example. Okay, that you that you you all funded. But what's your day to day sort of typical client or is there one? So? Yeah, our our bread and butter is single family, residential, new construction, new construction.
Yeah, working with builders, working with builders. And funny enough, we we actually don't really call it hard money anymore, at least as far as for Capstone. Yeah, hard money does have a little bit of a stigma from the fix and Flip days and there were a lot of foreclosures then oh eight happened kind of got lumped into the subprime you know, just right, But I will tell you I have profile our clients and our average client as
upper seven hundred stores. Yeah, but they are looking for something. Ray taught me a long time ago. Hard money or private lending is about ease, convenience, and speed of capital. You can fund quickly. We can fund quickly. There's no red tape. And as long as the asset is good and the LTV is good, which will pretty much walk up to the seventy percent line on LTV, Okay, then that's about it. Yeah,
I mean, yeah, well we we depending on the asset class. So it's commercial, we're going to be you know, maybe fifty up to sixty, multi family same but for residential, Yeah, seventy percent LTV is just I will tell you this. If a deal doesn't meet the seventy percent LTV, when you consider the purchase in the budget, it's not a good deal. And all a lot of times we save uh some of our builders and yeah, this is not a good deal. You should not be done.
Your margins are too slam You got it? Got it? Yeah? I think I mentioned too that on the seventy percent that is based on after repaired value. That's that's the key. So in other words, the seventy percent after repaired value. Take, for example, if it's a rehab loan or new construction, that can still be up to ninety percent of the total cost.
Right, So the best thing to do if there's someone who's interested in getting a private loan is to call us and we can run the numbers, you know, run the numbers for them, because the seventy percent is it's a little deceiving it. It's actually much higher than you realize when you look at just the cost of the loan. Okay, So, but builders are a big target market for that because of the ease of finance. Is that correct? That's correct. They don't have to go through so much red tape
to get a line of credit, that's right. And banks have really tightened up. The banks really tightened up. And one of the things we always tell builders really and client, we're more expensive than a bank. We're more expensive obviously than a conventional one that that a conventional officer can get, but we're still cheaper than a partner. And that's the key. So we're in between a partner that might want fifty percent of the profit on a transaction,
and and in between bank financy and capstones. Right in the middle of that. So it's like going to a convenience store to get a gown on milk. You'll pay more than going to H G B. But you don't want quicker, and you don't wait, and you don't got to walk so far. That's that's a good analogy I'm looking at it. That's the way I'm saying that analogy. Well, I like the Ray basically said it, but the the you want to say the phrase that you say, which is hard
money or private lending is the cheapest equity partner you'll ever have. Okay, right, so that's why we get high level and totally most of our guys are bankable. A oh yeah, okay, okay. The reason I ask you and we talked about the frustration, at least in my experiences as a traditional what we call agency lender selling loans of the secondary market to Fannie Mae or Freddie Mac. You know, there's a lot of red tape, and
you know, to close a loans usually around thirty days. Sometimes it's faster, but you know, there's a lot of documentation and stuff like that. So you guys, like you say, have a you all fill in the gap that's right between somebody who may not be able to qualify traditionally for whatever reason, but has a good, good asset and maybe good credit, and
you guys can his asset base. Yeah. Yeah, So so you mentioned builders, custom builders, I assume yes, well most, I mean we do some spec, you do some spec Okay, okay, but what other type of primary clients would you also serve? Talk a little bit more about your your client base. So I would say bread and butter. Probably seventy percent of what we do is that new construction, mainly here Austin, Central Texas. Well, we do all of Texas. We've actually even lended outside
of Texas. In fact, I was the borrower who piloted that program. I did six poems Seattle to Florida, got it. But yeah, the the primary place that we focus on right now, and this is by my own stamp or design, like I e. I don't let us go outside of that as we are solely in Texas. And even a bigger, more micro focus is the Austin to San Antonio corridor and then the forty six corridor saging all the way over to Bernie got through New Bronfels. So that's that's
central Texas with the top edge of South Texas is primary. But we do, we do. We actually do a few things in Corpus and a little bit in Houston, not as much anymore, And then we loved Dallas for two Now we've seen, at least in my experience, we've seen a fairly big shift in the residential world. I want to focus on that for just a second. That's been my world. You know, as far as values in Austin, what are y'all seeing? Are you seeing? Let me put
it this way. I've had some friends of mine who have gotten in some trouble, you know, in the fix and flip in the last year because they bought it wrong, right basic our timing was wrong, if you will, And they're they're challenged right now with with equity positions and selling properties and even leasing properties on some level. You know, what are y'all seeing as as as Austin goes, as far as values, are y'all bullish here? Still? I seem you are, well, yeah, we're we're highly bullish.
But if you knew how to navigate this ten percent adjustment, which the numbers just came out last week and the past year year over year to the month of July was a ten percent reduction and value. Yeah, and then the last year in the last year. Yeah, So for us, we're still and that's not too bad. We're still yeah, we're still within that range that that we're okay from an asset standpoint, But we did when we were coming into COVID and the supply chains were affected, demand just shot through
the roof. Everybody from the Left Coast and other areas moving here. They just absolutely the demand. I think there was one hundred and sixty five people a day coming to Austin. And do you know the stats on that today as far as people coming into town. Yeah, I mean we're not too far below that really from those about it was last month sometime, okay, so I'm thinking we're in one hundred quote me on that, but just curious. Yeah, it's still still really healthy. Yeah. I mentioned too on
rehabs. Rehabs probably what would you say, curtis less than less than five percent, So less than five percent of our portfolio. It's exception transactions and there there's a couple of reasons for that. Number One, the margins on fix and flip transactions are much thinner than the margins on new construction, and the budgets are bigger surprise. Budgets are bigger surprises. They always say, you never know what's behind the walls, right, and and so that's been
our experience. So we're not And Curtis has done both. He's done fix and flip, he's done new construction, he's done development, and and so the margins are always better on new construction, and that's why we favor new construction or renovations that. Fortunately we haven't had a lot of our borrowers get in trouble with that, with that price change that we've had over the last twelve thats because of that. That makes sense, That makes sense, and
they're they're also liquid enough to write it out right. The builders. The builders, yeah, yeah, because they've done well with us few years. Tell us some tell us our viewers a little bit about some success stories. Maybe a client that y'all worked with in the past. It worked out for everybody, you know, including y'all. Sell if you have any suggestions around that. I think there's one primarily that we would discuss. And I don't
think he'll care if I mentioned his name. Is his name, Peter Piveto he worked for the top custom luxury builder here in Austin. He ran their cruise for about seven years and in fact, his boss of that company used to work for is now it just become our new client. Awesome. He was literally the custom builder of the year in Austin, Wow, for the last two years. Awesome gossip. But Peter started off as an I don't know if you know what condo regimes are, yeah, okay, in one
Okay. So when that became the thing and East Austin started going through that process and it was like automatic. He started off with a little fix and flip on the front property and then built new construction on the bad back sign and what was approximately that was twenty seventeen. Okay, it was a first deal I did in Capstown, got it, And that was the first deal
he did on his own. Now he's building four multi multimillion dollar homes in Terrytown, Wow, and probably has seven or eight other developments going, including small subdivisions of eighteen units down to other kind of more median type. That's awesome conn the last six years. In the last six years, and he's gone from a guy who needed investors around him to not needing them. Is he's still a client, he's still a client of Yes, so he's doing
some big stuff. Yeah, that's it, right, And just just to tag in on that, with hard money lending bridge lending, it helps people like that get started where we where we do be gives chief secuity partner you're going to have, like you said earlier, and and so we're willing as a hard money lender, we're willing to take that risk that a bank may
not take because we're still asset based. So so Peter had great experience, right, great person to work with, right, And there's any representstive a lot of barbers that way, he'll come back for more, and he'll come back for more. And so it happens. What we really love about our business and I would see that sometimes on the conventional side, but we really love about hard money lending is a lot of our clients to become clients for life. Sure, And we might do three, four or five six transactions
you know, a year. In some cases it's been how big they are. We'll do a lot, we'll do multiple transactions and they'll come back and we'll do another loan for them, right, And it's it's usually similar terms. But what they really appreciate is that they can give us a call and say, hey, I've got another one right and and we just we bring them through that next process. So we do operate very much like an equity partner a lot of ways, but we're still lending as if we were a
bank. Yeah, so it speaking of the equity partner, do you ever do true equity partner with people? Typically we don't. The loan structure that we have gives them the equity that they we easily prefer to just stay in the lending business, and that is something that Capstone's going to be looking into in the near future. We're not there yet, but but right now, with the structure that we have, it's it's it operates as if we are
an equity partner. Okay, we're just establishing a second fund that that will be part of it. It's already up and running. But we're just not moving there quick. You're not investing any any of that money in not quite, We're still lending it. Okay, good good, good, Before up, before I forget, let's let's make sure what people know how to get a hole of y'all. Okay, if they're wanting no more information. This is just a snapshot, this little radio show. So tell us your number,
your email address or whatever. Your website Okay, it's Capstone Lending dot com. Okay, and my email address. Easy, it's Curtis c R T I s at Capstone Lending dot com. Got it, got it?
And Ray knows this. I mean, my my builders are texting me their Longhorn games and we're going back and forth about things like that, and in the middle of it, it's like, oh, by the way, I got a deal coming to them Monday, so my personal I'll give them my personal cell phone five one two six five six one four three three okay. And to get around any unintended firewalls, text me, yeah there. You much easier than getting hold of me through phone call because you might get my
spam robot killer. Yeah, I got it, got it. Didn't I didn't know about the robot killer, but I need one of those. You know, it works really well. There's a way for them to leave a message and say who it is, and I can kind of screen it, right, but otherwise texts the way to go. It seems like that is a preferred method of communication these days for sure, you know, so and so, speaking of your clients who come back for more, let's assume that
these builders come back. How how fast can you fund a deal generally speaking typically anywhere? It depends on and depends on the transaction and how you know, if they've got their documents together, because it could be anywhere from a week to four weeks on the average. When didn't you say, Curtis, Yeah, that's that's an average. I mean, look, we've we've funded an eight million dollars deal in like forty eight hours because the guy who's gonna
lose his property to a nefarious loan own kind of lender. Uh huh, and we knew him and trusted him, and uh I did the personal My my expertise is in value. Yeah, so I did the thing, so we can do that. It's not our preference, sure, right, I understand. I'm just curious and relative to commercial properties, can you share a little bit what what y'all do in that space, you know, like apartments to work in that warehouse or anything like that. We're we're we're we're kind
of getting close to that. But right now what we're doing is typically land that's going to be a future apartment complex, okay. And so we'll get developers, commercial developers that will come to us, they'll purchase to land because they need to purchase it. Maybe quickly. They'll come to a company like Capstone to get what's called the bridge loan, and they'll they'll acquire the property, might do some horizontal development on it, and then eventually they'll end up
getting financing. No, there's hut financing out there for for apartments that that you know would be hard for anybody to compete with. Okay. So typically it's not on the vertical construction, but it's on the horizontal development of what might be either a subdivision or it might be or BTR or multi family. Yeah, and BTRs for those and the build the rent. So that's that's a huge, huge movement right now. I'll see in the single family world.
Yeah, yeah, we'll see how long it last. But those who are able to from a from a portfolio standpoint, hold onto that and get there. You're seeing a lot of institutions more more than the clients we serve. Yeah, but our guys are preparing and entitling the land for those guys. Okay, I've got to do on New Bronfels. It's doing that all right now. Okay, So all right, and you you interchange the words hard money to private lending to bridge loans. Is that correct? Yes?
Okay, because it's I didn't know that. I thought there was a separate thing, to be honest with you, Okay, but when you speak about bridge loans to me, that's a that's a sort of a temporary situation. You want to roll out of those pretty fast, don't you. We do. So most of our loans are anywhere from you know, twelve months to thirty six months, probably more twelve months or less in most cases, unless a new construction we're looking at, probably would you say, yeah, okay,
yes, and y'all fund it from the ground up? Yeah we do. Yeah. I always say from trees to keys. I like that. I like that. I like that. So what else can y'all share in your world? I'm gonna let you guys run with it. Well, another thing I would mention too. So we talked a little bit about what type of transactions we fund new construction. We'll do commercial development, We'll do commercial land. You know, we have ratios that we like to look at. So we don't like to do a lot of land, right, so we
have to we have to kind of watch those percentages. But we'll do We'll do commercial office. That's not a real popular asset right now, but we'll look at that if it's a low loan to loan to value and the barber's got liquidity. Another thing that we've done too is cash out refinances, and that's where we've done a lot of those lately. And they're not necessarily come to us for obviously a better interest rate, but they're coming to us because
they need some cash. So if they're sitting on a commercial building and they own it free and clear, or they have a small first lean balance on it, and they'll come to someone like Capstone to say, hey, I need to get an extra hundred thousand on this particular property that I own to reinvest it back into the business. Right. So that's the other thing we
have. Another one, we've had some other ones in the past, I should say, where there's been they're buying out errors and the property, you know, buying out the brother and the sister and you know, and then one of the siblings wants to keep it, and so they're buying them out, And usually what happens is they'll usually go to a bank first and the bank says, well, we want to see some seasoning, right, and so come back to us in twelve months. So they'll come to Capstone,
they'll get the seasoning, they'll get the track record. Then they'll go back to the bank a lot easier loaned to do when they go back. That's right, Well, you do residential too. We'll do residential as long as it's not unoccupied. So all we can do has to be invested homes, forget about that. It has to be investments. So in that example, that would be like an investment property right that they may have inherited and and
they need to buy buy. Okay, it will be like a line of credit almost it would be, but we would actually just do it as alone. So we would just cash them out and we're okay with cash outs as long as it fits our LTV loan to value parameters. Is there anybody in the world doing your sort of business with unoccupied properties or no? Is that I don't think they're in Texas. They're not in Texas. Yeah, it's
really hard. If they are, they're doing it creatively, and okay, not announcing it because there's a lot of people who come to me that I can't help. Yeah, we get a lot of we get a lot of mortgage brokers calling us and hey, got this owner occupied yep, that just can't do it. Yeah, understanding, strangeful. Those are the quickest phone calls we get. Yeah, like and and and like, and I wish
we could help them out. It's just you've got the Texas homestead laws and it gets real ugly, and it gets real hard for hardy to do that, you know, and in traditionally, like I do. You know, our rates are pushing seven a half percent right now. You know that's a qualified borrower. You're hitting on something that we are getting people like the top
builder I spoke up earlier. Yeah, he's totally bankable. Yeah, the interest rates are are literally bringing those people to us because they'd rather pay a couple more points. Absolutely, absolutely, Well, this is just we're just kind of scratching the surface right now. You know. I mean, I'm here, like I said beginning, I'm here to learn too, because I want to know more about what you do and how to participate in that, whether it be the fund or my personal investments. You know, so i'd
like to have you guys back again, you know, and more. We've got a lot of questions here. We've covered maybe about a third of them at most, you know, so we're gonna wrap it up today, guys, and again we will appreciate y'all listen in to Mortgage Talk, where every week we come in here with some some knowledgeable people to share what's going on in the world to help help you guys make better decisions around your investment. So until then, thanks again, guys, thank you, thank you,
Thank you. Mark Well, this has been Mortgage Talk with Mark Hairston. Mark is a mortgage advocate with Texas Mortgage Source LLC, offering personalized mortgage solutions, vast customized quotes, great rates, and service with integrity. Contact Mark at Mark Hairston dot com Mark Hairston dot com. You can call our text Mark at five one two seven eight nine sixty nine sixty seven. That's five one two seven eight nine sixty nine sixty seven and come back next week for more mortgage Talk.