100% Real Estate Financing Is Disappearing: How Investors Should Prepare for Tighter Credit

David Diaz (00:00)
You have an opportunity if you have a little bit of liquidity. You are going to see distress deals like foreclosures, non-performing loans coming through that might not have been there two, three years ago to buy, right? But thinking about a deleveraging market, players with a little bit of cash will have an advantage. Now’s the time to set up.

Buckets of outside money to be able to move quickly, HELOCs, whatever you can do with your personal assets so that you can jump on something. If your business is entirely dependent on 100% financed loans, you may not have a business in six months.

Scott Bursey (02:12)
Welcome back to the Real Estate Pros Podcast, powered by Investor Fuel.

I’m your host, Scott Bursey. And today, pros, we’re delighted to have David Diaz, co-founder and CEO of Coastal Funding, joining us. David has over two decades of leadership and real estate operations experience and has spearheaded the acquisitions and stabilization of over 36,000 rental housing units, completed 1,200 fix and flip renovations, and built over 300 new homes. He’s also been a powerhouse in finance, underwriting and marketing more than two billion dollars in real estate debt. Pros, get ready. David is here to break down how to scale operations at this level while mastering the debt side of the business. David, welcome to the show.

David Diaz (02:58)
Yeah, thanks, Scott. Excited to talk to you.

Scott Bursey (03:00)
It’s awesome having you here and to help our listeners get up to speed, please give us the ninety-second highlight reel of how your career ignited and where you’re pouring your fuel now.

David Diaz (03:10)
Sure, yeah. Started in in banking on the institutional side, doing multifamily commercial, very big deals. When the foreclosure crisis happened, I was just at the ripe age to go headlong into that and walked away from Wall Street at the time and partnered up with the OG Flipper in Southwest Florida when Vegas and Cape Coral were like tied for number one of the naughty list, the most foreclosures. And we did 1,200 flips in four years. And you know, like made flipping kind of industrial scale, like 25 a month in and out the door. I mean, just crazy, you know, helped scale that from a yellow pad to, you know, at that time it was like G Suite and all that stuff.

And eventually, as the REITs came in and the Wall Street guy started buying all the houses, I went to work. You know, if you can’t beat them, join them. I went to work for those people. Finally kind of became somebody you would hire if you wanted to spend a bunch of money, like, “Hey, we want to do this,” from like registering the domain to building out a company, did that. Started a builder because I hadn’t had enough pain. Started a builder from scratch, built houses through hurricanes and rate increases and all that fun stuff.

And most recently sold the builder and just got to a point where like, I love doing it. I love real estate. I love everything we do in the space. I just geek out of the deals. But what I really, really, really enjoy now is empowering both the pros of today, but the pros of tomorrow with the funding to do their deals, right? I I get to apply all my years of expertise and looking at the deal as the right product, the right person, the right market, all this stuff. I don’t have to go do it. I just have to fund it and help them make it successful. And I get to touch so much more than just being in the, you know, neck deep in the weeds every day—this window set got stolen or, you know, this happened. So it it’s been such a joy to like work with people all over the country and help them succeed, regardless of where they are on the same journey I’ve been on.

Scott Bursey (05:12)
That’s an incredible journey, David. Thanks for sharing that foundational story with us. And what really caught my attention about you was the way you’ve been able to scale from high volume acquisitions to leading a massive debt platform without losing operational integrity. Building on that, curious to know, what was the most transformative achievement in your first five years that changed the way that you looked at real estate?

David Diaz (06:26)
So I I I think entrepreneurs are wired in a different way than other people. They look at a situation, they see it differently, they see an opportunity. One of the weird things about my head is I cannot do something without continuously thinking about how to improve that thing. If we have to assemble 10 pieces of the same furniture, I’m going to do the first one with the instruction book and then set up the other nine with an assembly line. I’ve redesigned and you know, I’m never going to change the tool bit again. Like, and the whole time I’m putting together the first one, I’m like, “I would have done this differently.” Like, whatever. So it doesn’t matter what the thing is. I’m constantly thinking about: how do we make it better, faster, cheaper, quicker? Why is it 12 clicks, not three? How do we simplify this?

And that same methodology, whether like when we flipped homes, we had a paint color code tied to a roof color, shingle color. If we replaced the roof, we defaulted to X color, right? Like it, we were going gray, there was a taupe color, whatever. So I we had flipping down to the point where you could drive up to the house, you’d look at the roof, and you’d say, “Am I gonna replace that or keep it? If I’m keeping it, here’s the paint.” You we had an A, B, or C package. If it’s gonna sell for, you know, under 200,000, it’s this much. You know, it’s a B, it’s two to four, four and above, you know, a C. We could take somebody who’d worked at a major home builder who is now unemployed in the foreclosure crisis—they weren’t building—we turn them into a flipper in two hours. Like, buddy, here’s the price, there’s the roof color, there’s the package. You know what, none of this… like we actually demoed for Flip This House back then. Like we were doing such high volume, and you know, they came in and their the final feedback was like, “Hey, you guys are really cool, but like you’re institutionalized. Like there’s no pretty wife and husband fighting over the granite. It’s like you’re you’re like robots.” And you know, it’s not fun, but it’s it’s cool to be… I I robotize everything. Just how do we how do we do that again tomorrow faster?

You know, so like most recently, any of your listeners that aren’t just neck deep in AI: if you think AI is a chat friend, you are missing the whole boat. We are doing 90% of the back end of our business—not the major decisions, not the human part, nobody talks to a machine—but all of the nug work. If you’re spending hours on, you know, bookkeeping or sorting files, if you’re doing anything that takes a lot of time and adds no value, you’ve got to be looking at how to use AI to do it.

Scott Bursey (08:52)
Love that perspective. David, what do you consider the biggest competitive strength of the Coastal Funding platform currently?

David Diaz (09:00)
Yeah, so we started our platform AI-native, which means we have a very low cost to, you know, back office serve our customer. We focused all of our resources on very senior people that interact with our actual customer. So no one who talks to our organization talks to a, you know, young person or a person overseas who doesn’t know, you know, more about the deal. You’re always talking to an operator. And you know, so something that could take 30 days overseas messing with a budget change or, you know, arguing about something, you talk to somebody with a ton of experience, we apply a solution, we work with our customer, and we move on.

And you know, that… but meanwhile, the behind the scenes stuff like, you know, editing the budget, pushing it back in the system, like whatever, you know, computer stuff that had to happen, that’s happening with, you know, a bot or something. You don’t care how the soup gets made. You want to talk to a really smart person, get the solution or advice you need and and then have the suit made and have it actually cost less than it would have to talk to a 22 year old who doesn’t know anything about a deal at a a major, you know, national lender, right? So we can deliver like private bank-type service with, you know, our backgrounds and yet accomplish cost of that service much lower.

Scott Bursey (10:22)
How do you ensure your team maintains that strength when scaling?

David Diaz (11:02)
Well, you know, like candidly, we we work with pros. We do not want to be every person’s lender. There are people that are, you know, not maybe ready for us yet, or you know, and that’s okay, we’ve got ways for them to get there. But, you know, everybody wants to be a Navy SEAL, not everybody wants to go through BUD/S to get there. We can take people that are very early in their career, help them be very successful. We have stories of, you know, highly successful contractors who’d never owned a deal as the sponsor. They couldn’t get a loan elsewhere. I’m looking at what they’re building. I’m going, “Okay, you built the same stuff for other people. You just never owned it. I’ll back you. Let’s go,” right? I I know you’re the one doing it. We just turned a guy in New Jersey into a developer that had been a contractor forever. Now he’s a developer. Like awesome. But he was getting it. The difference there is he had his stuff together. Everything we asked him for he had. He knew his cost. He knew he was a pro-grade operator, just doing it for other people. Right. We take that pro-grade operator and we say—

Scott Bursey (12:06)
What is the one up? Just curious, what is the one operational bottleneck you see most often in companies your size that you’ve had to actively work to to overcome, perhaps, David?

David Diaz (12:20)
Yeah, so most investors get stuck in either like a part-time scale—at least in my observation, there’s a lot of people who invest as a hobby. And and that’s wonderful. Like I… one of the things I love about rental real estate and, you know, passive income is that you can do it with a day job and all this other stuff. That’s that’s great. Everybody should own rentals and do all that. But getting from there to like “this is my full time job” is a big leap, right? There’s also… and there’s a bit of a chasm there, you know, in like capital and and expertise. But there’s also a stratification of a ability.

You know, I I was talking to somebody the other day and they’re saying, “I’m a I’m pro-grade.” It’s like, okay, I’ll tell you when you’re pro-grade is when you can call your plumber on his cell phone at three in the morning and he answers. That means you do so much business with the guy that he answers the phone at three in the morning. If you’re not even sure who’s plumbing your next deal, you’re you’re you’re not enough of their business to matter, right? Like it’s not bad, it’s just that I think a lot of our industry has compressed, like through our participation trophy kind of world that we live in today. It’s like, “I did three deals in 10 years, I’m a pro-grade investor.” It’s like, no, you’re an aspirational investor. That’s awesome, I’m so proud of you. It’s it’s crazy cool, but like don’t think you have the same scale of a contractor who does this all day for a living. They’re two different things, right? And and knowing what… so I would if I was doing very low deal volume, I would do a different kind of deal than I would do at high volume.

Scott Bursey (13:52)
Right. That’s a great observation, and thank you for sharing that with us. Let’s shift gears here just a little bit, David. Where do you see the biggest opportunity for investors to capitalize in the current debt market?

David Diaz (14:06)
Yeah, so debt markets are currently resetting a little bit, right? Like what’s happening macro today, you know, end of July 2026: people lenders are deleveraging. You know, what used to be 100% loans, now 95 or 90. You have a deleveraging effect in the market. People have some foreclosures, unfortunately. Rates are going up even in the investment credit space. So you have an opportunity if you have a little bit of liquidity. You are going to see distress deals like foreclosures, non-performing loans coming through that might not have been there two, three years ago to buy, right? But thinking about a deleveraging market, players with a little bit of cash will have an advantage. Now’s the time to set up buckets of outside money to be able to move quickly, HELOCs, whatever you can do with your personal assets so that you can jump on something. If your business is entirely dependent on 100% financed loans, you may not have a business in six months. They not exist, regardless of how good you are. So, like even if you’ve done nothing wrong as a borrower, you’re amazing, keep in mind like credit markets are tightening. You want to be prepared and not dependent on that.

Scott Bursey (16:05)
And let’s expand a little bit on Coastal Funding, your operation, your business. Where do you see it in the next twelve to twenty-four months, David?

David Diaz (16:14)
Yeah, as far as I know, we’re one of the fastest growing real estate private business purpose lenders, you know, in the space right now. We launched very effectively. We were very well, you know, backed by by the people I’ve worked with for years, and, you know, we just had a wonderful start. It it’s been… we expect our business to continue to grow throughout this year. I expect it to more than double on a monthly production rate between now and the end of the year. You know, our business, like private credit lending, is incredibly fragmented. I don’t think most people understand how it’s set up. There’s maybe 50 players in the country that actually buy loans—you know, think Blackstone, KKR, major private equity funds that buy the paper, life insurance companies. There’s maybe a hundred or two hundred who actually write a check when they lend. They may sell it eventually to the people who buy it, but they actually write the check at least when they lend it.

And then there’s 9,800 other people out of 10,000 people you can get money from that are just brokers. They’re just going to one of those places who actually write a check to get you a loan, right? And I we we get transactions from brokers. We love our broker partners. They can be amazing facilitators and intermediaries. They can actually do a great service for their clients. There’s absolutely nothing wrong with them. We love our broker partners, but they don’t control the transaction. And I don’t think a lot of borrowers understand like who’s actually in control, because if I wasn’t from the space, I wouldn’t know the right questions that, like, “Are you writing this check? Like, this is gonna come out of your checking account, or you’ve got to go to somebody else and see if they’ll write the check?”

So we see deals all the time that have been 49 days in underwriting. Somebody looks up and a checkbox isn’t there on day 39. They’re supposed to close on day 40, and we get a phone call in panic, “Oh my goodness, my other, you know, place balked on this. Can you help us, please, please, please?” You know, and we’re we’re sitting there going, “Yeah, I I can fix this, but like, why didn’t you come to us in the first place?”

Scott Bursey (18:16)
What do you view as the biggest external threat to current housing stability, and how are you hedging against it?

David Diaz (18:23)
I think everybody needs to watch rates. You know, at the end of last year when the Fed started buying, you know, some mortgage-backed securities and rates, for a moment, rates ticked down sub-6% on standard residential mortgage, like 30-year residential mortgages. I was really expecting a great 2026. I thought, like, “Okay, we’re gonna be,” you know, like rates are gonna come down. The home building industry and like general real estate does fine if rates are below six. It does amazing if it’s below five, and if it gets below four, it becomes bananas, right? Like everybody loves sub-4% rates. But even, you know, 6% or under is fine. What we noticed as a as a builder, as an investor, when rates get above six, man, that phone gets a lot slower on the sales side, right? Like it costs a ton to buy down rates if you’re a builder. You can buy down rates for your customer, but it takes so much money because of the the the spread you’re trying to cover. It just gets very expensive.

I think we have to watch rates like… the the stuff going on with Iran and around the world has made it like very, very, very hard to predict inflation. And if you can’t predict inflation, you don’t know where rates are going to go, and I think you have to be careful. You have to really be careful that what you’re investing in today from a real estate perspective is going to be sellable tomorrow. You have to ask yourself a real… like, “If I buy this house today to flip it, am I gonna be okay if rates are seven, seven and a half on a residential rate? If I have to sell it at the end of the year at seven, is that okay?” Right. Maybe it is, maybe it isn’t, but like you don’t wanna be on the bubble. I would not wanna be on the bubble on a deal right now, you know. Right now it’s gotta be an obvious yes if I’m gonna to invest in an asset, or it’s probably should be a no, ’cause you can’t you can’t say with certainty it’s gonna be better tomorrow than today.

Scott Bursey (20:14)
From an underwriting perspective, David, what is the one must-have metric you look for that most people may ignore?

David Diaz (20:22)
You know, so we think about underwriting in three… there’s three legs to the stool of a deal, all deals: the asset—like, is it the right house, right, you know, right property, right location, right? You know, is this thing what you think it is, right? You know, is there some false positive or false negative that that no one’s seen? You know, so right house, right location—is that location liquid? Are there sales occurring at that price point there every day? Is the borrower the credit, right? Do they do they have, you know, a little bit of cash in the bank? Do they have decent credit? And and then how’s the deal… the what I call the execution—how’s this going to happen? Who’s doing the work? You have a contractor, you do it, like how is this, you know… and depending on the deal story, somebody building a ground up that they’ve never built, well, maybe it doesn’t… I I know you’re not building the house. You hired a builder. So now we’re looking at the builder for execution, we’re looking at you for the credit, and we’re looking at the house to say, “Are you building the right thing at the right price?” Right. Where somebody flipping a light flip, dude, I don’t care. You and your kids can paint the house. Like, you know, I’m not worried so much about like how that’s actually going to happen.

I think the difference in us is when we look at a deal, we really look at those questions and go, “Okay, do we feel good about these things?” What that allows us to do, if like two out of three of the legs of the stool are really strong and one of them might have a, you know, there’s a credit hiccup or there’s, you know, like, “I’ve never built a spec home, but my GC has,” like one of the really cool things we do at Coastal that I I I’ve not seen a lot of other lenders be able to do is I can marry a zero-experience borrower with a G— with a builder with experience, and I can fund a spec deal that other people won’t. Now, that because I know you’re not building the house. Like I I know you’re, you know, I’m not relying on you to get a shell built, I’m relying on your builder. So we go and look at the builder and say, “Hey, they’re good, they’re reputable, they’re doing okay, cool. You’ve got some money, you’re building a cool product in the right place, and you got somebody really talented to do it. Let’s go, we got a team,” right? And we’re able to do that because we look at the whole thing.

Scott Bursey (22:30)
David, let’s kind of build on that a little bit. That’s a great path that you are traveling down. What does your professional network look like right now?

David Diaz (22:40)
Yeah, I mean, I’ve been in this space for a really long time, so there’s always… we’re always interested in meeting more people. I, you know, yeah, I joke, like, “Does your your plumber answer the phone at three in the morning?” I live in Southwest Florida, born and raised here, but operated all over the country. I literally… my mom lives in a town north of Indianapolis. I text a guy the other day I have not talked to in a decade. We operated up there at one of the REITs and said, “Hey, my mom needs an air conditioner.” Like, true story, my mom’s AC died. “Can you get a new AC up there tomorrow?” I paid less than Invitation Homes pays for an AC and I had it in the next day, right? That’s what happens when you bought a thousand air conditioners from a guy, right? Like, they, you know, it immediately, like, “Hey, bud,” you know, like, haven’t talked to him in a decade, “Hey, where… what’s the address? We’ll be there, no problem.”

Scott Bursey (23:34)
David, when you look at the two billion dollars that you’ve underridden, what is the one piece of advice you’d give to someone trying to secure their first major institutional funding deal?

David Diaz (23:45)
So yeah, I mean, you’re building a partnership. Even even though it’s a lender, you know, they don’t… they’re not really an equity partner. I think the best relationships are truly that, where like you feel like that partner, whoever it is, whoever you’re… everybody’s gotta borrow money and every lender’s gotta lend money. The question is like, are you a transaction to them, or do they really wanna understand you, your business, what you’re actually trying to do, where you’re coming from and where you’re going, and be a part of that journey? And I I don’t just say that because that’s kind of how we’re wired, but I say that because it’s super important. If you’re with a lender that you’re like a, you know, a borrower ID number, that lender may be huge, they may have really cheap money, they may do all kinds of… they may make really bad, dumb loans. Like, who… and they may over… you know, who knows? But like the problem is if they… if their credit officer gets in trouble tomorrow, they don’t care who you were. They don’t care what that just did to your business. They don’t know you’re not partnered, you’re your loan ID number. Like that… that’s fine.

I would go for relationship first. I would find someone that I feel like actually understands what I’m trying to do, wants to be along for that journey, and you know, whether it’s us or somebody else, form that relationship, because even in a world where I’ve talked about AI and all this other stuff, the relationship matters. When I talk to our credit committee and we’re trying to figure out if we can, you know, get a little higher on a threshold or something, let me tell you, it’s it’s partially about the asset, it’s… but it’s a lot of, “Do we know them? How do we feel about this borrower? Like, how well do you know them?” Like, “You know, I know this one really well.” Like, “Okay, I’ve been to their property. Okay.” Like the sense of comfort when you actually know who you’re dealing with is like invaluable in a world of AI.

Scott Bursey (25:36)
Incredible advice. Thank you for being so generous with that knowledge, David. And for those of our listeners that want to keep this conversation moving, stay in your lane or collaborate with you on future deals, what’s the best way for them to reach you directly?

David Diaz (25:49)
Yeah, I I I’m easy. I’m [email protected]. Our website is coastal-funding.com. You can, you know, do a lot of stuff there. We have a really cool partnership relationship. You know, if you’re you’re in the the space and want to place money with us, we can we can work on that too. We do referrals, we we obviously directly lend, but we’re also just happy to talk to you. We, you know, I I… my personal goal for every single phone call I have, and I spend about eight hours a day on the phone with clients, is to find some way to add value to their business that has nothing to do with the loan, right? Whether it’s a better insurance contact, a better, you know, a better deal on your paint, like whatever you’re doing, if we talk for 20 minutes and—I say this in all humility—if I can’t find a way to help you, I’m having a really bad day, because I almost always can. And it may not even be the right time to do a loan deal, but like I’m okay with that. Like I’m just super happy to have like given you something and, you know, we’ll connect again later.

Scott Bursey (26:50)
Dave, thank you so much for joining us today on the Real Estate Pros Podcast. This has been an outstanding masterclass.

David Diaz (26:58)
Thanks, Scott. Thanks so much for having me on.

Scott Bursey (26:99)
And to our listeners, we appreciate you. If you received value from today’s episode, please subscribe. We’ll be filling your tanks with a lineup of elite guests, just like Dave, who are accelerating and setting the pace for the rest of the industry. Until next time, keep your standards high and your vision clear. We’ll see you in the next episode, everyone.