High-Yield Real Estate Investing: Smart Deals & Big Returns

Christian (00:00.787)
Hey everybody, welcome to the show. I have here my friend Craig. He’s the founder of Copper River Funding. He has been successfully leading the company for the past 17 years. Craig actually specializes in providing high yield asset-backed commercial real estate investment opportunities to individuals, investors nationwide. So he’s seen market cycles come and go and has built a very solid business around helping investors grow their wealth while managing their risks. So Craig, without further ado, my friend, welcome to the show.

Super excited to have you on. Why don’t you just introduce yourself to the audience, share some of your background and just ultimately how you got here.

Craig Gaudio (00:37.366)
Sure, thanks for having me. And I really appreciate the opportunity to share the Copper River story with your listeners. Copper River Funding is a private commercial bridge lending company. We provide bridge loans to commercial.

investors or commercial borrowers that are in need that might not be in a bankable situation right now, but our bridge can get them to where they need to be in a bankable situation. Our company was started in 2008 in the middle of the credit crisis. And so we were kind of born out of the fire. And a lot of our guidelines and our risk mitigation strategies were born by seeing what happened to a lot of other bridge lenders back in 2008.

2008 and 2009, a lot of your commercial bridge lenders back then used large warehouse lines of credit. And when the credit crisis happened, one of the first things that banks did was they turned off those lines of credit. And so almost overnight, a lot of your commercial bridge lenders, which are

an absolute necessity in commercial lending. Commercial bridge lending is an absolute necessity. But we saw a lot of those companies overnight become glorified property managers for their investors. so learning from those mistakes, we created what we feel is a win win win for borrowers, for our investors and for

the project as a whole to get completed. so while people might not be, I guess, very familiar with what commercial bridge lending is, I’ll give you a couple of examples. For instance, we just…

Craig Gaudio (02:39.584)
We just funded a development project, a horizontal development project in Alvin, Texas. This is a project where the developer was a new developer, but she had been a development engineer for the last 25 years. So she has engineered developments all throughout Texas. But this is the first project that she took on her own and decided to develop a project with 92

home lots. She has a national home builder as the buyer. So that it’s already under contract to be purchased once once it was finished, but they needed the infrastructure to be in place. So that means electric roads, power or not power, but water, drainage ditches, things of that nature. And so we stepped in with a $4.8 million bridge. It’s under contract for 7.8.

to a national publicly traded home builder. So we have an entry, we have an exit. Because banks are right now, it’s eerily similar to 2008. When banks started tightening, we’re seeing the same thing. And we’re seeing a lot of it in horizontal development. So basically, we stepped in with our investor base, our investors will earn a 13 % annualized rate of return.

on their investment here and the project will get completed and our borrowers stand to make a little over $2 million on this project. So it’s a win-win for everybody.

Christian (04:21.416)
Wow, yeah, that definitely sounds like a win-win for everybody, right? The way you position that, I mean, it’s a no-brainer, it sounds like, right? You know, right, sure, absolutely. So, I mean, you’ve been obviously in the industry, Greg, for nearly two decades. I mean, I know you mentioned 2008. You’ve seen multiple different markets cycle shift. I’m curious, I mean, how have you adapted your investment strategies to stay ahead? Could you dive in a little bit deeper on that?

Craig Gaudio (04:29.386)
It sort of is.

Craig Gaudio (04:49.966)
You know, like I said, we were born kind of out of fire during the credit crisis. So we saw all the pitfalls that a lot of other commercial bridge lenders fell under. And we decided that was not going to be our fate. And so we set our guidelines in how we loan, the amount we loan, the loan to value, which is critically important.

at a certain place and we’ve held tight to those guidelines ever since. We typically have a 65 % loan to value guideline. So that means if a borrower needs to borrow a million dollars, the max that we’re going to provide them is $650,000. And it all has to be vetted. We do a lot of due diligence work. And that’s something that’s really, really important. Back in 2008 when we started, I came from the residential world.

to start with and quite honestly, had we known then what we didn’t know, we probably would have never started. But over the last 17 years, not only did we build a solid foundation from the mistakes that we witnessed in 2008, but we’ve continued to hone those risk mitigation strategies over the years. And you’re right, we’ve been through the things that a lot of companies have never been through. I mean, how many companies have been through a pandemic?

And so as a private commercial bridge lender and you’ve got loans out to companies that have strip malls, OK, they own a mall. Maybe it’s a 50 or 70,000 square foot strip mall with 10 tenants. And all of a sudden, those tenants aren’t even allowed to open their stores. What do you do?

Christian (06:16.562)
Yeah.

Christian (06:32.552)
Mm.

Christian (06:39.271)
Hmm.

Craig Gaudio (06:40.034)
How as a borrower are you going to continue to make those payments when your investment has completely dried up because they were mandated not to open? And honestly, we attacked that pretty quickly, quicker than most. Before they shut the country down for a two week, get it under control, whatever it was, we had already started emailing our borrower saying, this looks like it could get

interesting and we’re going to offer you a 90 day reprieval and just put that 90 days on the back end of your loan. What banks were doing at the time is they would do a quick forbearance and they’d say, okay, we’ll give you the next three months where you don’t have to pay your mortgage or your interest payments. But then the fourth month came and they wanted all four months. Well, that didn’t do anybody any good.

So we were quite literally ahead of the game. And because we were willing to work with our borrowers pretty rapidly and in a way that made sense to everyone, we were able to move through that process pretty seamlessly. There was a…

Christian (07:56.84)
Mm-hmm.

Craig Gaudio (07:58.218)
you know, it’s kind of like the old story of the duck. mean, on top, looked like we were, you know, smooth, but we were paddling like heck underneath the water, you know. But we survived and it taught us some things. also taught us about certain places we should and shouldn’t lend as well, because we saw what happened when the government took control over what looked like private property rights. There were certain states that if you had a borrower that was in default, you weren’t even allowed to send them a default notice to let them know they owed you money.

Christian (08:05.928)
All

Craig Gaudio (08:27.734)
or you’d be fined as a company. That’s terrifying. So there are places that we steer clear of now, I would say. But in 2008, when we first started, a lot of our investors were investors that had IRAs that had been decimated. They’d seen a 50 % drop in their IRAs.

Christian (08:39.366)
No, 100%.

Craig Gaudio (08:55.668)
We felt proud to be able to offer an asset-backed opportunity for these investors to start rebuilding what had been destroyed by the equity markets. So we felt like it was a win-win-win for everybody.

Christian (09:03.464)
mmm

Christian (09:08.166)
No, 100%. There’s a lot of value to unpack there. It’s one thing when you have somebody such as yourself that, again, have been through different market cycles, have learned some lessons from that, and obviously now know where to take that going forward for the right direction to obviously mitigate risk for people and obviously set them up for the best possible position. So I mean.

Craig Gaudio (09:30.35)
Exactly.

Christian (09:31.674)
Since we’re obviously talking about this, mean, we’re in a time of rising interest rate, there’s all this economic uncertainty going on right now, a lot of noise, right? You and I were just talking offline before we hit record, but how do you see this impacting the commercial market and just investing in general? What would you say in the next five, 10, 15 years plus out?

Craig Gaudio (09:54.082)
Well, let’s just look at the next two. are some things. As you know, five years ago, we probably hit the pinnacle of the real estate market, four to five years ago. And right before the pandemic, and maybe right at the beginning of the pandemic, there was so much volume and so many buyers out there and things like that. But interest rates were where? They were 3.75, 3 and 1.5?

Christian (09:57.074)
Mm-hmm.

Christian (10:19.016)
Hmm.

Craig Gaudio (10:22.73)
Okay, commercial rates for four and a quarter. Whereas now I think an SBA 507 loan is 10 and a half, 10 and three quarters. Okay.

Christian (10:31.656)
Mm-hmm.

Craig Gaudio (10:33.004)
The thing about commercial real estate that people don’t realize is that typically, while you might have a 20 or 25 year amortized loan, it’s typically only fixed for the first five years. So a lot of commercial investors that buy commercial real estate typically go in and refinance every five years to get that fixed rate again for the next five years. The problem is either they go in and refinance or the rate adjusts.

to actual market rates. Well, the issue is a lot of these commercial buyers that you see a lot of these companies that that sponsor the purchase of, know, crowdfund the purchase of big multifamily, multifamilies. Yes, they cash flow, but they cash flowed at four and a quarter. Will they cash flow at 10 and a half?

likely not. And so I think we have what between now and middle of 2026, 1.5 trillion in commercial loans that are set to either adjust or look to refinance. And a lot of banks out there are saying no to a refinance right now. It’s quite amazing. And I think a lot of that has to do with the uncertainty in the markets and the fact that, you know, these banks

have capital reserve requirements. And the only way that they can meet those capital reserve requirements a lot of times is just saying no to the next loan. The nice thing about copper funding is, and private commercial bridge lenders like ourselves, is that we don’t take away a bank’s depositors. So it’s a lot easier for a bank to refer a client to us.

rather than say an absolute no to their client because they know we can probably get the project done, but they’re not gonna lose a depositor either.

Christian (12:41.058)
Mm-hmm. love that. love that. So I’m curious, Craig, you know, too, I know we were talking earlier, but you know about your due diligence process and I’m curious to, you know, to see, you know, how do you handle that? Could you walk us through what your due diligence process is when you are analyzing a deal? And maybe you could talk about just some red flags that you look out for as well that, you you look at and you would say, okay, this probably isn’t the best fit. Could you walk us through that?

Craig Gaudio (12:50.286)
Yeah.

Craig Gaudio (13:06.638)
Sure. So when we have a project that’s referred to us,

What we like to do in the very beginning is review any documentation that’s been sent in and a lot of times it’s minimal. So we know where the property is, what the amount that they’re asking for is and what the approximate value of the property is. Those are all things that need to be verified. We have to verify the borrower’s credentials. And I know there are lenders out there that say we don’t

look at the borrower, we don’t look at their credit, we don’t look at their ability to repay. They’ll just provide capital as long as there’s enough equity in the deal. That’s not us. When we look at a project upfront, we typically limit our loans to 24 months. And there’s a reason for that. As you know, a lot of things can happen in 24 months. So

Christian (13:51.314)
Yeah.

Craig Gaudio (14:05.12)
Our job is to limit the amount of exposure our investors have to changing economic conditions to either the real estate market or the borrower’s financial financials. People get fired. People lose their job. A lot of things can happen. So we start there. And so when we’re looking at entering into a project, we’re really underwriting that project for a conventional exit.

It’s either a sale exit or it’s a refinance through a conventional bank. One of my partners, we have offices in Idaho, in Houston, and then we have a partner that splits his time between Atlanta and Jacksonville, Florida. And our partner in Houston used to manage a large commercial portfolio for a number of banks in Houston.

Christian (14:50.6)
Mm-hmm.

Craig Gaudio (15:01.11)
and is a skilled, skilled underwriter, very, very detailed underwriter. so Tim gets in there and underwrites our entry into the project based on their ability to exit our project within two years. If we don’t see a reasonable way that they can conventionally exit our loan, then we walk away. The job for us

Christian (15:25.37)
Mm. Mm. Dog. Mm.

Craig Gaudio (15:29.93)
is to mitigate the risk, not only to the borrower, because we don’t want a borrower to be stuck with a higher yield loan for any longer than they need to be. And we don’t want our investors to be in a bunch of defaulted situations. We’ve been around for 17 years. We’ve done over, I’m going to say, over a billion dollars in private commercial loans in that time period.

Christian (15:41.618)
Yeah, right.

Craig Gaudio (15:58.774)
And we have less than a 1 % foreclosure rate, which I think I would put up against any bank in the country.

Christian (16:05.384)
Wow, no, that speaks for itself right there. That’s the testament to having a great team that sounds like you’ve built for yourself and also just being very transparent as well. And that’s something I do wanna pivot off of since we’re talking about that. How do you educate realistic expectations with people? Maybe about the returns, the risks, the timelines, because as you know, people like slow money, people like long money, long-term money.

Craig Gaudio (16:08.742)
Christian (16:34.642)
But mean, how do you approach that when you’re working with somebody?

Craig Gaudio (16:37.71)
I would say investor expectation management is key to if you’re doing something like this. you’re, I guess the best way I could describe it is if I have bad news, you’re going to know it before I can, before I’ll get to good news. So there is, I’m a true Gen Xer. I don’t really have a filter in our industry. I don’t think, I don’t think there’s time to have a filter.

Christian (17:02.056)
I it.

Mm-hmm.

Craig Gaudio (17:05.365)
I think it’s time to just be transparent and tell the truth. And sometimes the truth is a little harsh to start with, but we always seem to find solutions. And that’s one of the things I think I’m really, really proud of is that over the years between myself and my two business partners, we have a problem solving capability that

that I’ve rarely seen in our industry. We’ve come up with some very creative solutions to help everybody involved. And that doesn’t mean that we haven’t had some bumps and bruises along the way, but the only way that you get to those solutions is if you’re critically transparent to everybody involved in the project.

Christian (17:52.337)
No, I 100%. I think transparency is a big thing that the industry lacks a lot. It’s just being transparent on exactly where are things at in this current moment. Because it’s so much better in the long term if you’re just upfront about that. And it’s gonna save you in a lot of trouble in the long run. Because as you know, Craig, 17 years, that’s all relationship built.

Craig Gaudio (18:02.667)
Absolutely.

Craig Gaudio (18:15.422)
It is absolutely. I would say that besides doing podcasts and, and, you know, every once in a while we’ll do investor presentations, but the majority of our investors, I think we’ve got about a 98 % retention rate with our investors and that’s over 17 years. So that, that should tell you something. I mean, we’ve had investors pass away and, they were our initial contact and their wives now have stayed on with us. they’ve contacted us and let us know.

you know, so-and-so has passed away, but he really enjoyed you guys. And so then I take the time with those investors to educate them on what their significant other was involved with with us and how they got involved and teach them what a good project looks like, what it may not look like. We do a lot of, right in the very beginning, when we take on a new investor, I like to spend time with them.

so that they understand exactly what it is that we’re doing. And a lot of them find it very easy to understand because they have a mortgage on their home or a mortgage on an office building or something like that. And basically all we’re doing is we’re teaching average Americans how to become the bank and be on the other side and receive interest. we have a number of investors that were big time.

landlords, they had lots of properties, but they got tired of the toilets and the trash and, you know, the taxes and stuff like that. And they see with us similar yields, only they don’t have to, you know, get a call at 4am saying that, you know, my, my, my washer has sprung a leak. So we enjoy that process. We enjoy developing those relationships. And because of that, the majority of our investor

Christian (19:57.308)
Right.

Craig Gaudio (20:05.122)
base now is referral.

Christian (20:08.476)
I love that. Referral’s the best, isn’t it? Yeah. Yeah.

Craig Gaudio (20:10.67)
It really is. And it’s humbling, actually, because that means that you’ve done something right. And the expectation is that you’re going to keep doing it right. And it’s important to do that. It’s important to perform for those people.

Christian (20:28.104)
100 % I think anyone listening even to this as well, you know, that’s looking to you know, obviously, you know mirror the success that you’ve been able to build as well I think that’s that should be your starting ground right focus on building relationships networking keeping people in your back pocket Don’t look as far as you know what you can get as far as a transaction out of this person Just focus on becoming their friend for life and then ultimately you’ll you’ll set yourself up for success long term, right? So Craig

Craig Gaudio (20:46.453)
Exactly.

Craig Gaudio (20:52.802)
Well, and that goes back to the community that we built. Did you have a question? I’m sorry. OK. That goes back to the community that we built, because we deal with high net worth investors, a lot of high net worth accredited investors. We also deal with family wealth offices that, in excess of $100 million. But we also deal with people that are in the accumulation phase. So those.

Christian (20:58.128)
No, correct, go ahead.

Craig Gaudio (21:20.972)
Those high net worth investors are looking to protect and continue to grow their assets. And so they may not be into equities as much as they were. They want an asset to back their investment so that if everything goes wrong, it’s not a zero sum game. It doesn’t go to zero. We have a piece of real estate we can liquidate to typically make you whole or better.

And we also have those, like I say, that are in the accumulation phase that don’t know much about equities, but they know about owning a home. And they understand that if being the bank wasn’t profitable, we wouldn’t have a lot of banks. And so they understand being put in that position. And like I said, back in 2008, we were really, really proud to put together a program where we could help people who had

Christian (22:04.712)
Mmm.

Craig Gaudio (22:17.198)
their IRAs and their retirement portfolios decimated, helped them rebuild, albeit 11%, 12%, 13 % annually at a time. that adds up. It’s exactly correct.

Christian (22:29.426)
compounds over time.

Christian (22:34.428)
No, Craig, that’s awesome. I love everything you’re about. And man, I honestly wish we could go for another hour, because there’s so much more I want to ask you and diving into. But hopefully we can get you on the show here again in the future to dive back in on that. But yeah, in the meantime, what is the best way for people to find you? Where do they need to reach out to? Where do they need to go?

Craig Gaudio (22:46.22)
Love to be, love to.

Craig Gaudio (22:55.368)
You can, well, first of all, my email is Craig, C-R-A-I-G at copperriverfunding.com. That’s C-O-P-P-E-R-R-I-V-E-R funding.com. You can go to our website, www.copperriverfunding.com. But you can also reach out to me. And this is, you know, we have a lot of personal touch with our investors. So my investors have my cell phone number. A lot of times when you’re in, well.

Very rarely are you ever gonna reach the CEO of an investment company. Here, that’s a completely different ballgame. My number’s area code 208-520-6544. You can feel free to reach out to me anytime.

Christian (23:38.984)
Perfect. Ladies and gentlemen, be sure to reach out to Craig. Craig, couldn’t appreciate your time enough, my friend. Again, I love everything you’re about. Thank you so much for time for sharing the value that you brought on the show and to our audience today. I really thoroughly enjoyed it. And I just wish you nothing but the best in your future endeavors, my friend.

Craig Gaudio (23:44.718)
Thank you.

Craig Gaudio (23:55.544)
Thank you very much. really appreciate you having us.

Christian (23:57.949)
No, of course, absolutely. It’s my pleasure. Guys, hope you enjoyed today’s show. I know I did. I hope you got a ton of value at it, but I already know you did. As always, my friends, we will see you on the next episode. Take care.