How to Break Bank Barriers and Close Real Estate Deals Faster with Creative Financing

Paul Anderson (00:00)
we went out and we partnered with a private equity firm who I knew and got him the capital to build. And like I said, right now he’s got nine starts going. And if it weren’t for that, he, I don’t know what he would be doing. He wouldn’t be building nine new homes and bringing those to the market.

Cody Crabb (01:48)
Welcome back to the Real Estate Pros podcast. I’m Cody Crabb with Investor Fuel. Today I’m joined by Paul Anderson out of Boise, owner of Vertical Funding Capital. Paul specializes in helping commercial real estate investors structure deals that actually get it done, especially when traditional lenders say no. He’s big on what he calls, and I love this, stopping the banking brain damage and helping investors cut through the noise and actually understand how to get deals across the finish line. Paul, thank you so much for joining us today. I really appreciate it.

Paul Anderson (02:05)
Thank

Absolutely Cody, it’s my pleasure. look forward to being here.

Cody Crabb (02:21)
So let’s go ahead and get started. ⁓ how did, ⁓ what’s your origin story? Tell us a little bit about yourself and how you kind of became to, came to be in this field.

Paul Anderson (02:30)
I kind of grew up in it, so don’t know if I had a choice. My family was in real estate, and so I grew up in a real estate brokerage when I was a kid. Started working for my dad probably around time I was eight, helping out, office chores, but got exposed to a lot of amazing people and amazing things. And of course, ⁓ back then not quite as regulated as we were now, so a little bit more what I call cowboy real estate. So a lot of horse trading and things of that nature. So that’s kind of ⁓ my introduction to

Cody Crabb (02:54)
You

Paul Anderson (03:00)
and I just came up over the years through real estate, ⁓ was in residential mortgage lending for a long time, done some development work, I played in fix and flip and rehab and ⁓ new construction. So if it probably sits on dirt and involves real estate, at some point in time I’ve tried it. I don’t know if I’ve been successful at all of it, but I’ve at least tried. And over the last couple of years, I’ve really enjoyed working on the commercial side of it. So as I mentioned earlier, help a lot of clients finance commercial properties, build

commercial properties and ⁓ but I still love working with investors. think real estate is probably one of the greatest pathways to wealth and so working with investors, your fix and flip guys, your rehab guys, your wholesalers and getting creative that’s where the fun is. So make me use my brain.

Cody Crabb (03:46)
Well, yeah, yeah,

and know, something caught my attention ⁓ when, in kind of your intro here, ⁓ you mentioned that you’re kind of, like working with people that don’t necessarily ⁓ fit within the traditional lender framework. They may not be able to get financing through a traditional means. Tell us a little bit about that and kind of why you like working that way.

Paul Anderson (04:09)
Well, again, I like the creative side. So anybody out there who’s ever worked in a residential mortgage, and I still have a lot of friends there and still have licenses in some states, it is so in the box. And it is so structured and so regulated. And it sucks when you’ve got to sit with somebody who’s an amazing human being, great people, but maybe they had a mishap on their credit or they lost a job or something like this. And they can’t move forward. So being able to get creative with them to help them, know, ⁓ tip

Typically, it’s not for home ownership, but for investment properties and see them start to grow a real estate portfolio is pretty awesome. ⁓ And it’s the ability to get creative and get on the phone with investors and lenders and have conversations with them. mean, to probably cite one of the most glaring examples, I have a close friend who’s a builder. We finance most of his construction. Awesome dude. He’s been building his whole life. COVID kind of kicked his ass a little bit. ⁓ So as a result of that, I can get him funded to build.

He’s got nine starts going right now. But because of the way the mortgage rules are, he can’t buy one of his homes. So I can finance him to build them, but I can’t get him financed to buy one. So it’s like, ⁓ So I like solving problems, seeing people create wealth. And I like the creativity. I love to get on the phone and negotiate.

Cody Crabb (06:17)
Yeah, well, and I think you hit on something there, which is a lot of times on paper, somebody is like a bad fit. Like they can’t, they don’t have a good credit score or something like that. But like if you actually take a look at what they’ve got, like the actual amount they’re able to pay and things, you start to go, Whoa, actually like they would be a fantastic. So, so it’s, I’m glad that there’s, there’s someone, something out there for, ⁓ for people like that that are kind of good people that have the means, but

on paper they maybe don’t fit the criteria for one reason or another. ⁓ So walk me through that builder example. what was stopping him from moving forward exactly and how did you structure it so that he could still build and be in the process?

Paul Anderson (07:01)
Yeah, so a really good example too, and this is, know we kind of joked earlier about the whole banking thing, but a lot of my business actually comes from my friends in banking because to their credit, they have strict regulations and a lot of oversight that they have to adhere to. So I completely understand it.

Cody Crabb (07:17)
Yeah, might not

even be their fault. It’s just the kind of, they have to do the rules. Yeah.

Paul Anderson (07:21)
They have a lot of gods to answer to. So in that respect, when they send somebody to me and I’m able to help them in the case of my friend. So like I said, he’s been a lifelong builder, ⁓ run several building companies for others, owned his own building company, but he got caught in COVID like a lot of people did. And so it really hurt him financially. ⁓ He still knew how to build homes. He still knew how to bring a great product to market that could sell and make money, but to the banks he wasn’t attracted.

active because of what happened during COVID.

So we went out and we partnered with a private equity firm who I knew and got him the capital to build. And like I said, right now he’s got nine starts going. And if it weren’t for that, he, I don’t know what he would be doing. He wouldn’t be building nine new homes and bringing those to the market.

But he still has that kind of residual hangover from COVID and some of the things that are still in his background per se that won’t allow him to get traditional mortgage financing, to buy one.

of his own damn haunt.

Cody Crabb (08:23)
Yeah, that’s pretty crazy actually, yeah. So okay, so someone that, ⁓ who is an ideal person to kind of work with someone like you? ⁓ So like what would their profile look like? What kind of things would they have in their history or on their credit that would make them an ideal ⁓ kind of client of yours or someone similar to you?

Paul Anderson (08:41)
You know, twofold. One of the things is, because I do a lot of stuff outside of banking, I do work with some banks when the clients meet that criteria. But one of the things that you can also see is when you get outside of that ecosystem, we can move a lot faster. So private capital moves a lot faster, doesn’t have all the regulation and the oversight. So a lot of times when you’re dealing with investors, speed is a critical factor. So being able to get them to the capital quicker is massive. But the other thing is,

somebody who’s maybe had some blemishes on their credit ⁓ might have some outstanding tax stuff. ⁓ There’s just certain things that for a lot of lenders and due to the regulations and the guidelines are hard stops, whereas we have access to capital. I always joke ⁓ and my friends in the banking world, they hate it, but they have to agree with me. Banks like the pretty people. ⁓ I saw this in the subprime mortgage days. So if you were a 720W2A paper borrower, you could walk through the

front door your banking, you get a loan. If you’re 1099 self-employed, you may not be able to. You could come to me back when I was a broker, I could write that paper and then we could sell it to the bank. So they don’t ever, it’s kind of like, it’s kind of like that relative that you invite to the holidays, but you don’t let them sit at the big kid table. So it’s, it’s one of those scenarios. So it’s just really those people that, you know, have probably had some difficulty in their past or aren’t what we consider bankable. There’s a lot of, there’s

a

lot of capital resources available for those folks. you know, if somebody says, you’re not doable, always seek a second opinion. And by the way, I can’t do everything. And if I can’t, I either try to find them somebody who can help them because sometimes it’s referring them off to private and hard money that I don’t have access to or giving them a quick no so they can move forward. And that’s the other one of the other stressors with institutional lending is that process can take 45, 60, 90 days to just

ultimately get to know. that really is hard for people’s psyche.

Cody Crabb (11:20)
Well, and not just hard for their psyche. mean, in an investor world, is 90 days that that product property is long gone by 90 days. like some put sometimes you have like less than a week to make a decision on a property. So the fact that you can, know, that this is an option to move forward and kind of get some get some speed on that. The speed and flexibility seem like the really big advantages here.

Paul Anderson (11:26)
strictly.

Yes.

Yeah, and I’m going to preface that before my phone starts ringing. Kind of like last week, don’t call me four hours before the foreclosure. The advice I can offer you is prayer. But I don’t have a program for that. And those things happen. So like anything, we are much, faster. But we are not miracle workers.

Cody Crabb (11:54)
Fair enough. Yeah, fair enough.

Yeah, for sure. ⁓ So one question I would have for you is, ⁓ so how should somebody know if they are, ⁓ like when should they prioritize the speed versus like the rate? Do you know what I mean? Like there comes a time when you have to kind of balance and I’m curious what your thoughts would be on that.

Paul Anderson (12:24)
Right.

You know, what I would say to that is the sooner you get started, the sooner you will know. So ⁓ where I see a lot of difficulty for people is they run out and they tie up the property. And they didn’t talk about the finance side of it at first. They didn’t model it out first and have a performance and know where they’re going to need to be in their cost of capital and their expenses.

Start that process a lot of times before you find the property to know where you sit. But that’s not always the case. So I think the problem is, and I see this a lot with people, they hitch their horse to one wagon and when that wagon comes apart, then they’re panic struck. And that’s how I get, hey, I was talking to this other lender and they said no, and I’ve got a foreclosure this afternoon at 3 p.m. I’m so sorry.

I don’t have anything for you. So, and I’m a big believer and I tell my clients this, never get content with your capital. So have multiple capital sources, have resources, so get out there network. And when you come across a deal, if you do that right, Cody, you can actually kind of shop us against each other and make us work a little harder for your business, which we like to do within Reason, and you’ll end up with better numbers. So that’s, I think that’s the big problem is, is we go to one source,

and then we get one no and now all of sudden we’re in a really bad way because we don’t have multiple lines in the water. So I always say shop me too, but get out there, start getting people competing for your business because you’re bringing us the opportunity. Without you there’s no need for us.

Cody Crabb (14:08)
Yeah, very, very true there. ⁓ So let’s just kind of zoom in real quick on vertical funding capital. ⁓ So how long have you been in business? What do you see as the roadmap? Is there anything you plan on offering later that you’re kind of wanting to get into, or is this mostly that you’re kind of where you’re at and you’re happy with it?

Paul Anderson (14:10)
So.

Yeah, so vertical funding capital is just something I came up with years ago. It was a concept that is actually brainstormed with a buddy of mine and I when we were sitting down in Puerto Rico. And I was just looking around going, there’s got to be other opportunities because at that point in time, you know, this was what, 2018, 2019, residential lending was much better than it been before, but still very restrictive.

And I kept seeing all these people and I kept having deals come to me that I would send off to my friends and I’m like, I’m tired of sending it to them. I’m a better negotiator than they are anyway, and I’m going to work harder. So I saw that side of it, but then I got turned on to commercial real estate by my same friend who’s a commercial developer and builder.

And I really liked the numbers. I liked the math and that’s the other thing. It’s very much a math equation. It’s not as emotional as home buying. So it’s very much, we can find ways to make the number

and we can get super creative. I mean, if you wanted to buy a home and you didn’t have the amount of money you needed for the down payment, I can’t go, ⁓ Cody’s got a vacation property or he’s got some land over here. We’re going to cross collateralize that and throw that in. We can structure way differently. As far as the future, think commercial is undergoing a pretty heavy change right now. ⁓ We’re starting to see, just like on the residential side, most commercial notes are based on like five, seven,

10 year terms before they either re-amortize or have to be refinanced. So we’ve got a lot of very inexpensive, low rate COVID money out there right now that’s getting ready to roll over. And the banks don’t necessarily want commercial assets on their books. So it is creating an opportunity for me. And we get some calls from some banks to look at turned down business because they no longer want it. The other thing that I do, and I mentioned earlier, like with my buddy, I love financing residential construction.

So single family, four plexus things that are four doors and under. I really enjoy that. And again, what cracks me up about that, I wish I would have known this 30 years ago, but after beating my brains in trying to do mortgages for people to find out that I can get these guys qualified to build homes much easier than I can get them qualified to own one was kind of an epiphany for me.

And the other thing I see is I think nationwide and I know especially in my market during COVID they did such a good job of refinancing people into extremely low interest rates that they’re probably never going to move. So new construction is going to be a key driver. So I love working with small and mid-sized builders, ⁓ especially the ones who have trouble with the banks to get them the capital that they need to scale and grow because as a country, we have a massive housing shortage. And the only way we’re going to have to build our way out of it.

Cody Crabb (18:01)
Yeah, that’s very well put there. mean, ask anyone under 40 and they will absolutely agree with you. There’s just nothing out there. ⁓ yeah, it’s very, ⁓ I think that having alternative sources like this, think I’ve been seeing those pop up, not just for funding and things, but for like everything in real estate. mean, because I think there has to be a better way as has come up when things are bad always. ⁓

Paul Anderson (18:07)
Yeah. Yeah.

Right. Right.

Cody Crabb (18:30)
When things are at their worst, that’s when things can maybe start to, you know, there’s some kind of tricky ways to get around it. ⁓ So just out of curiosity, ⁓ you know, the types of build, you said kind of small to mid-builders and developers are the ones that you’d work with. Would you ever, is there ever a situation where you’d work with an individual that just wants to build like a building? Or is this like you’re talking, like mom and pop type builders? Or is this like you need to… ⁓

Paul Anderson (18:44)
Right.

We do.

So like on the commercial side, yeah. On the residential side, it’s usually a little trickier. ⁓

Because say you want go out and you want to build a commercial office building to host your podcast in, you’re actually not going to be the builder. You’re going to be the owner. You’re probably going to finance it, but you’re going to go get with a general contractor. ⁓ I do have those people who took a weekend class at Home Depot and want to be a home builder, not advised. But we have financing to help them partner with an experienced builder, because we also want to make sure that that underlying collateral or the building being built is sound and

safe and sellable. So there are ways to do that. I’m working with a gentleman here right now who comes from a family. have a tremendous amount of land positions, never built a thing in his life other than an app on his phone. So we’re partnering him with a local builder. He’s going to do the development of it, which is fine, but we’re going to, they’re forming a business entity, a a single purpose joint LLC that will allow them to build and get the financing because we’re going to utilize that building.

track record of building experience to qualify for the construction financing.

Cody Crabb (20:07)
I see, yeah, so you’re kind of getting creative with exactly how it’s on paper, but in the end

getting a good result it sounds like, that’s fantastic. ⁓ So a couple last questions here as we’re winding down. ⁓ where are you typically, mean, with this shift happening, banks are pulling back a little bit, rates are kind of rolling over, I mean, where are you seeing investors or builders kind of get caught, like then they get stuck?

Paul Anderson (20:33)
So I think for investors, ⁓ I think it’s the same story everywhere. It’s always greed or overreaching. I think I’m seeing a lot of people right now that are so desperate to get a deal, Cody, they’ll buy one versus invest in one. ⁓

Kind of like when somebody said, I just bought my first investment property. And I’m like, you just bought a job. ⁓ So overreaching, we’re seeing, like in my area, we’re starting to see more auctions come back. And stuff’s getting bid up pretty ridiculously, especially because we have institutional investors who have access to resources. Most people don’t. But I do see people tend to overreach. And then their deal doesn’t pencil. ⁓ Or I see the people who don’t have

the experience, they watch a little too much HGTV, probably have a couple beers and want to go flip a home and not realize all the dynamics of it and all the cost because we do tend to glorify that. ⁓ More on the institutional side, I think the difficulty is is

Banks are under a tremendous amount of scrutiny and have a massive amount of regulation. So we recently picked up a builder in another state who’d been with his bank for over 30 years. On average, the guy had built about 140 homes a year, but the bank had made some changes and they were drawing down his construction line. And on top of that, they told him he fell out of covenants with his loan terms and he needed to bring in several hundred thousand dollars.

in a cash call to get his positions right. And when he called them, we talked to him, I said, do you understand your covenances and what it is you two did to violent? And he’s like, I don’t have any idea. I can’t read it. It’s all legalese. And that’s most people. So the way we do it on our construction site for builders is we

A lot of our stuff is private equity and before we ever fund a package, we haven’t sold. So assuming that there’s no fraud, there’s no malfeasance and the builder just builds, they’re not going to worry about us closing off their line or drawing down their line because that loan is already funded. So all the capital that we pledge to them is already sitting there.

And so they don’t have to come back and go, oh, you know what, Mr. Builder, you fell out of covenants. I need $140,000 to shore you up or whatever it is, which they don’t have. So that is where this is a different vehicle for them. And to me, that gives them the peace of mind, knowing if they just focus on building, they can deal with that. And most people hate paperwork. mean, the bane of most people’s existence is paperwork, and that’s where they bog down. So if we can find a smoother, cleaner process to help them,

and allow them to do what they do best, I think that’s a huge value add for them.

Cody Crabb (23:17)
Definitely, well, this has been super helpful. I think people hearing about alternatives when they’re in a situation ⁓ where they may not be able to get financing in a traditional way, ⁓ that may feel very exciting and a little bit of a relief to them. ⁓ So if people wanna get in touch with you or ⁓ work with your company, how can they do that? How can they find you online? do they need to live somewhere specific or is this just nationwide?

Paul Anderson (23:32)
Yeah, I hope so.

You know, for the most part for the commercial stuff, there’s, I’ll be very honest, I don’t do business in New York. It’s just New York is New York and it makes things very difficult. But for the most part, with the exception of a couple of states, I think the Dakotas are brick and mortar. I can lend just about anywhere. ⁓ Same thing on the construction side. ⁓ But then again, some of the states do have state specific licensing, but I typically have contacts in and around those areas. So again, if I can’t help you, I always want to get you to somebody.

you can so you can try to fulfill your dreams.

Cody Crabb (24:16)
That’s even

better, yeah. Thank you so much for offering that to our wonderful listeners here. ⁓ Thank you so much for joining us today, Paul. ⁓ And ⁓ thank you listeners for joining us as well. If you’ve got something out of this episode, and I’m sure you did, go ahead and like, subscribe, comment, do all the things, and so that you never miss another episode with someone like Paul that gives us such awesome information. Once again, Paul, thank you so much for joining us today. You have a good one.

Paul Anderson (24:24)
Thank you.

Thank you for the