How to Finance Fix & Flip, DSCR, and New Construction Deals

Heath Pomeroy (00:00)

Yeah. And one of the beauties of what I do, I roll in all the payments during construction into the loan. So I have zero default rate because of non-payment. 100 % of the budget gets rolled in and I don’t verify asset. I don’t need to verify asset because the payments are already there. They’re sitting in escrow servicing just makes the payment on the first day of every month.

Dylan Silver (01:55)

Hey folks, welcome back to the show. Today’s guest is a lender based in Iowa who works across fix and flip, DSCR, ground up new construction and bridge loans. Please welcome Heath Pomeroy. Heath, welcome to the show.

Heath Pomeroy (02:09)

Thank you Dylan, thank you for having me.

Dylan Silver (02:11)

It’s great to have you on here, Heath, and I’m doing great, I’m doing great. I always like to start off at the top of this show by asking guests how they got into the real estate space.

Heath Pomeroy (02:11)

How are you today?

So my journey into the real estate space began back in the late 90s. I was working in a traditional bank setting, followed my boss at that time out and was one of the very first members of a subprime mortgage lender that grew to be a national lender. And from there I just stayed.

I transitioned away after the housing crisis and became independent originator, broker, and I’ve had the bug ever since. I just can’t leave the industry.

Dylan Silver (02:55)

We were talking about this before hopping on here, Heath, about how pivoting and being able to adapt to different markets and trends is really critical for long-term growth and longevity in the real estate space. Walk me through some of the pivots that you’ve taken, then you mentioned one there, as a lender.

Heath Pomeroy (03:15)

So as a lender, I really figured out early on in my career that I had to constantly learn not only about the market in which I live in, but other markets across the country because I would get referrals from time to time for clients that are out of state. so I just kind of got hooked on learning as much as I could about other areas of the country and then…

roughly about three years ago, I made the decision to transition completely away from qualified mortgage lending and business purpose lending, is DSCR, fix and flip, ground up new construction and bridge to doing and focusing just on the business purpose lending. And today, unless I get a referral or a phone call from a past client saying, Hey, we want to buy a new house.

any of that type of business, I just refer to other people I know because my passion, my desire is to help real estate investors get to the next level of their success.

Dylan Silver (04:19)

Walk me through Heath that ⁓ transition to working with investors. you know that, this is a transition that I’m gonna make? Was it due to a specific market pressure? Did you have one deal working with an investor that really piqued your interest? What was it about working with investors that really ⁓ signaled to you, hey, I’m gonna dive into this?

Heath Pomeroy (04:36)

Okay.

So I was an affiliate member of a real estate investor group here in Des Moines, Iowa, where I’m located. And ⁓ it was through those meetings and the immersion into that mindset that they were really struggling with, where do I find a lender that knows what I’m doing as a real estate investor that can provide me with

an easier path or better solution for me to accomplish my goals. And so it was from there that that was my kind of a-ha moment to where I said, okay, there’s definitely a need here for this group. I as a lender, I need to go find the solution for them. And then once I did that, they were…

incredibly thankful. And then it kind of went from that starting point of, this is what I’m going to focus on because these are like-minded people to myself and I prefer to work with like-minded people than anybody else.

Dylan Silver (06:18)

I do want to ask you about working with investors and that transition. think, you know, oftentimes people almost pick one lane and then don’t deviate from that one lane. And then when that stops working, it becomes like a, I don’t want to say a crisis of self, but it can be something along the lines of that. But you were able to pivot working with investors and then you mentioned business purpose loans even more specific and niching down.

In that process and as part of that transition, did you feel like along the way that there was a whole new skill set and a whole new mentality that you had to learn or were a lot of the skills that you had from maybe more conventional loans applicable with ⁓ investors and in business as well?

Heath Pomeroy (07:00)

⁓ So some of the skill set from the conventional qualified mortgage arena is all state. Some of those applied, but I had to quickly learn and develop others. And what I realized right out of the gate was, for every property flipper that wanted to purchase property and rehab it, they had to have a

more than just one option for an exit strategy of sell the house. And so then I quickly realized, okay, we can start with the flip process, get that done so that they can get the renovations complete. And then if it doesn’t sell, okay, option one, turn it into a long-term rental. Option two, we’ll roll it into a bridge loan, give you another 12 to 18 months so you can just have some breathing room.

so you can get the property sold. And ⁓ once I kind of put that together in my own head, I was just like, okay, here’s the package. And now I really deliver all of that information at once, try not to do an information overload to my clients, but I give them the comfort of knowing you have more than one option.

Dylan Silver (07:51)

Right.

Heath Pomeroy (08:13)

if you don’t sell the house. And that really gives them a lot of peace of mind knowing, okay, I as their lender, I’ve got their back no matter what.

Dylan Silver (08:58)

I think in the lending space when it comes to working with investors specifically, there is even more so relational based business because these are people that you’ll be dealing with not just once every potentially couple of years, but multiple times a year, right? And so when they find a deal, they need quick access to capital and they need someone whose process they understand and vice versa. Before I became a realtor, I was a wholesaler.

And I would see all the time how critical it was for the lender and the investor to be on exactly the same page, because if not, something could come up right before closing that could really throw everything off.

Heath Pomeroy (09:38)

yeah, you’re 100 % correct. with the clients that I’m working with now, that I’ve worked with in the past, it’s gone beyond just client lender, property flipper lender. I really developed friendships with all of my clients that are real estate investors. And when they have that next deal.

They’ll text me, they’ll call me, they’ll send me an email going, hey, here’s what I’m looking at, here’s the numbers, can you get me this? And I’ll respond back to them immediately going, how fast do you need it? Because I know that they’re in a time sensitive position where they’re at in the process for them. And they know that, okay, I have all their information.

just give me the purchase agreement if you’re buying this new property. just need title appraisal. close.

Dylan Silver (10:32)

That ability to transact quickly is a high value commodity in this space. And as someone with experience in this, and I mentioned to you, I’ve seen deals fall apart right before closing. It’s one of these things where it’s a high confidence, high faith, high trust relationship, because it’s not the same, and you know this very well, it’s not the same as looking for a house or looking for an investment property for multiple months.

and finding it and then getting the lending or vice versa. In many cases, this could be an individual investor gets a deal presented to them, that seller is motivated and they need to strike now and how are they gonna put the pieces of the puzzle together to make this deal happen?

Heath Pomeroy (11:16)

Yeah. And one of the beauties of what I do, I roll in all the payments during construction into the loan. So I have zero default rate because of non-payment. 100 % of the budget gets rolled in and I don’t verify asset. I don’t need to verify asset because the payments are already there. They’re sitting in escrow servicing just makes the payment on the first day of every

So

It’s really, once I have your entity docs, once I’ve got your experience documented, which depending upon how long you’ve been doing it, I could document three projects in the last three years and we’re done and you have advanced draws. And so it really truly becomes after the very first one we do, everyone after that is just.

Plug and play, purchase agreement, title, appraisal on the new property, and we close.

Dylan Silver (12:06)

I want to pivot a bit here Heath and ask you about, I want to ask you about ground up new construction because as a Texas licensed realtor, but also as someone who’s worked a lot with investors, it does seem like, and maybe this is just me, you know, with my finger in the air and trying to identify the wind, but it does feel like there’s a lot of interest in ground up new construction from everybody, even from people who may be.

Heath Pomeroy (12:07)

So it’s.

Dylan Silver (12:31)

⁓ Less comfortable with the space but maybe feeling like they have to get into it. Otherwise, they’re not going to be able to compete Especially a lot of fix-and-flippers who are pivoting to ground-up new construction in your business Are you seeing this trend as well are more people getting into ground-up new construction?

Heath Pomeroy (13:32)

No, I’m not seeing that and in fact I have a client out on the East Coast Where he’s been a homebuilder for over 25 years and He is now pivoting to fix and flips Because where he’s located on the East Coast He’s he’s seeing more of a of a decline in

new construction activity. But he knows that hey, as with everything, the market’s gonna turn around. Now I think we get two more rate cuts and ⁓ the new construction will pick back up tremendously because it’s a lower rate, so it’s a lower payment. And given that…

the increased cost of building materials and the cost to just build it have gone up, I really believe that’s why folks are kind of sitting on the sideline about new construction. I see it kind of more as a one-off right now. But from new construction, I can provide, so if somebody wants to buy raw dirt and do a, say a 20-lot track development, I can provide the financing for

Dylan Silver (14:21)

Mm.

Heath Pomeroy (14:34)

the horizontals and then the verticals all in one loan. So they never have to figure out where do I get the development funds to start, then where do I get the funds to pay that off and then start the vertical, I do it in one loan.

Dylan Silver (14:49)

I want to ask you about DSCR. DSCR seems like everyone’s involved in DSCR, even in conventional. I just spoke with a conventional lender out of Houston, mortgage broker out of Houston, and everyone’s doing DSCR. Is DSCR kind of this now flex product where everyone’s got their hand in it a little bit? Because it really does seem to be the hot thing in the lending space.

Heath Pomeroy (15:11)

It really is. DSCR, it’s the long-term rental. That is the real hot space right now. A lot of attention has been brought onto it solely, in my opinion, due to the dramatic increase in rental amounts per month. And the great thing with the DSCR, I don’t want your tax returns. I don’t want your pay stubs.

either give me a lease agreement or if you’re buying it and the property’s not leased, we’ll do a rent schedule in the appraisal and as long as the rent schedule come back and says, your monthly average market rent is this and as long as it covers the payment, I like to be at a one to one, we can go down to .75 but

I like to have my clients be at a one-to-one because I don’t want them pulling money out of their pocket to make that payment. So as long as it comes back and the rent washes the payment, here we go. All you need is money for down payment and closing costs and you can build your rental portfolio and this is truly the best way to do it for anybody that wants to get into

Dylan Silver (16:06)

Yeah.

Heath Pomeroy (16:17)

long-term rental property.

Dylan Silver (16:19)

Heath, we are coming up on time here. Where can folks go if they’re looking at a deal and maybe they’d like to reach out to you? Or if they’re in the greater Iowa area and they’d like to get in contact with you?

Heath Pomeroy (16:31)

Well, so I lend in all states except New York. New York’s the only state I can’t lend in. But how folks can reach me, my cellular number is area code 515-865-9914. And my email address is H. Pomeroy, that’s P-O-M-E-R-O-Y @ nexamortgage.com.

Dylan Silver (16:58)

Heath, thank you so much for coming on the show here today.

Heath Pomeroy (17:01)

Thank you Dylan, thank you for having me. I had a great time, I enjoyed it.