Disrupting Real Estate Finance: Asset-Based Lending and the BRRRR Strategy with Saurabh Shah

Josh St. Laurent: Welcome to the Wealth in Yourself Podcast, a show dedicated to helping you master the complex subject of money by simplifying it through stories and actionable advice. I'm Josh St. Laurent and this is Wealth in Yourself. Welcome to the Wealth in Yourself Podcast where we help people to design their ideal life and take control of their time and money. I'm your host, Josh St. Laurent. Today we're joined by Sorab Shah. Sorab is an NYU alumnus and co-founder of InstaLend Corporation, an alternative lending platform that's changing the way investors finance properties. Sorab's journey has taken him from the vibrant heart of Mumbai to the financial pulse of Wall Street where he's shaking up the real estate lending scene. InstaLend has been recognized as one of the fastest growing companies in the US and provides thousands of real estate entrepreneurs access to capital that allows them to redevelop neighborhoods. Josh St. Laurent: With the real estate landscape undergoing significant changes, especially in the wake of economic fluctuations, we deep dive today into the nuances of private lending, the emergence of novel financial products tailored to new markets and how investors can leverage these tools for success in the ever evolving real estate market. Sorab, so glad you're here. Saurabh Shah: Josh, good to be out. Thank you for having me. Josh St. Laurent: Absolutely. Yeah, so I was super intrigued reading through your bio. Obviously, lots of real estate investors listen to the wealth in your self-podcast, so maybe just a background on how did your company come to be? What was the inspiration behind starting this? Saurabh Shah: I'm a grad from NYU, started my career on Wall Street, working in Western Banking, and then private equity. And while I was working these jobs, I really had a keen interest in real estate investments. So I was flipping houses on the side as, you know, my many projects, and I just realized how difficult it was for someone to get started with investing in real estate if they didn't have the right means of resources in terms of capital and the color of capital backing them. Saurabh Shah: So I married my experience from Wall Street, Rodon Domain Street, and that's when we started Instagram. Instagram is a private fund. It's real estate focused only and we're completely asset backed. You know, we make a loan based on the value of real estate, not based on what your individual income is. We only under the asset. We do not underwrite the individuals who are buying these properties. So that makes it really easy. It's a 10 day close. We do fix and flips, which are 12 on short term loans. We do long term buy and hold or cash out refinances, and we land across the US. Josh St. Laurent: Awesome. Okay. So I think it's a little bit more, but maybe just if we start with who is a good fit for in the land, who are the type of people that you're serving? Saurabh Shah: What works for us in the box, typically you like to see someone who has some sort of experience with real estate. So either you are a licensed contractor who's fixed up houses before or say you're a licensed realtor who understands our real estate is sold. But if you're a first time investor and you're working with a crew, which is a licensed GC, you would qualify for us. So we're looking at investors who are buying houses for the sole purpose of investments. These are not your primary homes. So non-owner occupied investment properties owned by individuals is someone who would fit our lending deadlines. Josh St. Laurent: I gotcha. And so for the people listening, what makes you guys different from, let's say, just a conventional, mortgage lender? Like, what are some of the products and solutions that you have that set you apart? Saurabh Shah: The people things, the very first thing is the time to close. When you're buying an investment property or really looking to make your money on the buy, so if you come across a distress investment property, which needs fix ups, you want to try and get that source of financing as soon as possible. What allows us to close in seven to 10 days is that we don't underwrite your individual income. So we don't ask you for tax returns. We don't ask you for paystuffs or W2s. We really focus our underwriting on the real estate as an asset class. So all we need is an appraisal report. So that's something that we get back in five days. We can get to closing in seven days and you can secure that investment property. That's number one. So outside of the speed, we also offer high leverage. So if you're an experienced investor, we'll finance up to 90% of your purchase and cover a hundred percent of your rehab. So you're only looking at 10% out of pocket. Now this makes sense. If you're a skilled investor who's working with, say, a portfolio of properties, you want to make sure you have that cash flow available to go and make more acquisitions. Typically conventional lenders will not just underwrite your particular individual income, but they'll also only finance your purchase. So you're going to come out of pocket on the fix up. So that's a big cost that you have to allocate out of pocket and that limits your ability to scale. And the third and the most important thing is our loans are structured as business purpose loans. It means as it goes out to your business entity, such as an LLC or a court, we don't give loans in your individual names. So it doesn't get reported to credit. It's not going to affect your credit utilization levels as compared to conventional where it will tap into the bandwidth of your credit availability. Josh St. Laurent: Man, so many good points there to kind of go down. And this is such a pain point for real estate investors. I mean, I think I told you before the call started, I was talking to someone this morning and this is their main point with the fixed inflight. They're having to come out of pocket more than they want to. She is doing this full time. She doesn't have a separate job. She doesn't have a W2. She's having a hard time with underwriting herself personally. So so many good things to dive into. I think I'm curious to ask you about are there types of investments that work better for your lending solutions than others? Like for example, someone who does short term rentals, the same as someone who does long term rentals or maybe self storage or some sort of commercial property, or are there different areas that you like to focus on or prefer to focus on? Saurabh Shah: So our focus is the one to four reccee homes, but we do also lend on five plus multi-family apartment buildings. Currently, we're capped at nine units. That's the ideal sort of fit for our programs. We don't do any other commercial. There's no office, no warehouse. We just strictly focus on residential use case. Josh St. Laurent: I love that. And does it make a difference if someone's doing a long term rental versus a short term rental or even a mid-term rental? Does that make a difference in your underwriting process? Saurabh Shah: So we lend for both short term rentals, such as an Airbnb or a work-bow, and we also do underwrite too long term rentals. Of course, the two programs are a little different in terms of how we underwrite the products. We do have both these programs available. Josh St. Laurent: I can see this being such an important solution to somebody being able to scale. Is there any sort of limit to the partnership that you have with the investors that you work with? So, if you have a sample after they do 10 deals with you, is that sort of a cap or is it just unlimited and you guys can partner together for years? Saurabh Shah: It's completely unlimited as long as you're a performing board or an investor. That's key. I mean, it's not just about handing out loans. It's about making sure the loans continue to perform. And that's where underwriting comes in. So if you have a solid buttoned up underwriting approach to any make loans and you can contain your delinquencies to what the industry average is or below that, there's a lot of things that there's no reason why you will get tapped out on the financing side of it. And the beauty is that because these get structured as business purpose loans, and like I was saying earlier, they don't affect your credit utilization, you can take out one loan or you can take out 10 loans at a time. There's no limit. Josh St. Laurent: So I'm curious to pivot a little bit now that I sort of understand this business model and you're solving this problem of the financing on the front end. What are you seeing as far as trends right now or other hurdles that people are encountering once they secure the financing and they're going to do the deals? Saurabh Shah: Let me give you an example. This will help your audience understand this better. Investors who were flipping properties just before the onset of COVID and were continuing to flip properties during COVID saw one big change at the industry. That was cost of material going up because inflation went up. There was supply constraints. You had a complete hold on material on labor moving from one place to the other. So the holding cost because you're still servicing your notes, you're still paying your lender. And at the same time, the biggest challenge was you estimated your rehab budget to be a certain dollar amount. And now because inflation has kicked in and the cost of materials have gone up, you're not able to finish your work within that same scope of work. So that completely changes the economics on the deal for two reasons. One is, of course, you've had a cost to run. But the second thing is you've also had a time over that's one big piece that we saw coming out of COVID where investors were hurt the most or those were some of the biggest hurdles. But as we see supply kind of come back into rhythm, we're seeing some of these things fall back in place. But answer of that, the biggest hurdle in today's market, which doesn't really answer your question as to post closing or post securing the financing. But before securing financing is the cost of capital. We've seen interest rates go out coming from COVID where it was at rock bottom zero percent to where we are today. That's really eaten into the profit center for investors because your cost of capital has gone up. So the cost of servicing these notes has gone up. So that's again, one more big hurdle that we've seen a lot of investors can now work through. Josh St. Laurent: Yeah, very true. I'm hearing a lot of the same pain points. And I think just to piggyback off of that, a question I get a lot, you probably get a lot too, is people love to ask about trends and you know, you're in the thick of it in the industry. Are there trends that you're seeing because of the higher cost of capital, because of the higher cost of supplies? What are you seeing in the market that's working? What kind of deals are people doing out there or is there markets that are working better than others? Are there trends that you've noticed in 2024? Saurabh Shah: There are a couple of trends to be honest. The first one, let me answer your first question on what are investors doing with the higher cost of capital. Some of the investors have been on the fence because everybody's expectation is that the rates will come down maybe next month. So most investors have taken to wholesaling properties where they're not buying properties and fixing them up. They're just simply assigning these properties, these contracts to some other investor. So they're just making a quick buck on the assignment. And that's fine by us as long as the value and the property holds up. The first set of that, one of the biggest trends we've seen is more than flipping properties, there's only a limited number of inventory that had been put out within mainland US. What I mean by that is a lot of the existing real estate inventory was put out in the 1980s, 1990s and that got refurbished for the last two decades. So there has been a significant supply shortage from the housing stock perspective. So most investors are looking at ground up construction right now. And that's a big trend that we are noticing. A lot of the loans we are doing right now have been financing new construction projects and just flipping projects. Josh St. Laurent: That's really interesting. Okay, what else can you tell me about the new build new construction type properties? Because I've seen the same sort of trend in the area that I'm in too because of the shortage of housing. So what is that looking like and how are people approaching those sort of deals? Saurabh Shah: Most experienced investors who are doing new construction projects, you know, we typically like to step in once the project is fully permitted. You know, once they have their permits in place, the rules, plans are secured and they're ready to break round. But, you know, we as we noticed that this asset class has really taken off and there's a strong demand for that. We've also become more aggressive with our product guidelines where we've also now started financing land acquisition from new construction with a certain gap on the loan to cost metric. So as long as you've had experience with new construction before, where we know that, you know, you have the expertise to grow out there and pull permits, you have a certain timeline within which you can achieve that and finish the new build. We will also finance your land acquisition and finance the construction piece of the project. Josh St. Laurent: So for someone who's listening who's saying, wow, this all sounds great. I need to go to Instagram and you know, talk to them about financing my next project. What do they need to get started? What should they be prepared with? What should they expect when they come talk with you? Saurabh Shah: So typically, most investors who are just starting off, if they want to buy properties, they typically need a proof of funds or a pre-approval lender just so that the seller or the seller's agent will know that they're qualified with a lender. So the first touch point we have is someone who goes to our website, which is instilland.com and just requests a pre-approval and that is usually issued the same day. We don't do credit checks to issue that. We go by the representation of the investor. And once you have a property under contract, it's pretty easy for us. If it's a fix up, we just need a rehab budget so we can order the appraisal. If there's no fix up, it's just a buy and hold, then it's just an appraisal to get started. So we try to keep the process as light as lean so we can move as quickly as possible. And everything is routed through our website, which is instilland.com, whether it's a pre-approval or a loan application. Josh St. Laurent: I love the simplicity of this and I can hear all the listeners, you know, getting excited about like, you know, solving this problem that has been a huge problem for a long time and instill a problem that all the people are kind of battling through. Josh St. Laurent: Where do I get the capital finances project? What have we not talked about when it comes to lending and real estate investing? What other things should we be examining here? I mean, one other team we've seen is how investors have shifted from fixed inflips to a strategy called BOR, which is buy, rehab, rent and refi. What I mean by that is a lot of investors buy properties, fix them up, and then instead of selling them, they just rent it out and then refinance with us. So we do both the front end financing, which is your acquisition and rehab. But if your exit is not to sell the property or just to hold on to it with tenants, we can also refinance into a long-term 30-year mortgage. That's something we've seen when on the uptake, we don't have any seasoning requirements. So if you're bringing a cosmetic rehab, you're going to be in and out and say two or three months, we can cash you out for max-LTV, which is about 75% of the property value once it's fixed up within 90 days. Saurabh Shah: So that just allows you to kind of get that cash out, put it as your downpim on the next acquisition and start building a portfolio. And a big driver for this has been, you know, outside of the capital value of appreciation and real estate, we've also seen rents increase significantly over the last two years. So the yields have become very attractive for investors to hold on to these. So yeah, I would just kind of bring that up to your audience at this point. I love that you went there. I talk about Burr as much as I can. It's been a huge part of my own success and my own scaling. It has its limitations, of course. I'm not going to say it's a silver bullet, but I'm glad that you brought it up because they get it's important, especially for new investors. It's a great strategy to look at. Josh St. Laurent: And I guess that's a good segue too. Like what advice would you give someone who is early on in their investment journey? Maybe they're looking for their first property or they're looking for their second property. What advice would you give those folks who are listening? Saurabh Shah: I mean, if you're doing the Burr strategy, my advice would be to really just look for properties which need minimal work because you don't want to get caught into fixing up a property which is never ending because your strategy really is to bring in tenants and earn that monthly rent. So try and find properties which need minimal upgrades, try and work with a good property management company. So you have tenants which are readily accessible, you know, just to get into one specific use case. I don't know if this is a favorite or you know, people have extreme use. Some people really like it. Some people don't like it. But section 8 is something that we see a bunch of our investors work with because that really gives you that premium on your monthly rent. So if you have access to these resources, you know, if you have a good network of people, if you're well connected and you know, how to talk to there are a bunch of opportunities out there both on the property acquisition side and also on the tenant profile to get the right premium. And just to add to this, we also do portfolio loans. So if it's not your first or second property and say you already have a book a portfolio of say 10 units, a hundred units, whatever that is, we can do one single blanket mortgage for you, whether that's a fixing flip, whether that's a 30 or DSCR, which is a buy and hold or a cash out refi. So this kind of goes back to your first question on what is the size or what is the finite color of capital? Is there a cap? So there is no cap. We can do one alone. We can do 10 loans. We can do 10 separate loans. We can do one blanket mortgage loan. It really depends on what is your need and how we can service that need. I have seen this be so successful. I have clients who attribute the portfolio loan or a business line of credit to their scalability, right? I never would have got a hundred doors without this portfolio loan. Josh St. Laurent: So how is that different from let's say a business line of credit? I'm sure there's similarities there, but what are the differences between let's say a business line of credit for someone who owns 20 doors versus the blanket mortgage for someone who owns the same 20 properties? Saurabh Shah: I mean, the underwrite is very different. If you're looking at 20 specific properties as one blanket portfolio, the neti gritties and the underwriting aspect for those 20 properties will be completely different than a business purpose loan, which is a line of credit. The first primary difference is that the underwrite is going to be completely asset focused on those 20 units. So you will need 20 separate appraisal reports, one for each property that you will underwrite to as compared to a line of credit where you don't need to first get an appraisal to get the value. You already are pre-approved with a certain dollar amount and you're just drawing down from that. Josh St. Laurent: So I want to kind of segue. There's three questions I asked towards the tail end of the podcast. They're much more specific to you and kind of your viewpoints around money and sometimes even investing. So the first question I want to ask you is what is living a wealthy life look like for you? Saurabh Shah: I mean, it's not different than any other life I would have. I think just keeping it simple, you know, living a disciplined life and having a schedule and a routine is really important. You kind of set your goals starting a day first and then understanding how you make your money work for you rather than you working for your money to continue to preserve that wealth and build onto that wealth. So I really try and focus on that as much as I'm a founder of this institution, I'm also an employee. So I have to keep shifting hats between here when I'm being an employee and just, you know, crunching my hours versus how am I using my time outside of my day job to have my money grow for me. Josh St. Laurent: If you could give one message to someone working to gain financial freedom who isn't there yet, what would it be? Saurabh Shah: People say this very easily that find something outside of your day job as a secondary, tertiary, you know, and additional source of revenue. And I really want to emphasize on this because I've seen this through COVID where I saw many people who got for load, many people who lost their jobs. Today that you start with taking that first step on finding that second source of revenue, right? Whether it means just having an investment product, it doesn't have to be real estate. I know I work in real estate, so I don't want to, you know, bring that sort of bias. But anything that gives you passive income, at least offsets your cost of lifestyle today is a must have. So you can start with your first step with maybe just owning one property and you don't need to have a ton of capital or liquidity available to get there. I mean, private land does like us can work with you for as little as 10% down. And as you could do to add more to this, you will find yourself towards the path of financial freedom. Josh St. Laurent: Such a good point. The multiple income streams. I mean, you read about it and every book on building wealth, but I mean, I'm sure you've seen this play out time and time again, right? You know, the most successful people don't just have the W2 job. They've got these other things that they're doing to bring in passive income. So I love that answer. And honestly, pretty good segue into the last question here. And that's if you only had a thousand dollars and you were starting over, what would be the first thing you would do with that money? Saurabh Shah: Take my first step to was buying my first property, which is passive income. And try and build a diversified portfolio. So not just to real estate, but try and find some good investment opportunities with the equity market. Try and build a small footprint into the fixed income world, which is the bonds of the treasuries, but start small, but start building to it. So today's a thousand bucks tomorrow, if I have a hundred dollars more, add to it and then over a course of time, you know, like they say, the eighth wonder of the world is compounding. You will see how that adds up. You know, I'm going to get that money working for you, like you said before. Josh St. Laurent: So for the people listening who want to connect with you, where is the best place to do that? Saurabh Shah: The best place to reach out to me is through our website, which is instilland.com, anything that you request that comes to my team. And we typically get back the same day. Josh St. Laurent: Well, I appreciate you being here and taking the time. I've learned a lot. I'm excited about this. I'm going to check out instilland. So I appreciate you taking the time to talk with us and come on the podcast. Saurabh Shah: Thank you, Josh. I really enjoyed this conversation. Josh St. Laurent: Yeah, absolutely. This has been the Wealth in Yourself Podcast where we help people to design their ideal life and take control of their time and money. Our guest today was Sarab Shah. Thanks for listening and we'll see you next time. The Wealth in Yourself Podcast is hosted by me, Josh St. Loren, an edited and produced by Ray Haycraft. To learn more about how to make your money work for you, visit us at www.wealthinyourself.com and connect with us on all social media at WealthinYourself. This podcast is educational in nature and is not meant to be investment advice. Please do not construe anything said to be advice. And the opinions of the guests may or may not represent the opinions of WealthinYourself. This podcast and the information presented are separate from my employment at Golden Gate University. Still, they are part of my mission to make no-cost financial knowledge more accessible. If you like the show, please take a moment to leave us a review. We read all of your feedback and we want to make sure we cover the topics that matter most. If you have a specific subject you'd like us to explore or a guest you'd love to hear interviewed, don't hesitate to shoot us a direct message. And as always, thanks for listening.