Saurabh Shah is a PropTech entrepreneur with extensive experience in real estate investments, asset management, and business development across the United States and South Asia.
He has worked at the intersection of real estate and technology to disrupt the traditional real estate financing model. He is also the co-founder of Instalend, a tech-enabled lender for real estate loans providing fast, affordable and convenient capital to real estate developers.
In this episode, Saurabh shares how they grow a successful private lending business, what you need to do to access capital, and how the business is constantly evolving. Listen in!
[00:01] – [04:02] From Flipping Houses to Nationwide Lender for Real Estate Investments
- Saurabh talks about Instalend – a proptech platform
[04:03] – [07:29] Scale and Grow
- If you want a bigger market, you need a bigger capital
- Access institutional capital
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- have a good track record
- have a clear business plan
- Here’s how you can determine whether it’s a good or bad project
[07:30] – [13:43] Keeping The Business Going
- One of the challenges as a fixed flipper and investor is not being able to speculate on the market
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- Underlying sale prices
- Total capitalization cost
- On budget planning: what happens when they ran out of capital in the middle of a project
- The thing that Saurabh’s team does differently than a few years ago
- The loan term is updated to protect the company and mitigate the risks
[13:44] – [16:54] Closing Segment
- What’s next for Saurabh and his company
- Building an LLC or a corporation steers away from most of the regulatory requirements
- Reach out to Saurabh!
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- Links Below
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Tweetable Quotes:
“Just when we hit COVID, there was a credit fees, most lenders were not lending today. You’ve seen lenders go very aggressive coming out of COVID and now there’s again, a little bit hold back in being how aggressive one would be. These are just basic cycles of real estate investments that shift around as the market moves, but eventually, coming out of it, it’s an equalizer and the serious investors don’t really seem to get bothered by a 5% additional pay.”
– Saurabh Shah
Connect with Saurabh on LinkedIn and visit Instalend to know more!
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Want to read the full show notes of the episode? Check it out below:
[00:00:38] Sam Wilson: Saurabh Shah is the co-founder of instant. He’s a prop tech entrepreneur with extensive experience in real estate investments, asset management and business development across the United States and south Asia.
So welcome
[00:00:50] Saurabh Shah: to the show. Hey, it’s good to be your Sam. Thank
[00:00:53] Sam Wilson: you for having me. Hey, the pleasure’s mine. There are three questions. I ask every guest who comes in the show in 90 seconds or less. Can you tell me, where did you start? Where are you now? And how did
[00:01:01] Saurabh Shah: you get there? Sure. We started flipping houses in Chicago as a fixer, our properties we today are lenders for fixed and flip and 30 are rentals.
And what was the last thing?
[00:01:14] Sam Wilson: Where’d you start, where are you now? How did you get
[00:01:16] Saurabh Shah: there? We got here by you know, going through flips ourself, knowing where there is a need for filling out the gaps and eventually merging up backgrounds in investment banking, private equity. To real estate investments.
So today we are a nationwide lender for real estate investments across fixed and flips and long term rentals.
[00:01:36] Sam Wilson: Okay. Fixed and flips long term rentals. Is there any other part of your business that you guys are focusing on on the
[00:01:42] Saurabh Shah: lending side? We also do finance for new construction Roundup projects, and we are making this capital available across asset classes.
So it’s one to four units, single families, it’s multi families, which is five units or more as well as mixed use commercial properties.
[00:01:59] Sam Wilson: Wow. Okay, cool. And so this is a PropTech platform that you guys have built. It’s called install and all of these, all you guys are lending on all of these asset classes.
Is that right? Correct. Okay. Very, very cool. Well, tell me about this. I mean, that’s, that’s a lot of moving parts, you know, I guess from, starting as a, as a fix and flipper in Chicago to then saying, all right, we’re not gonna do the, the hands on fix and flipping you are now going to go out and do a PropTech platform and become the lender.
How did you figure out the need? How did you find a creative or what did you do to creatively solve in, Fix that need or, or fill that, that gap in the marketplace. Tell me, tell me a little bit about that. Sure.
[00:02:39] Saurabh Shah: So just to take a step back you know, I started my career working in investment banking on wall street.
Ah, and as most individuals looking to tap into investment opportunities, real estate was one of my favorites. So having bought turnkey assets what we really understood was that the underlying value in growth. Was with fixer up properties. So we got, got down to the ground in Chicago, got a hands dirty, started fixing up properties.
We did a few ourselves, and then we realized that there was, there was a serious need of institutional capital in the space. So most lenders are, you know, commonly known as hard money. And and then there’s a sec separate segment of institution capital. We saw that the hard money lenders were charging exorbitant rates, institutional lenders were far out and there was a big.
Big need for good healing asset class products. So we decided to jump in as lenders, fill the void, bring down the cost of capital for most investors, but at the same time, streamline the pro process, give it, you know, a digital first uplift in terms of loan intake, credit, underwriting time to close the loan.
We’ve brought it down to between seven to 10 days and just, you know, standardize the whole process. That’s how we started and This point we’ve scaled the business, starting off from one single fix and flip loan to coming full circle to a long term, 30 year rental. And we also serve other requirements that our investors have in terms of type of financing asset classes.
Yep. Anything else that follows through?
[00:04:03] Sam Wilson: Tell me this is a question from the business development side of things. It’s one thing to have an idea. It’s another thing to go out and say, and maybe, maybe you just have unlimited access or, unlimited amounts of personal capital, but you need to have obviously a source of capital for you guys to do lending.
How did you guys work that
[00:04:22] Saurabh Shah: out? So initially we started with our own book of equity and we soon realized that, you know, it was not just four or five investors who we wanted to lend with lend to, but there was like this whole group of investors that through referral came about.
And wanted us to fund them. And that’s why we realized that if we had to operate at scale, we had to tap into a bigger balance sheet. And that’s where the institutional capital got plugged in.
[00:04:47] Sam Wilson: How did you even find the institutional capital partner that said, Hey, you know what I’m gonna trust sort of, and his team to go out there and lend our money.
We’re gonna back them in what they’re.
[00:04:57] Saurabh Shah: So two things number one very important is having a good track record. You know, that worked out well for us because we fixed properties ourselves. We flipped them ourselves, and we were also lenders and you know, having seen the full life cycle of originating.
To having a loan paid back you know, we built a good track record in certain markets in the us. And then, like I said, you know, there’s always been a need for high yield collateralized secured products on wall street. So coming from wall street, I only had the touch points with capital partners who wanted to deploy capital you know, this color of capital with a certain type of asset class which was outperforming
[00:05:34] Sam Wilson: yield.
Right. Yeah, absolutely. I mean, capital is in certain, certainly in seek of yield. And so if you’re able to find the right projects and the right people to lend it to, you know, that’s a great match there. Tell me this. How did you guys, I mean, if you personally didn’t have experience in multi-family or mixed use ground up development, how did you guys figure out a way to evaluate the lender or excuse me, the borrower and the project?
What did you do to educate yourselves where your team members on what a good and or bad project is?
[00:06:06] Saurabh Shah: That’s a good question. You know, a lot of this growth for us was organic. So just as an example, you know, I lent money to one borrower to go fix up one single family, you know, he fixed it up and he decides to hold onto it as a rental.
And instead of going to other lenders, he comes back to me and says, Hey Sarah, why don’t you guys roll out a product where, you know, you can also gimme a poem loan. I said, Hey, why not? You know, we only worked with you on the first loan, our first few loans, you always performed. You always paid us back.
Here we’ll go and create a new product. These borrowers, as they start scaling their portfolio. And, you know, then start looking at multi-family assets or mixed use properties. Always came back to us saying that, you know, we worked with other lenders, but it would be great to keep everything under one house.
Since you have a full file on us, you don’t need to run credit. Appraisals are already kind of worked out if you can also roll out a product from St and multi-family. So that’s really how the inception kinda, you know, for rolling. Came through. It was really organic servicing the needs of our own clients.
And then rolling that out as a full service product, through a platform.
[00:07:09] Sam Wilson: That’s awesome. I love that. How old is install? How many years have you guys been in business?
[00:07:15] Saurabh Shah: We’ve been around close to five years.
[00:07:17] Sam Wilson: Okay. , that’s a lot of movement in five years. There’s a lot of probably growing pains.
I would imagine in a five year window, , what have been some of the major challenges that you guys have faced and how did you overcome them?
[00:07:30] Saurabh Shah: One challenge, certainly you know, that we faced both as, you know, fixed flippers as well as investors was a lot of the times you can’t gauge you know, the market in terms of where the underlying sale prices are or what your total capitalization cost is.
So we’ve often encountered situations where, you know, you budget a certain amount for the rehab to be done, but it could kind of spill over into a higher budget. So it’s very important to build in a contingency. So you have that additional surplus. Capital to tap into and you know, very, very commonly.
And most recently we’ve seen that coming through COVID, you know, where we had supply constraint issues you know, prices kind of just skyrocketed inflation has been at its peak. So a box of screws, which used to cost about a hundred dollars back in the day is today two $50. So unless you have that contingency.
To tap into, you know, you are gonna put your project completion at risk and if your project completion is at risk, then you are probably gonna struggle to be all end back as well. So just, you know, internal housekeeping making sure you work with a GC, you build in a contingency you’re prepared for that rainy day is something that we’ve learned is important to
[00:08:34] Sam Wilson: build in.
Absolutely. What did you guys do when you ran into projects like that, where you said, Hey, you know what, we’re outta capital, we’re in the middle of our renovations. How did you guys as a company handle that?
[00:08:46] Saurabh Shah: I mean, it was really interesting because you know, the relationships we built are so organic.
And you know, we really have, you know, built it down to the homework on every dollar that has to go into the project. So a lot of the times it was just sitting down with our guys sitting down with the borrowers, understanding what is the additional capital call that we have to provide to see the project through and then building in those contingencies, whether it means refinancing your existing flex and flip loan into a new fixed and flip loan, or just, you know, adding that additional leg of capital to finish the rehab because there’s already enough equity built in.
To give us some comfort, you know, that compensates any additional risk. So yeah, it’s looking at the full perspective, the full picture, what the numbers tell you what your exits are. And that’s basically what helps us design a full package with a predetermined exit. When we
[00:09:31] Sam Wilson: go into a loan. Yeah, that makes a lot of sense.
What are you guys doing differently now maybe than what you weren’t doing five years ago? Just based upon where we are in the economic cycle.
[00:09:44] Saurabh Shah: We’ve recently rolled out two initiatives. One is you know, we’ve started working with local appraisers directly. Just so that you know, rather than having nationwide appraisers reach out somebody who’s not probably from the neighborhood, but.
You know, still can go out and complete an assignment. As compared to that, somebody who’s local from a particular zip code has a better pulse on the market historically, as well as forward looking. So we’ve rolled out that initiative where we work directly with local appraisers you know, that helps us stay more consistent with values.
Also cuts the turnaround time in terms of how long it takes to get an appraisal. And the second initiative that I think somewhere sets us apart is we’ve also rolled out self draw reports. So back in the day, we used to work with a third party inspection company who would send out an inspector to verify the work is completed.
And then we would reimburse the borrowers on their rehab draws. As compared to that, we’ve now launched a product where borrows can take pictures themselves. Geo tag it and then send it to us, which helps us verify the work is complete and we can release funds to them. So this really cuts down any, any noise, any sort of you know, distractions that come along whether it means scheduling with your inspector you know, nohow or delays or work, not being captured correctly to its full merit.
It’s really just directly now between the investor of the board and our draws team.
[00:11:00] Sam Wilson: Yeah. And that, that has been a friction point. I think for a lot of borrowers is that, is that draw schedule. It’s like, oh, okay. Hey, cool. Let’s work out. Finished Friday. Well, the person can’t come out and inspect it for 10 days.
They come out 10 days later and they look at it in the next another 10 days to get the report back. And now you’re three weeks waiting on draws going where’s the money. So that’s that’s really cool that you found a unique way to solve. That particular issue. Are you guys, are you guys changing terminology in your loans?
Any maybe the more specific question is have the terms of the loans changed over the last few years in order to protect you guys in a more, in a different way, I should say maybe than what you were doing a few years
[00:11:43] Saurabh Shah: ago. I think the terms have actually been revised. In the last quarter, you know, ever since we saw inflation come at where it is and the fed has been increasing rates.
You know, that’s seen a little bit of cool off in the housing market. So we’ve we’ve selectively shaved off max leverage across certain products. So initially we were doing 90% purchase, a hundred percent on fix and flips. Today we will very sparingly give that 90% ad purchase. We’ll typically like to stay at 85% purchase, just so that, you know, investors are more skin in the game as well.
But outside of that in terms of speed in terms of execution you know, we’ve been faster and better than ever before.
[00:12:19] Sam Wilson: I mean, and that’s not a dramatic shift, 90% to 85%. I mean, I don’t know , that, to me, , isn’t an egregious change. You know, and it obviously it’s a change. You guys are making corrections inside of your company as you see fit.
But I would think from a borrower’s perspective, like, okay, 85 or 90, if you can’t do 85, you probably shouldn’t be in the deal
[00:12:38] Saurabh Shah: anyway. Exactly. I mean, serious operators don’t really, you know, not do a deal because there’s a 5% additional equity down payment. Because as long as the values hold up, there’s profit in the deal at the back end.
You know, you are looking at more to continue your partnership with your existing partners. So, yeah, we’ve not really seen any pushback or any slow down in volume. In fact, you know, most investors who’ve been around for a while have you know, seen how the universal shift in terms happens through different life cycles.
Just when we hit COVID, there was a credit fees. Most lenders were not lending today, you know, you’ve seen lenders go very aggressive coming out of COVID and now there’s again, a little bit. Hold back in being how aggressive one would be so that these are just basic cycles of real estate investments that kind of shift around as the market moves, but eventually, you know, coming out of it, it’s it’s UNE equalizer and the serious investors don’t really seem to get bothered by a 5% additional pay
[00:13:32] Sam Wilson: down.
No, certainly not. , what are some other things that you guys are looking at in your business? Kind of on the horizon? Things you say, man, this is, this is the next iteration of your company.
[00:13:44] Saurabh Shah: We’re certainly looking at short term rentals very, very closely. We’re about to launch a product. You know, in fact, we’ve already run a beta test on it with certain investors where coming out of COVID as travel has resumed you know, we see there is a good demand and yield in Airbnbs and other short term rental products.
So we have been financing 30 year loans. Airbnbs I feel that that would really help us uptick our volume as you know, more people start resuming travel you know, start renting out Airbnbs again.
[00:14:14] Sam Wilson: Yeah. I’ve certainly seen , quite a bit of that. You know, , that change and then seeing some short term rental programs and things like that come out.
So that’s that’s next on. On the horizon for you guys when it comes to the types of loans that you guys offer, what are the regulatory hurdles that you guys have to overcome as a lender?
[00:14:34] Saurabh Shah: Because we are the color of capital we have is private. You know, we steer away from most regulatory requirements.
You know, we, we are, we are asset based. So all we need is an appraisal report. We need, we need a business entity, which is in good standing. It could be an LLC or a corporation. And we are good with that. You know, we do we do set up positions. So, but from that perspective, the risk of regulation is on the counterpart and
[00:14:56] Sam Wilson: not.
Man. That’s great. That’s great. , anytime you can be involved in a business where your regulatory risks are, are limited. That’s that’s certainly ideal and it’s kind of the answer I expected, but didn’t know if maybe there were some things, obviously I’m not in your business. So I don’t know. But maybe there were some things I hadn’t considered that, that you guys have to consider from a lending perspective on what you guys do.
That is very, very cool. I absolutely love it. Thank you for taking the time to come on today and tell us about instant lend. I mean, you guys are lending across all asset types. It sounds like. At least the majority of ’em. So there’s certainly opportunity for those who are listening to this show. If, if lending is something you are struggling with or trying to get a project financed, certainly you guys should reach out to so, and talk to them and find out what it is that they may be offering.
That is the last and final question for you here. So, but for listeners, do wanna get in touch with you and learn more about you. What is the best way to do that?
[00:15:46] Saurabh Shah: The best way is to just reach out through our website, instant and.com. You know, it is a technology first product. So if you need a proof of funds or a preapproval you can request one through the portal and the system should send it to you within 24 hours.
If you need to send us a scenario for any financing requirements you have, you can apply for a loan right through the website.
[00:16:06] Sam Wilson: That is awesome. So thank you again for taking the time to come on the show today. I certainly appreciate
[00:16:11] Saurabh Shah: it. Thank you so much, Sam. It’s been a pleasure.
