We interviewed Alexis Assadi, a Canadian financier based in Vancouver. The group of companies that he manages have provided dozens of loans to entrepreneurs, business owners, real estate investors and developers across the country. Alexis Assadi discusses his niche with us in this article.
How do you find people to lend to? Do they come to you after being rejected by banks?
Alexis Assadi: No. That’s a common misconception. My main product is short-term financing to real estate entrepreneurs and business owners, typically in amounts under $250,000. I do business in a niche that most banks are disinterested in. They are not my competition.
The banking model is to sell multiple long-term products to their customers. For instance, they might entice you with a high-interest savings account. Then, they’ll sell you insurance and investments. They’ll offer you a 30-year mortgage, credit cards and revolving lines of credit. Banks want you there for a long time. And while you’re a customer, they’re going to try to sell a range of financial products to you.
My type of client is an entrepreneur who might need $100,000 to do renovations on a duplex. She borrows the money, does the renovations, sells the property and repays me in six months. If the deal was successful, then she might come back to me the next time.
Our deal flow comes from referrals and word of mouth. We don’t advertise anywhere. The ecosystem where I do business is small when compared to the overall credit market. To date, I have only ever had one instance where I didn’t have a loan to fund.
But why doesn’t a person like that just borrow from the bank? Presumably, your capital is more expensive than bank money.
Alexis Assadi: There could be various reasons. Oftentimes, entrepreneurs just get stuck in the middle. A bank might grant a mortgage for a young couple to buy their first home. They might also lend generously to large developers. But they tend to shy away from someone with a portfolio of, say, six or seven properties. That type of candidate has too much debt. They may be worth a few million dollars, but the bank usually considers them too risky. In fact, I don’t know of a single person in that category who hasn’t used a private lender before.
A bank might lend to the foregoing borrower, but it could take them a long while to get comfortable and provide funding. It can take months. My team and I specialize in deconstructing messy deals. Our rates are higher than most banks’, but the borrower is paying for our speed and deal-making ability. Real estate is a time-sensitive business. Entrepreneurs will pay well for quick cash.
Why would an entrepreneur ever pay 15 or 20% on a loan? Do you get much pushback on your interest rates?
Alexis Assadi: Not really. To use the example that I gave before, let’s assume that the entrepreneur needs $100,000 to fund renovations. She plans to sell the property and make an $80,000 profit. If I lend her the cash at an annual rate of 20%, but she pays it back in six months, then she’s only paying $10,000 in interest. There’s more than enough juice in the deal for her to afford that. It’s just a calculation that she needs to make.
Again, we’re not lending to a desperate residential borrower at 20% a year for 30 years. We’re talking about a very specific type of client who doesn’t need the cash for a lengthy period of time.
Do you invest in real estate as an owner, rather than as a lender?
Alexis Assadi: No. I’m sure I’m leaving a lot of money on the table. But I prefer to stick to what I know.
Isn’t mortgage lending risky? Do you sleep well at night?
Alexis Assadi: It certainly can be. You don’t have to look beyond 2008 to see what can happen when lenders take on too much risk. But I think it’s possible to manage a lot of the hazards through research and attention to detail. That probably applies to any asset.
Also, to a degree, risk is relative to the investor. For example, for my own account, I think the risk/return profile of mortgage lending is superior to buying blue-chip stocks. That’s because I’m better and more experienced at mortgage lending than I am at stock investing. I trust myself to do better with mortgages than with stocks, notwithstanding their respective general risk profiles. However, the reverse could be true for another person.
Regardless, anyone who wishes to become a lender should take a good, hard look at the risks involved. I’m not trying to understate them. They are there, and there are a lot of them.
You seem to publish less frequently than you once did. Your podcast, Income Investing with Alexis Assadi, hasn’t been updated in a while. Same with your blog. What’s going on?
Alexis Assadi: I’m just focussing on my core business, which is financing. It gives me satisfaction, it’s stimulating and I find it to be fun. It also comes with responsibilities to my partners, stakeholders and others. It requires the bulk of my attention.
To be honest, I’ve also lost interest in the wealth/money/investing space. When I started my blog in 2014, I loved discussing saving, investing, building passive income and conducting due diligence, etc. I enjoyed making courses, writing and podcasting. It was exciting to have readers and listeners. But I’ve turned inwards as I’ve aged and matured. I don’t really want publicity. Five years ago I would have loved to be a world-famous blogger. Today, I just want to run companies, enjoy life, do good for others and make money.
Do you still believe that people should invest for passive income?
Alexis Assadi: I believe that people can make money at almost anything if they become a pro at it. If you are willing to commit your life to your craft, then you will have a higher likelihood of achieving economic success. Income-producing assets, namely mortgages, have been my investment of choice. But I’ll bet that I could have done well with penny stocks if I dedicated years to learning to trade them.
