Ep #5 Unlocking Success in Real Estate Investment with Veteran Commercial Lender, Jeff Mallas

Introduction: 0:13

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Jacquelyn Jackson: 0:47

Hi and welcome to TDJ Equity Funding Insiders podcast. Today we actually have a commercial lender, our direct lender, that is with us today to give us his insights and give his thoughts of how things should run when it comes to you actually getting a loan or getting funding for your projects. So our guest today is Jeff Mallas. He's from Nevada and he comes with us. Come to us with great experience and a great knowledge of things that we need to do. So, hi, I'm Jacqueline Jackson, your host for TDJ Equity Funding Insiders podcast. Welcome and let's talk with Jeff. Welcome to our show, jeff.

Jeff Mallas: 1:26

Thank you very much, Jackie.

Jacquelyn Jackson: 1:27

And we are glad to have you. So let's start off today, if you wouldn't mind. Tell us, tell our audience, a little bit about you as a commercial lender, your experience.

Jeff Mallas: 1:37

Well, I don't know if it's a good thing or a bad thing. I've been in the business for 30 years now. I started in the residential space, ended up having a mortgage bank, started a mortgage bank with my father. We ran that together till about 2009, when I decided to exit the business for a little while and started raising capital for other businesses, and then I was approached in 2013 to move over to the commercial side and it has been a fantastic journey. You know we're not strictly commercial properties per se, it's more residential, but fix and flip and construction. You know primarily one to four unit residential but we're doing business with investors. So most actually all of our loans at this point are two investors and two businesses and that's why it's a commercial transaction.

Jacquelyn Jackson: 2:51

Exactly. So basically, let's make sure we don't simplify, because what you said is a lot for us to understand. Is that you're on the side where we're talking about the rental property? Residential property is one of four homes, am I correct?

Jeff Mallas: 3:05

That's right. That's right. We do. Do you know small apartment buildings as well? But it is residential and I would say 90% of the business is one of four Business, is that?

Jacquelyn Jackson: 3:16

So we're talking about non owner occupied, where when you was in the mortgage business with your dad, it was owner?

Jeff Mallas: 3:22

occupied exclusively. I mean, we did a little bit non-onor occupied, but this is geared specifically to investors. That and non-onorock.

Jacquelyn Jackson: 3:29

Right Is what we're doing now Residential real estate and definitely. If you got any information on that side you want to say you can. As we go through our podcast, we definitely hear for our listeners to learn. So, with that said, you've been working with boroughs for a while, so you got to know some options. So, if you would, what would be your first would be your most important factor for boroughs when considering funding options, and why?

Jeff Mallas: 3:55

Well, ironically it's not just rates and fees. You know at least 50% of our of our business is new construction and fix and flip, or fix and hold. A lot of people now are buying properties and fixing them up and then refinancing them into long-term financing and renting them out. You know it's the BRRR strategy by renovate, refi or rent and then refinance. But it's not the, it's not the rates and terms, it's more, I would say, ease of use and expertise and getting the deal done. If you can't get approved or if it takes 30 days and you know before you can get the financing and you lose the deal, it doesn't really matter what the rates and fees were. You need to be able to move quickly and get properties at a discount when and with the lender that you trust.

Jeff Mallas: 5:07

So an example I would give is appraisals. For example, a lot of lenders require an as is value on a purchase. We don't. We just use the purchase price because ultimately that is the value of the property. With a willing buyer and a willing seller are willing to either part with the property or take down the property at. That speeds up the appraisal tremendously. We're getting appraisals back now in three to four days when you know other lenders might be, you know, a week or two. We also have a fantastic drop process. We have an app that we now give our clients so we don't have to send out an inspector that could take, you know, two to three days to get out there at a time that works for you. You can, we send you an app. You can take pictures right from your phone. Oftentimes we fund draws within 24 hours.

Jeff Mallas: 6:24

So, I would say convenience, ease of working together, working with a representative such as myself that has been in the business for a long time and can tell you any potential pitfalls your project might have up front and smooth out the process so it closes quickly and easily.

Jacquelyn Jackson: 6:55

So basically, what you're saying which we say that as well as as loan brokers, we deal with a lot of direct lenders, including you guys, and what you said is so true is for is, when you come to us and you know I'm looking for a lender and what we look for is a lot of what you already do, jeff, basically, and as a lender, we, as a real estate investor, you don't just look at the terms and rate, because that's a lot what they talk amongst themselves, but when it really come to you doing a deal, like you said, are they making it? When you're doing it, is it a way where you can get things a little quicker, like you said, getting that draw instead of waiting for somebody to come out? If this is what your company offers, that is something a lot better than other ones, and you have that to compare as well as you have to compare. Is it, do you have a broker or the lender that's actually working? You had kind of holding your hand through the process, especially your first time, you just not thrown out there.

Jacquelyn Jackson: 7:46

You know and I know you guys, your company for one you all deal with all over, not just Nevada, you all over the United States and because you've like, say, with clients, we have all over the United States, so you're able to kind of work with them and help them feel their way out, and I think a lot of my real estate investor doesn't know that you don't have to be out here by yourself when you deal with lenders. You just need to find the right type of lender. Don't just look at the rates, and that's what you're saying. So I think that is excellent, that you're saying that, and people who start now, the real estate investing, or even those who've been there you need to look for things other than that.

Jacquelyn Jackson: 8:16

What makes this close quicker? Who's helped you to let you know upfront what you need to do, so you know what you need to have and all of that that is so important. So I think what you're saying is very good. The next question that I listened to one to ask you about the most important factor for, excuse me, are there any funding opportunities that you've seen to be especially successful for bars? Recently, just recently, we know a lot of stuff changed.

Jeff Mallas: 8:42

Yeah, you know, for closures are starting to come back into the market. Okay, you know. So that's, that's definitely an opportunity. We're starting to get some more inventory.

Jacquelyn Jackson: 8:55

Now, when you say for closures coming back in the market, what do you mean by that?

Jeff Mallas: 8:58

when you say that, Well, I've got clients, you know I. One thing that's that's wonderful about about my, my business is I can do business, you know, and and your clients as well as you can do business nationwide so you can go to markets where they're still there's still opportunity. You know coven really there was kind of a steady flow of foreclosures which a lot of investors would rely upon to to find find opportunities and that and coven really just shut off the spigot. So you know, foreclosures just literally stopped around the country and they're starting to come back online. Also, I think the higher interest rates Higher interest rates have been good for investors. I was actually happy to see them go up If I had been on the residential owner occupied side of I. You know those. Those guys are devastated right now. They they don't have, you know, their businesses dried up.

Jeff Mallas: 10:20

But that's good for us because it's taken a lot of the competition for properties that need to be renovated and put back on the market. It's it's taken the the amateur renovator or just you know couple that thought they'll buy this house and they'll fix it up and they had no choice, they had to buy it. Now the people who are left in the market, the buyers for owner owner occupancy can be more picky. So it's a it's a great situation for investors because they can buy properties. There's still demand at six 7% rates for owner occupied houses.

Jeff Mallas: 11:09

But those people that are buying today are more discriminating and they're not gonna buy a fixed or upper, they wanna buy a turnkey house. So any properties that need to be fixed up, those are opportunities now for our investors. And then there's certain areas of the country that are just you know that maybe didn't run up as much as you know California and certain parts of Texas and New York. The New York area, Westchester County, got crazy during COVID. Florida is a little high right now, but there's still pockets everywhere, there's still deals. They're just a little bit harder to come by and the properties that really need a lot of work. Those are opportunities for our investors.

Jacquelyn Jackson: 11:58

Right, because I remember last summer where my investors would go to be it on wholesale property. You know property need to be fixed up or they try to sell it wholesale or whatever. And when they get there there are real estate agents and there are clients, you know, for owner occupied that are there too, bidding on it. So they are basically at that point. They had a lot of that that was going on. They're like wow, they just invested anymore.

Jeff Mallas: 12:22

It's the homeowners that we're actually bidding against, so that's right, and that's that craziness is is you know, like I said, the higher interest rates have cleaned that up. You know, it was just a frenzy.

Jacquelyn Jackson: 12:39

Right, they were just looking. So we want to mention this as an investor and you can correct me, you know if I'm wrong as an investor is actually getting property to where you're going to come and fix it up and they're going to give you the interest rate and everything on it. But that's a temporary thing for you because you're going to do the rehab of it and then, once you get everything done, you're going to sell. It is basically what it is.

Jeff Mallas: 13:00

Or keep it right If it's cash flowing. Either way, that's you know. That's. That's the thing. I think. That's where the opportunity is. If you're, if you're, if your idea is to have, you know, get a bunch of rentals, I still wouldn't buy rentals at retail. I would buy. I would buy a rental at a discount that needs some work.

Jeff Mallas: 13:24

The other thing is you can put in materials. If you're buying a house that needs to be renovated and you want to keep it as a rental, you can put in, you know, vinyl flooring that looks fantastic but it's very durable, better. You know, maybe eggshell paint. And you know quartz countertops instead of marble. You know quartz is impermeable marble. I've had marble countertops and if you get a little bit of oil on them they get stained. So there's things you can do to set up. You know a rental. You know, for example, you wouldn't put carpeting in a in a rental. I wouldn't, because you know it's much better to have vinyl floors throughout. So yeah, I just think this that's where the you know back to your question is that's where the opportunity lies is there are. I think 75% of the housing stock in the U?

Jacquelyn Jackson: 14:23

S is 25 or 30 years old now, so almost every house needs some form of renovation, which is an opportunity for a real estate investor for sure. So I think that's something investors have to do and we teach them that, we talk to them about it when they come to us as well. That one like you what you said earlier you have to look at the market, check out the markets and what's going on and what's working, and you do have to understand if you have interest rates or you have a foreclosure, areas that are that are happening again, and then you've got some that's not, and then you got some things that's off the market and rehab. All that stuff has to be considered for every state, every area you're looking at, and you don't have to just look at where you are live, which a lot of people do. There are some other places, if you like.

Jeff Mallas: 15:06

I said, if you feel comfortable enough, you know, to actually do it you know so it's easier now than ever to to do, you know, do deals in other states. It's just, you know, with the technology, like you know this conversation, you know Exactly, I'm in Las Vegas and you're in Texas right, right, so that's exactly right.

Jeff Mallas: 15:28

Yeah. So and the other thing I would like to, that I would like to say is is my best investors. They make lots and lots of offers. You know they decide. And now we're. You know that's the other opportunity. You know, a year or two ago you had to overpay for a property. Margins got stretched really thin. But now you can. You can determine what profit you want to make on the property or what, what equity you want to have built in when you close. You make an offer. If they don't take it, no big deal, you know. Move on to the next one.

Jacquelyn Jackson: 16:08

You can control your numbers a little bit better my best investors.

Jeff Mallas: 16:11

I would say that's best practices. You got to make multiple offers and be willing to walk away.

Jacquelyn Jackson: 16:17

Okay, and that's a good. That's a good insight for them to know, too be willing to make multiple offers, because a lot of people think, just make that one and done, and that's what they do, they get discouraged if they don't get it.

Jeff Mallas: 16:29

But you know it's better to not do a deal that is tight, than you know, than to keep trying. You know, eventually, I can tell you right now a lot of my investors you know that I work with, especially the ones that are doing volume. They're making lower, lower than ask offers and negotiating them and if they can't get the price they want they move on.

Jacquelyn Jackson: 17:00

I know I've had some come to me on a deal where they offer half of what they asking for and I'm like, oh, they're not going to do that, are they? Well, they did it. So you know is like you say just ask, you don't know until you do. Now, you and I had talked earlier about as far as finding, I guess, funding opportunities, like you talked about the foreclosure and for us probably being available. You were saying it's a site, a website that you recommend.

Jeff Mallas: 17:24

Yeah, there's a few different websites, I think. Well, there's Hubsu, hubsucom, h-u-b-z-ucom. There's Auctioncom. You can search under Auctioncom. You could just search for real estate auction sites and I'm sure you know they would come up. There's multiple. Like I said, I get clients, I get deals from Auction and Hubsu quite a bit, and that's what I was saying. That goes back to the foreclosures. You know they get a lot of foreclosures. A lot of banks will list the properties there, oftentimes if the properties aren't picked up at Auction. So what happens is and your listeners might not know this, but the bank's bid is what's owed on the property almost always. Oh, okay.

Jeff Mallas: 18:26

And sometimes that is more than the investors at the auction are willing to pay. So the bank just gets the property back and it goes into their REO section, real estate owned department, and then those banks will oftentimes list them on auctioncom and Hubsu and such. So foreclosures are picking up and we're getting back to normal levels and as that'll help with inventory, and a lot of times those those properties, they might have tried to sell them but they were just in too too bad of disrepair to numbers would just wouldn't work for them.

Jeff Mallas: 19:17

Yeah, the numbers didn't work, or or they just they needed work and nobody was interested.

Jacquelyn Jackson: 19:23

Yeah, that's true. Now I know you and I had talked before about you're saying some. I was asking you about some ideas of what people can do is for us borrows, getting an investment, some creative things that you may not do the normal. But one thing you mentioned to me and I want you to go into when you talk about one by a huge lot you talked about that as well and building on it and rehab and then doing the land for building new construction. Can you kind of go into how that yeah, yeah, there's, there's different strategies.

Jeff Mallas: 19:56

There's all different strategies, right, and one of those I've seen, which is which I like a lot, is the buy a property that needs work the biotech server upper on a large lot and so they'll buy the property with my financing, and then, while they're renovating the property, they're also subdividing the lot, right. So, I've seen many people by the property make enough, fix it up and create enough value to make a profit selling just the one property.

Jacquelyn Jackson: 20:31

And then they use the land now.

Jeff Mallas: 20:36

They've got a lot free and clear and then they build a house on that and make a real, real, strong profit profit. It's almost like funding. You know, the first renovation funds, funds the land.

Jacquelyn Jackson: 20:50

The second one I think that's great Now we run into is loan broker. Some people, when they first start off on real estate, the thing they want to do is new construction and you and I know experience plays a factor for us getting the funding you need. You may get something, but the one you really need is where experience is going to actually come into play. So I know you and I had talked about it and you had mentioned that. You know, jackie, if because I came to you, one of my clients one time, you said well, jackie, if she could partner with a another person on LLC, so explain that so they can see, because I had to explain it to her, but that she said it was wonderful information. So I definitely want you to explain how to work that when you don't have that experience.

Jeff Mallas: 21:31

Sure, what's what's? What's really wonderful working on the commercial side is you can do all sorts of really cool things with LLCs and corporations. You know you can bring in other investors. So, on the on the fix and flip or fix and hold, a flip doesn't necessarily mean you're selling the property. You could be flipping it to another loan. So I'll refer to as fix and flip. Okay, fix and flip, fix, new construction.

Jeff Mallas: 22:01

We, we look more at experience and assets really than we do on our, at your credit score. Right On the longer term loans we're going to like more at your credit score. Then we give you a little bit of you know credit for having owned a lot of rental properties. Let's say you know having experience, but it's mostly credit driven on the and an income driven. We're also looking at the income on the longer term stuff on the short term and looking at experience and if you've had not done bought an investment property and done any renovation on it, or if you bought maybe you just bought a rental property but you didn't do any renovation, we, we do not feel comfortable giving you a construction loan. That that is really jumping into the deep end without knowing how to swim. Thank you, you can with an LLC. You can partner with someone and someone let's say a contractor who's built some houses, or another investor who's who's built some houses in the past, and and we'll give you credit for that that person would have to be Also a guarantor on the loan to use their experience or credit or assets. But, but, but, that's that's one way to do it. There's all sorts of creative ways to make things, make things work, but we definitely are looking at experience, especially as you get, you know, into bigger, bigger prop, bigger and bigger projects, even on the fix and flip side.

Jeff Mallas: 23:48

We're not gonna let you do, you know, buy a property and add a, add a second floor and reconfigure the bedrooms and bathrooms, you know, for a 250,000 renovation. It's just too Too much, too soon. I want you to, you know, get two or three fix and flips on under your you know belt and then and then Well, we'll go from there and that and that actually, let me just Say that kind of goes back to the first question, or was, which was. You know, how do you determine what lender to work with? You have to look at this as a, as a partnership. We, we In this space, we have many clients who come back to us, for you know they do 10, 20 flips a year. So we don't want to just do one Loan for you on the residential owner occupancy side. You might not see that client again for seven years. I'm hoping to. I'm hoping that you do One or two houses a month with me.

Jeff Mallas: 24:58

Ultimately right so it is a partnership, and that's why I'm saying you got to find someone that that is just as interested in your success as His success, you know, or the company's success, and so we're gonna help you all along the way so that you, you have a successful first project and you can come back to us for the second, third and so on.

Jacquelyn Jackson: 25:26

Right, and that's mainly what would you're about, and as it's loan brokers are about, you know, we don't want to just do that one, we want to continue. It's a business. We want to help you build and grow. Because you grow, we grow. So that's what they have to understand. We're here to help you because we want it to be a success. So, with that, you always. You also said to me one time that, when it comes to I asked you about a top funding tip that you would give our listeners and you mentioned that they should learn the Guidelines and the rules of the lender.

Jacquelyn Jackson: 25:54

So tell me why you think that's such a good tip they need to do well, I've been.

Jeff Mallas: 25:57

I've been in business for in this business for 30 years. Okay, and Early on, I realized there are two types of borrowers. There's the. There's the. There's those that have a project and they try to find a lender that will give them money based on you know their requirements. And Then there's the other type that say okay, what are your guidelines, what are what are your rules? What do I need to do for you to lend me the money?

Jeff Mallas: 26:29

And that's what I do is I try to convey that I, I say, look at the project and and and I say, well, it doesn't fit. You know, your FICO score is too low. We got to get your FICO score up and then it fits in the box and we'll lend you the money. So I, what I would say is you know, play by the rules, figure out what the rules are exactly. We, we are solely In business to lend money and we have guidelines and if, if your project fits those guidelines, we will give you the money. So it's not rocket science, it's just what are the guidelines? What do I need to do if I, if I tell you I need 50,000 in cash and you've got 30, don't? You know? Don't get mad at me Because I'm not gonna change my guidelines. You know I'm not gonna make up for the twenty thousand by changing my guidelines.

Jacquelyn Jackson: 27:30

Just go find the extra twenty thousand dollars and that doesn't mean you're gonna think we're gonna take part of the land and let that go for the Twenty thousand that you're right. Yeah, they try to make their own Ways to go.

Jeff Mallas: 27:41

Just play by the rules and right, you will win the game. You know, and we want you to win. That's. That's the point. You know we're in this together. We don't make any money. The only thing you ever have to pay up front is usually an appraisal, which we don't get. You know. We don't mark it up, or anything right right.

Jeff Mallas: 28:01

So we don't make any money until the loan closes, until until yours. We're not successful, until you're successful. Exactly so if, if we tell you the rules up front and you play by the rules, you're gonna get your, you're gonna win the game, you're gonna get your money and you're gonna have a successful project.

Jacquelyn Jackson: 28:20

So, and with each lender, a broker, learn what those rules are, because that's exactly by the rules right, so that's what do, so definitely what I want to mention before we leave today is that you had mentioned to me Earlier about an industry funding opportunity as far as those that want to do rehabs, and it's a software that you're aware of that would even help beginning real estate investors. Yeah do that so definitely. I want to talk on that right quick so they can get that information too.

Jeff Mallas: 28:47

Yeah, I, you know. There's the four apps I've heard of. You know people Call them the four apps find it, fund it, fix it and flip it. So I Don't you know. I would say look for you wholesalers or find real estate agents that specialize and you can call around and get real estate agents that will help you find fixer uppers and wholesalers too. You can find those on Facebook, you can find them on the internet.

Jeff Mallas: 29:29

But on the fix it side you got to be able to.

Jeff Mallas: 29:33

One of the skills you got to have is you got to be able to find the properties, but you also got to be able to value them. So that's where a good real estate agent comes in, because you need to know the ARV is the after repaired value, but then you also need to know how much it's going to cost to fix it up. So one of my favorite websites they're using artificial intelligence is HouseHackerProcom, and on this website they have they. You can go in and type in an address. Oftentimes it can find that property in public records and you can tell it what kind of rehab you're thinking of doing if you're going to do a light, cosmetic rehab, if you're doing a moderate rehab or what's called a gut rehab, or you just do a heavy one right, taking it you know where you're putting in new plumbing and electrical and maybe a new roof, and it will calculate what your budget should be based on your area, based on material costs in the area and labor costs in the area.

Jeff Mallas: 30:48

And it's amazing. I've had many investors, developers, flippers and contractors look at it and generally it's within maybe a 5% variance of what the final estimate comes in at with the contractor. And what's also great about it is so that can help you determine your purchase price right and I can. We don't need to go in the formulas, but I can help you with that. You know as well, but I need to know but you need to come to me with you know what you're going to pay for it, what the ARB is going to be, and what the rehab budget is going to be.

Jeff Mallas: 31:40

So that's. It's a great software because you don't have to. You know it's hard to get into a property if you're just thinking about until you've made an offer on it, you know. So this is a way to kind of get a ballpark figure of what it would cost to fix that property up without you know, online, without even you know sight unseen.

Jacquelyn Jackson: 32:07

Exactly so, I think, and that website is HouseHackerProcom, and we'll have it on our YouTube video as well, where they can see that. And I also want to note too, we have a running number software you has discussed, which was the dealcheckerio.

Jeff Mallas: 32:24

Yeah, dealcheckerio is fantastic as well. That tells you. You know, once you've determined what you think your rehab budget is going to be and the ARV and your purchase price, then you plug those numbers into dealcheckerio and it'll tell you it's really been great. I've got a lot of clients using it now and it's, and both of these are free. You can get kind of a free trial and try it out.

Jeff Mallas: 32:54

Wonderful, but you can determine if it's if it's going to work for you or not, and again, I can help you with those things too. But those that's a good way to. Those are good places to start. You just got to start finding properties and you can look up, as we discussed, I'm finding that you can actually find properties on, you know, redfin and Zillow and such, and just kind of run them through these, these softwares and this process, kind of practice it, while you've got maybe some agents or wholesalers looking, looking for deals or sending you deals at the same time. So it's a good thing. Those are good skills to work on and practice before you, before you make an offer and dive in.

Jacquelyn Jackson: 33:49

So part of our what we call do diligence, you should do it. So we know he's giving us a househackerprocom, which is a rehab budget software, and dealcheckerio is a where you run your numbers. These are free softwares for everyone to kind of go to. We're going to list also those as well. We list them in our membership site as well for a lot of our listeners, where we have more information, just like what is what Jeff is talking about. So you'll have access to those as well. So I think that is great. So now we're about to end up. If you would, what would be the one thing you want to tell our listeners, just to give them some advice, some takeaway from you today? What would that one thing be?

Jeff Mallas: 34:34

I did a little bit of stock trading during COVID. I started kind of getting into it and I would say don't rush into it. What I learned by trading stocks is there's always another stock that's doing well and in any market there's always every day there's another stock. So there's another train coming to the station. So start. I would say, start slow. Start looking online, finding deals. Just pick a deal that's for sale and just run the numbers and then start making offers but don't feel that you need to get this one because there's going to be another deal next week. So I think that's one of the biggest mistakes people make. Just take your time and make sure that you don't compromise, don't accept a deal that's subpar because you think you need to get started now. Just take your time in that You'll find the right deal and you want that first deal to be a great opportunity so that you can live to flip another day.

Jacquelyn Jackson: 36:02

Definitely, definitely. Well, jeff minus, we want to thank you for coming on our podcast today and we want to thank you for your information and your insight. It was really helpful and I do believe our listeners are going to benefit. So, if you guys would like to get in touch with us or get in touch with Jeff, you know our email is podcast at tdjequeryfundinginsidersnet. Definitely you can see and send us an email so you can reach out and if you want to make it a point when a loan broker, you can do that there as well. I want to thank you guys for being part of our show. Take care and y'all have a great day.

Introduction: 36:54

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