Guest Speaker Daniel Paloscio with SEP Capital

Caeli Ridge recorded this episode on 9/19/2023

Guest Speaker Daniel Paloscio

This week’s guest speaker is Daniel Paloscio from SEP Capital. He is a seasoned private lender with more than a decade of experience in residential real estate. His track record includes over 600 loans successfully closed since 2013. This extensive experience in the industry has honed his ability to attract and underwrite high-quality, low-risk private mortgages, ultimately leading him to start SEP Capital.

Caeli and Daniel have a Q& A session detailing some of the biggest questions about SEP capital, how it works, what you need to do to become an investor, and lots more!

You can contact Daniel Paloscio at daniel@sepcapital.com or visit sepcapital.com

Check out the video with the screen share and the documentation in the Community and our YouTube Channel.

https://www.youtube.com/c/RidgeLendingGroup

You can join these live each week by following this link to join the call:
https://community.ridgelendinggroup.com/events/live-with-caeli-each-tuesday-beginning-at-430-pm-et/list

As always, give Ridge Lending Group a call if you have any questions at
855-747-4343 or email us at info@RidgeLendingGroup.com

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Karlie Libby: Hello, and welcome everyone to calling all real estate investors. We are here on the first and the third Tuesdays of the month for a live event with Caeli Ridge.

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Karlie Libby: You can reach us

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Karlie Libby: at Info, at Ridgelendending group.com over email, or you can always call us at (855) 747-4343. That's 855, 74 Ridge.

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Karlie Libby: And today we have a special guest, Daniel Pelosio. Who Caeli? I will turn it over to her now to introduce.

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CAELI RIDGE: Thank you, Miss Carly. I'm wondering, since we've got one participant here with us. My registration process was a little bit clunky

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CAELI RIDGE: normally we would have at least 2025 by now. I wonder if we should just give it a quick second and talk amongst ourselves before we really get started, just to give people a second to to log in, because I don't think we've ever had. Just

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CAELI RIDGE: yeah, here we go, I think they'll start coming in, so maybe I'll just sit here and and listen to the the soothing sounds of my own voice for a couple of seconds. While we we start getting some more people in here. Carly, I'll let you go ahead and manage those, and

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CAELI RIDGE: we'll just kinda sit here and look good, Danny. Okay, Yup, they're rolling in here now.

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CAELI RIDGE: yeah, I may mention on the registration. I know what a what a freaking nightmare. That was we just

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CAELI RIDGE: zoom has el. The technology of it has eluded us on a few occasions this, not being an exception. Something had happened on the back end that none of us were privy to or aware of. That, broke the the link that we've been using all this time. So everyone having to re register, and we sent out all of the notifications and and tried to be proactive with it. But

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CAELI RIDGE: I had some issues logging on as the host. So it's it's

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CAELI RIDGE: technology.

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Daniel Paloscio: There you go.

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CAELI RIDGE: my favorite.

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CAELI RIDGE: Alright, let's give it another 30 s. The good news is Danny. Is that I would say the mass.

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CAELI RIDGE: The majority of people end up getting this information after the fact versus live. I thought we would have more people with us. But I'm so grateful for all of you that are here now. I'm stalling everybody, because, as you know, you had to reregister to get on here, and I think that there's probably plenty of people that are are trying to log in, and I'm

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CAELI RIDGE: trying to bide my time before we get going. And I'm just gonna go. It's 1, 32. Okay, well, thank you guys for figuring it out and being here for us at at the 1 30 mark. I am particularly excited to be with you today. I've got some II think. What will be one of our our more timely and beneficial, useful bits of of information you're gonna leave with today before we get into that, I always like to start with a little bit of housekeeping, so let me just

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CAELI RIDGE: get you that stuff the third of October Fyi would be the first Tuesday of the month that I would normally have the live with Caeli. That's gonna be a pre recorded

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CAELI RIDGE: video for you that will be released the morning of the third of October that Tuesday. It's going to be about a new product that we have just recently launched. But many of you I get this question, probably a few times a day. Whether over the phone or in an email or whatever about cross collateralized lines of credit for investment properties. So that product is available.

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CAELI RIDGE: It comes with some fairly higher standards. So just just be prepared to to hear about that. But that'll be the third of October Pre recorded. It's gonna talk about cross collateralized line of credit for investment properties. So be on the lookout. And then on the seventeenth, that's gonna be live. I will be remote traveling, but it will be live. And the topic for that's gonna be how to prepare and what to expect for the year end. Non owner occupied investment

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CAELI RIDGE: property push. So any of you that have tried to get a loan closed for year end tax benefits. And you started, you know, maybe a little bit late, you know, middle of November, even in December, you know, what a mad dash that is. So we're gonna go over some of the do's and don'ts of the year end push for tax benefits on the seventeenth of October, and then, lastly.

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CAELI RIDGE: actually, maybe 2 more things November and December. We're gonna change up the schedule a little bit. I know that we are every other Tuesday. What is it, Carly? The first and third Tuesday, second, first and third currently is where we're at. Because of the holidays and some other other variables. We're gonna be changing the schedule up for November and December. Carly will be sending out announcements and reminders for all of that. So be on the lookout and then the final thing before we get into today's

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CAELI RIDGE: meeting masterclass for the all in one. I know that I've been promising that I'm still getting lots of interest. I am working on it, and as soon as I can figure out the timing and come up with a syllabus it'll be a regular, probably monthly.

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CAELI RIDGE: time that we'll have together for anyone that really really wants to spend in depth.

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CAELI RIDGE: workings about the all in one. So that's coming, I promise. Okay, let me get into this. Hopefully, I've got my my notes here, so I don't know how many people we've got with us. I think it's probably inching up there.

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CAELI RIDGE: okay, so I want to introduce you guys to a friend of mine, Mister Daniel Pelosio. Aka, Danny, PDP d Pelosio, I mean, you guys can choose danny's a good friend of mine. He and I go back. I don't know, Danny, what 6,

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CAELI RIDGE: 6 ish years I want to say. Probably 6 plus years, maybe.

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CAELI RIDGE: Oh, my God, no kidding! So then I could even say that, you know. I got to kind of watch him come up the the rings here, I mean he he started, although I knew the minute he and I kind of started to to talk that this kid was was gonna make something of himself very ambitious, extremely smart. It's been kind of fun to to watch his evolution.

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CAELI RIDGE: We funded some of his well, more than some. We've funded. Quite a few of his investment deals over the years, and I'd like to think. We helped him in his edification, educating along the way about the ins and outs, and structuring some of his deals, and specifically the financing and and the qualifying of of that

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CAELI RIDGE: he absorbed like a sponge how to master formulating schedule. E that was something that we spent a lot of time on, anyway. I'm I'm really excited that he's here with us today, and I think that what he's gonna share is going to create some

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CAELI RIDGE: significant returns for you guys. Now let me, before I really get into, I'm gonna give you his bio. And then we're gonna have kind of a real casual QA. Here. I want to share with you.

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CAELI RIDGE: Why, I've decided that he would be a great in inclusion of what it is that we talk about here, and I know that it's largely education based. But the reason that I found his what he's going to offer super useful.

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CAELI RIDGE: Anybody that has spent any time with me, one on one talking about your qualifications or your goals and your strategies, etc. You've probably heard me say, as an overreaching or resounding bit of advice, is diversification, diversification within your real estate. Journey. Now, everybody's gonna have their their core structure or strategy, which is perfectly fine, but I'm constantly beating the drums about diversifying your portfolio.

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CAELI RIDGE: Single family, 2 to 4 cash flow, appreciation, short term, rental, long term rental, midterm rental, all of that stuff, and where that comes from. I, you know, in in those conversations I may or may not have have addressed or explained why I'm so fierce about telling my clients or investors that diversification is

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CAELI RIDGE: crucial in long-term success. And the why is because I

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CAELI RIDGE: sorry, guys, I don't know if you can hear that.

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CAELI RIDGE: I failed to do so when I just got into real estate investing

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CAELI RIDGE: I was, you know, mid twenties, I would say, God! That sounds like a long time ago mid twenties and at the time, you know, real estate is is fairly cyclical. Right? And in that cycle it was all about appreciation and and don't get me wrong. We did extremely well.

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CAELI RIDGE: but I wasn't diversified. I was a one trick pony, and as a result, I was one of the casualties, and I would say a pretty big casualty of the O. 809 crash we got our asses handed to us. Excuse me, in a big way, and if I had been more informed and diversified, I probably would have been able to weather that a little bit easier and without

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CAELI RIDGE: such great loss so diversification, I guess holds a a important soft spot for me, and I wanna make sure that anybody that is willing to listen understands how important it is.

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CAELI RIDGE: enter Danny Pelosio. So one of the things and I didn't mention in in. You know, the the outline I gave about some of the different variables and diversification, but that needs to include or should include, if it doesn't already private notes. Okay, where you kind of become the lender yourself. This is more on the true passive side. You know. I know that that for most of us, unless you're you know, a fix and flipper, and you got your hands, you know. Hands on

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CAELI RIDGE: real estate is is thought of as a a more passive type of an investment. But the truth is, it's not so so passive, right? There's there's quite a bit of due diligence that we need to do, and in even some micromanagement that comes along with it. But in this case I would say, this is of all the different facets in real estate investing this is probably the most passive, and if you align yourself with the right group, P. Most passive and extremely profitable. I think you'll find.

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CAELI RIDGE: anyway. So that is the why behind the how that we're meeting here today, and we've got Mr. Pelosi with us. I'm gonna go ahead and read his bio.

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CAELI RIDGE: and then we'll get into some of the QAI know you guys are gonna have lots of questions are that's my expectation. As a result, I would expect that we'll probably run over the 20'clock hour I've got until

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CAELI RIDGE: 2 30. So if you guys need to make arrangements, or you wanna be here for the whole thing or check us out in the recorded version afterwards. Fine! That's the expectation. Okay, Mr. Daniel Pelosio is a seasoned private lender, with more than a decade of experience in residential real estate. His track record includes over 600 loans successfully closed since 2,013.

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This extensive experience in the industry has honed his ability to attract and underwrite high quality.

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CAELI RIDGE: low risk, private mortgages, ultimately leading him to start. Sep. Capital scp is sun coast. Don't tell me. Equity partners.

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CAELI RIDGE: Okay. Sep, capital scp. Capital is a direct lender based in Tampa Florida specializing in high yield, low loan to value private mortgages. They source scp sources under rights and services. All the loans in House that's unique. Providing totally passive investment option for its lending partners.

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CAELI RIDGE: Prior to founding scp capital, Danny flipped single family residence throughout Florida and founded vacation rental of Florida, a short term Rental Management Company, which currently manages 50 million in real estate around the State of Florida. Outside of work Daniel enj spending time with his young family, his beautiful wife and his new baby girl.

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CAELI RIDGE: Traveling and working on his golf game so without further ado, Daniel, thank you so much for being here with us.

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Daniel Paloscio: Thank you. What a, what an introduction.

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CAELI RIDGE: Okay. So like, I said, guys, I like to. I am not one that loves the Powerpoint and and kinda just taking you through the motions. I like the the casual and and more collaborative conversations back and forth. So we have a list of questions that I'm gonna go through, and Danny's gonna answer them for us as always. Please use the chat feature and if you wanna unmute yourself you can raise your hand and we'll do it that way, too. But let's get into some of these. QA. And then you guys push your questions. Okay.

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CAELI RIDGE: okay, let's start here. Dp, where does scp capital get its investment? Capital.

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Daniel Paloscio: So we use what's called a co-investor model.

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Daniel Paloscio: And so a portion of the capital that's invested in each loan is is my own. And then we source the rest through private investors to fill out the rest of the loan.

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Daniel Paloscio: So all of our capital is private money. There's no institutional capital, no institutional loans, and that sort of gives us the flexibility to move quickly and be real flexible with with our borrowers.

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CAELI RIDGE: So, guys, just to kind of put a finer point on that what that means is that he gets to make his own rules, and by private capital he's talking about people like you.

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CAELI RIDGE: and and just for those that need to hear this. I also want to reiterate. I don't have any any dog in this fight. I am not profiting from any of this. This is just me in my own personal, experiencing experience, knowing that diversification is key, and and I know and trust Danny so

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CAELI RIDGE: for those that that need to hear that and that he's got his own skin in the game right? So what I heard him just say, my, take away there is that a large part of it is probably his own personal funds. And then the capital partners. Are you guys? Right? Danny? Yeah, yeah, so he gets to use. There's common sense is what what my takeaway is, when, if there is institutional type of leverage or lending.

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there could be some missing elements of of common sense that might otherwise be applied if he so chose. Right

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Daniel Paloscio: right? When when you start, you know, dealing with institutional lenders like, you know, the key obvious, or you know the lending, or they used to be lending from. But the lima one capitals they're gonna have sort of buy boxes, or, you know, specific criteria that they have to lend on. And so, you know.

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Daniel Paloscio: a lot of the flexibility that we'll get, you know into will be with, you know, significant collateral, you know, a bank and an institutional lender would rather do a loan, you know, at 97% loan to value with a borrower that has a 650 credit score than than they would with someone with a lower credit score at a 50% loan to value. And so we just try to, you know, you know, employ common sense, you know, lending principles to, you know, you know, work with local investors that are getting on good deals.

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CAELI RIDGE: That really is more risk. based or mitigating the risk. Then, you know, it's so funny that you bring that up, and I won't get off on a tangent here, but

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CAELI RIDGE: I'm an institutional lender right in a different fashion. And and we have some private money and short term money, etc., that we can lend on and some of it does have common sense. But I'll give you guys an example. And this was a kind of a big headline

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CAELI RIDGE: couple of months ago, and people were up in arms about some of the F hfa rules and the changes about giving lower credit score, or less worthy borrowers.

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CAELI RIDGE: Some extra grace or incentive

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CAELI RIDGE: to to get them into home ownership. If if I don't know if that rings a bell for anyone, but it came through as if it would be penalizing those of us that have great credit and low debt to income, ratio, etc. Point being is that in our industry, Fha, for example, doesn't apply to investors. It's only for owner occupied.

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CAELI RIDGE: They'll fund it 90, 96, and a half percent loan to value. Right? How much skin do those guys have in the game? This much and credit scores that are 600. I mean, you talk about risk, right? When us as investors, we have to walk on water, and in Danny's case they're talking about low loan to value a lot of skin in the game for who they're going to be actually lending our money to. It just. It doesn't make a lot of sense we can. I'll get off my soapbox. But

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CAELI RIDGE: in terms of risk.

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CAELI RIDGE: this is going to be on from my perspective on the much lower side from what is being bought and sold and traded on on Wall Street, anyway. Okay, I'll shut up now. Okay. Next question, did you have something you wanted to add to that.

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Daniel Paloscio: No, no, I think I think that that's great. I think you're exactly right. It's a lot of people moving, shuffling paper around with no real accountability. I mean, you saw it in 8. You got caught in that. My parents got caught in that a lot of people I cared about did, and you know, is it's

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Daniel Paloscio: when when people aren't, you know.

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Daniel Paloscio: invested in it personally, or when people don't have real skin in the game. It that you're just trying to move paper around and make as much money for yourself as you can. And so it doesn't really align the interests of those that are writing the loans, and then those that are ultimately funding them

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Daniel Paloscio: 100. Well, said, okay. Now, this is probably at the top of everybody's list. What kind of returns do your lending partners make? Let's get into the real what everybody wants to know. What kind of returns can people expect so real simple for the most part, across the board? We're 10 yield to to the investor. In some cases we can range from 8 to 10, but by and large our investors are making a 10 yield for investing our private mortgages.

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CAELI RIDGE: So, guys, what what I mean, just just for those that may not be totally clear on that.

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CAELI RIDGE: You're gonna give 100,000. And II think that's gonna be one of my questions to whatever the capital investment is right, it's 8 to 10. And it sounds like, you know, more often than not you're gonna be looking at a 10% return. That's not bad, especially right now, I would say.

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CAELI RIDGE: So we can dig into that let's see.

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CAELI RIDGE: So your lending partners are usually real estate investors if you want to define, or if there's a a profile of who your lending partners are. Typically. And then, second to that question would be, what types of investors typically invest in private mortgages? Is there a profile

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Daniel Paloscio: to? To be honest, it it really ranges. And I and I would say a majority of of our

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Daniel Paloscio: capital partners are.

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Daniel Paloscio: Some of them are real State investors, some of them are active. All of them have a baseline understanding of how real estate works, which is why they like the asset class, if you could call it that they understand what the value of a property is. They understand what loan to value is, and they understand sort of the risk associated with a low loan to value loan. So you know, we we do, you know, work with capital investors that are range anywhere from.

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Daniel Paloscio: you know, average person in the workforce, maybe making 60 to $80,000 a year

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Daniel Paloscio: to, you know, professionals, you know, in the workforce, like doctors, accountants, lawyers, some business owners a lot of our investors are utilizing the funds in their, you know various retirement accounts. 400 oneks solo, 400 oneks self, directed Iras. But so

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Daniel Paloscio: the majority, the majority, the the one thing that everybody has in common is that you know everybody's looking for like you mentioned earlier. A true

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Daniel Paloscio: passive investment. They're all, you know, busy with whatever it is that they're doing throughout the day. They've made some good decisions, and they have, you know, some capital that's sidelined. And they wanna get a good return on it, but they don't want to be, you know, answering phones to fix toilets at 2 in the morning. You know they don't want to be actively involved in investment because they're either actively involved in their careers or they're actively involved traveling as retired people.

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Daniel Paloscio: And so they just want something that's safe that gets a good return, and that's consistent.

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CAELI RIDGE: So my 2 follow ups. There would be first, just just for anybody that's listening or with us. Here we keep talking about loan to value or low loan to value, and why that's so important in terms of risk. And I don't wanna steal your thunder here, cause I think it's one of my questions. But a low loan to value just means more skin in the game, right? So if we're lending to an individual that's got.

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CAELI RIDGE: you know, 35% of equity sitting there on this investment property, are they more likely to walk away from that property, or the one that they've got 5 of their own skin. And the game in right? So yeah.

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Daniel Paloscio: yeah, and that. And that's that's 2. That's there's 2 parts to that, too, because savvy investors frequently are getting, you know, deals under under market, so that that loan to value, as far as we're concerned comes from 2 places, and it comes from 65 being our maximum loan to value. I'd say that our our portfolio now is somewhere around 58%. Ltv

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Daniel Paloscio: but the other side of that is that we also in most cases are requiring a 20 down payment. So in a lot of our loans. You know, we may be at 45 or 52, so that we're sure that that investor also has a reason to stick in in the game like you said, because in the event that there's an issue, even if they're, you know, really low loan to value. But they don't actually have their own money on the line. It's a lot easier to walk away from a deal.

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Daniel Paloscio: you know. Investors aren't willing to really lose money. You know.

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Daniel Paloscio: if if they're in a situation where they may lose 10 of their own money, but they still have 10 of their own money in it. There! There's a you know, a lot more of a reason to see the project through versus if you know they're in it with no skin in the game, low loan to value. If things don't go right, it might not be worth it for them, you know, once they start working. So once the deal stops working. I mean so exactly. Yeah.

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CAELI RIDGE: And then the second thing you said is about retirement accounts. Solo 4, one k's, etc. is a good place, cause a lot of times when when I start talking about this and and we don't, we don't participate in private notes. Okay, that's why Danny is here for you guys we as in bridge but a lot of times when I start talking about that is just a means of conversation and making sure the client is well diversified.

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CAELI RIDGE: It comes with. Well, I don't have that kind of money right? Because they think they've gotta have hundreds of thousands of dollars in their checking your savings accounts, when, in fact, that isn't isn't the only place to source this. So for just the the you know, the regular

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CAELI RIDGE: Mr. And Mrs. Jones that have retirement accounts that they want to look at that are accessible to diversify. That's a great place in which they can

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CAELI RIDGE: access to to participate in this alternative means of of investment. Okay, let's move on. We did the returns. I got that.

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CAELI RIDGE: Let's talk about

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CAELI RIDGE: what are the risks associated with capital investment in private mortgages? How does scp capital mitigate them? We talked about the Ltv. What else?

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Daniel Paloscio: So there, there are a few risks that are that are involved, just, you know, as as is the case in any any investment. So before we kind of get into those individually. I wanted to kind of go over how we sort of I don't wanna say under right, but sort of the lens in which we look at each deal through, and that you guys have something similar, I think, in an institutional lending. But we we call them, you know, the 4 C's. We have a collateral character capacity and credit

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Daniel Paloscio: the importance to me in in these deals is probably right in that order as well. So collateral. Obviously, that speaks for itself. That's the value of the property, but not necessarily just the value of the property. It's the value of our loan against the value of that property, and so the the lower the loan to value is on the loan, and the and the more that that collateral value is worth.

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Daniel Paloscio: the more that that can compensate for any issues in any of those other and not and any of those other areas. That is the one thing that we, we will not budge on. And so you could have someone with the best capacity. You know the best credit, and who's the best person. But if if there's just no collateral value there, if there, if the loan to value doesn't make sense, then it's just not a deal that that we're able to to work with.

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Daniel Paloscio: So then, next you'd have character.

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Daniel Paloscio: And you know your character is just. You know, what types of interactions had have we had with this person. Are we getting good communication? We do in some cases pull credit, and you know that's not necessarily an important factor, but it tells a story.

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Daniel Paloscio: And so you look at all of those things, and then next is Compa capacity. Do they have a track record? Do they have, you know a history of completing these types of projects? Are they in in the business in another capacity? Are they realtors, or, are they contractors or inspectors. You know, that speaks to their, you know, ability to see the project through, and ultimately exit the loan

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Daniel Paloscio: And then last, like I mentioned, would be credit.

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Daniel Paloscio: And so you know, the the biggest risks that you're going to sort of come up against in this business are gonna be borrower default, you know, market fluctuations and then hazards. And so with borrower default, the biggest thing that we do to mitigate that is just having a low loan to value and and our mortgages and our notes are written in a way that if there is borrower default

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Daniel Paloscio: as the investor, our position advances, and so we have default interest written into our loans, which could be anywhere from, you know, 18% to 25%, depending on the the value of the the loan amount?

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Daniel Paloscio: And so we the next step would be foreclosure

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Daniel Paloscio: and in 99% of cases of default that are are going to go beyond an easy, you know. Quick correction they're gonna sell at the foreclosure auction this business sort of

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Daniel Paloscio: years ago. Used to be known as sort of the loan to own business, where hard money lenders would land on properties that sure I'll take back at any time.

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Daniel Paloscio: I don't necessarily, I do look at it in that since situation. But I don't wanna own properties. Investors don't wanna take properties back and so the goal for us is to work with good borrowers that are gonna make their payments every month that are gonna get into good deals that are gonna exit those deals and make money

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Daniel Paloscio: and then we're going to collect their capital and redeploy. That's really what we want to do. That's what everybody wants to be involved in and so we set these loans up in a way that if we were to go into default, our loan to value, and and the amount of money that we are need to be

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Daniel Paloscio: paid back at the foreclosure. Auction is so low that in almost all cases somebody's gonna bid on it at the auction. They're gonna get a great deal at auction. We're gonna collect all of our late fees, all of the default interest. We're gonna collect attorneys, fees, and any other fees be made whole, and, you know, move the property. I think that the worst case scenario would be that we end up having to take property back.

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Daniel Paloscio: And in that scenario, you know, we would either fix and flip the property. You know, as you mentioned earlier, I I've got. I have a background in fixing and flipping houses that, and we still have contacts with all those trades. They do a lot of work for us in our in our vacation rental Management Company

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Daniel Paloscio: and the other option would be, you know, we could even put that property up for rent if we end up taking it back

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Daniel Paloscio: and along any default process, there's also there's going to be tons of communication with the borrower, and that's why you know, capacity comes into play, because. you know, in some cases things happen right.

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Daniel Paloscio: Sometimes borrowers have a lot of deals going on, and they run into an issue. And so it's all about communication. And it's about negotiation and working something out that that's gonna work. You don't wanna just kinda say, oh, you missed this payment. We're going straight to foreclosure, because that you know one, you might, you probably could do it. But then that that person's never gonna come back again, and it again. It's likely that they can get caught back up, and things can progress as they're supposed to.

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Daniel Paloscio: So you know, outside of that you've got market fluctuations. And again, I think the way we mitigate that is by having a low loan to value.

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Daniel Paloscio: If we're at 65%, Max, and we lose 50% in the market, which would be an O 8 or a 1930. Crash! You know that. That's probably the worst case scenario.

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Daniel Paloscio: We're down 15%. And in those situations you keep an open line of communication with the borrower. Maybe you negotiate a deed in lieu of foreclosure which would essentially be us negotiating instead of going through the foreclosure process, and ex instead of that, that borrower having that on their on their record, because they all sign personal guarantees.

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Daniel Paloscio: They would essentially give us the property back.

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Daniel Paloscio: And and so, you know, a number of those workouts can happen, and then the last thing would be hazards. You know you have fire, you have flood, you have wind, especially here in Florida. And so we require that you know all of our borrowers pay for one year, hazard policies included, including when at closing, so they can't miss a payment and and be kicked out of the policy. And then in and then in areas where you know, there's flood hazards, we require flood insurance.

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Daniel Paloscio: And then we're also added to those policies as the lost pay. And so it's important to be the lost payee, because in the event that there is a covered loss.

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Daniel Paloscio: The insurance company is going to write a check with both of our names on it on my company's name and the name of the of the borrower.

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Daniel Paloscio: and what we'll do in a situation like that is, we'll have the borrower sign the check to us. We'll deposit that check into our account. We'll give the. We'll give the borrower an initial draw a against that. The insurance proceeds, and then, as they fix the property, and as they make repairs and updates will release more further portions of that draw of the

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Daniel Paloscio: You know the insurance proceeds based on draws and completion, and that just ensures that, you know they don't

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Daniel Paloscio: get the insurance money to go to the Casino and then lose it. It ensures that the property gets

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Daniel Paloscio: it's done, and and we're always at a low loan to value compared to what's lent down on the property. And you've got teams out there that are actually going by the sites, and and making sure that the the draws are satisfied or the work has been satisfied before the next draw is is released. Absolutely. Once we do a lot of fix and flip loans. And so that's, you know, really basic template stuff for us.

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Daniel Paloscio: They'll call in a draw request. We'll send out our inspector. The inspector will go walk the property physically. Look at any permits that were pulled. Make sure that they're closed out. Take pictures of everything that's done, we get that report back. And once that stuff's done, we send a wire typically same day. So our draw process is is pretty quick to. It's from start to finish. It's one to 2 days

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CAELI RIDGE: excluding weekends. Yeah.

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CAELI RIDGE: I don't think this is part of our question, but it came up in in our discussion. You know, let's just say worst case scenario. You gotta go to foreclosure. Okay, everybody guys, everybody wants to avoid that. Obviously, with all costs. It's it's costly, and can it? It can take some time. But my follow up question I don't remember, for for Florida, but I believe Florida is one of those States. That is more investor friendly. The process of foreclosure, obviously, you know, like the back of your hand.

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Daniel Paloscio: Is there any quick nugget about

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CAELI RIDGE: that. That would be useful, for for you know, as a worst case scenario, the process

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CAELI RIDGE: of of fiduciary foreclosure. What what is it again, Danny, it's there's 2 judicial, judicial, yeah, judicial and non judicial. So I think it's judicial site.

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Daniel Paloscio: We're judicial state. Unfortunately, we I. So so a a non-judicial state, I believe. Georgia, which is another market that that we're looking, and we only lend in Florida right now, and and that's because the you know, State by State, the laws can change drastically. But at any rate, a a judicial state just basically means that you you. It's a legal, judicial process. You have to go sit in front of a judge before that anything can happen.

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Daniel Paloscio: I don't know what the term is for the States that aren't judicial states. But in those States like Georgia, for example, there is no it. It's basically an eviction. You can. You foreclose it in some cases within 30 days.

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Daniel Paloscio: whereas if somebody gets an attorney and they really fight here it could be 6 months. It could be 8 months and and if you've made mistakes as a lender, it could be even longer. And so the the biggest piece of advice that I could give to anyone that's gonna go out and do loans themselves. Is to to do. Only do business purpose loans. We do not do any loans to to our consumers. A consumer loan would just be anything considered, you know, if it's in their personal name, it's their primary residence. It's their homestead.

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Daniel Paloscio: There are some caveats that allow us to do. You know some of those loans, and and that would be that the, for example, we can do bit

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Daniel Paloscio: primary loans if the on a refinance. If the funds are going to be used for a business purpose, and in those cases we get an affidavit signed by the borrower that says, Hey, I'm using this money to invest in my business. But other than that they're they're separate rights for primary residence owners or consumer borrowers, and that can really stall the foreclosure process for you. So we don't do any loans to to for consumers.

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CAELI RIDGE: Excellent, excellent answer. Okay, let me move us on. What types of people are borrowing hard money. And why wouldn't they just go to a bank?

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Daniel Paloscio: Sure. So the I would say, by and large the largest percentage of our of our borrowers are gonna be real estate investors, whether that's you know, for fix and flip or burr

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Daniel Paloscio: and the reason is, most lenders aren't going to lend on a property that can't pass a 4 point, and I'm I'm sure all of anybody who's following you and watching this knows, you know, that that property has to pass a 4 point to get an institutional loan. And so just just so that we have it on on record cruising me here. But let's so. It's it's roof.

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Daniel Paloscio: It's electric. It's

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Daniel Paloscio: air conditioning, and

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Daniel Paloscio: it depends on our plumbing. I think it.

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Daniel Paloscio: I think it's like all those things have to be in in good condition. And so, as you know, most people that are buying properties to fix and flip. They need work. And so they're not. They're typically gonna have a bad roof. A/C is not gonna work. Windows aren't gonna shut there. There's a whole, you know list of of issues that the problem has. And that's why the investors get in the deal. And same thing with the bur investors. They're they're buying. They're gonna make the updates. Then they're gonna refinance out.

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Daniel Paloscio: You know, another type of investor that that you know will will use us for funding is just somebody who's got to close on a deal quickly. You know, we get a lot of wholesalers that that are getting these really good opportunities to to buy property under market. But they've got really quick timelines. Sometimes within days I get a lot of calls from borrowers that they're actually scheduled to close with other lenders.

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Daniel Paloscio: And you know, on on the lab, the day before they the closing, they they're either changing the terms, or they, you know, don't have an appetite for that product anymore, whatever the reason is. And they come to us and say, Yeah, hey? It's Wednesday. I've got a close Friday. Can you make it happen? And so, you know we do. We do a lot of those loans as well. And then the other, the other

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Daniel Paloscio: the majority. The other person that would get a loan for us would be business owners, a lot of business owners that own commercial real estate or a couple of rental properties, and a lot of times they owe them out right, and they just need a little bit of working capital.

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Daniel Paloscio: and then I'd say the the last person, the the last type of borrower, would be.

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Daniel Paloscio: I guess what you could dub the unbankable. You know whether they may make a lot of money in cash, they don't necessarily have the tax returns to support it the credit profile might not be great, whatever the reason is. It's it's someone that you know wants to get into a property that that just can't go. The traditional bank methods, or maybe patience. Right? We get. I get a lot of clients that well.

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CAELI RIDGE: you know, maybe they could qualify or or it doesn't even matter. They just refuse to go through the gauntlet of of what that means. And anybody listening on this. That's that's gotten a loan ever you. You know that that it can be

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CAELI RIDGE: consuming right? So. And there's I've got plenty of clients that say, no, I'm not gonna do it. I'm just I need this cash for this amount of time. I'm gonna pay what it costs.

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CAELI RIDGE: and then, you know, repay it. Just a short short window of time. So could be that, too.

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Daniel Paloscio: Yeah, yeah, I mean, we're we're not the cheapest lenders around. We tell borrowers that all the time in a lot of our our people, we we know that they work with other lenders as the first option. But what we'll tell people all the time is, hey, you know. Keep us in the back pocket, because every once in a while there there person drops the ball and doesn't get the deal done and we're there and like you said, you know there, there's a

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Daniel Paloscio: it. It is a hassle to get an institutional loan. Now you're gonna get the best rate with an institutional loan, and if you have a a longer time horizon, then it's it's worth it. I've gone through several with you, and I don't think I would go through it with anybody else. I think you know. In reality I mean you. It probably you make the process a lot easier than it should be, I think, and you let me know what I need to get you. I get it over. But you told me when, when I did my first loan, you said, Hey, this is gonna be like drawn blood.

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Daniel Paloscio: So we're gonna need everything. And you guys did. But you know, I know the process now, and it's but it's worth it. II have loans with you, with you that are still at like 4 that I got when it was. You know I don't know that 5 years ago, 4 years ago, when when the rates for 6 and a half, so in those cases it's worth it. But sometimes people have a shorter time horizon, and what does it matter for them if they pay a few extra points? You know, on a 2 year? Note to just not to just be able to walk into the deal and not have a lot of paperwork.

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CAELI RIDGE: Yeah, okay, let's switch gears a little bit. Let's go. What does the due diligence process look like for you guys? What? What goes into all of that?

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Daniel Paloscio: So you know, II mentioned the the 4 C's, that's that's that's important. But other than that, someone comes to you and says, Hey, I need II I'm I need this for whatever the reasons are, yeah, take us through through that.

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Daniel Paloscio: So you know, step one. I'm personally gonna gonna speak with the client kind of get a feel for who they are what they know, what they've done, their track record, what their intentions are for the property. I'm gonna get the address. And then I'm gonna do you know, I'm gonna look at the property myself as if I was the investor, and I was doing the deal. Gonna look at their scope of work on a fix and flip and make sure that what they're telling me, you know, is is adding up, and it's realistic

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Daniel Paloscio: from there, when the deal looks good. The next thing I'm gonna do is I'm gonna hire an appraiser. We get appraisals on all of our properties are on all of our loans a lot of hard money lenders don't and it's not necessarily something that we have to do. But I like to have it in the in the pro in the loan, docs for the for the investor to look at.

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Daniel Paloscio: and I like to have somebody else getting their eyes on it. We work with the same investors over and over what are. Excuse me, same appraisers over and over, depending on the market and Florida, because Florida is a big state.

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Daniel Paloscio: One of the one of the appraisers actually was a mentor of mine when I first started flipping houses years ago. And so you know, our appraisers

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Daniel Paloscio: own rental properties. They fix and flip homes themselves. They understand, you know, the nuances of the individual neighborhood. They don't. I mean.

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Daniel Paloscio: it's you know. People say it's an art more than a science, but I mean it's a crapshoot depending on in on who the appraiser is. What they feel that day, I mean, and so it's it. We don't rely solely on that, but it's just another piece of the puzzle.

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Daniel Paloscio: II I'd say

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Daniel Paloscio: And then from there, you know, we'll we're going to pull the credit on the on the borrower. Anybody else that's that's going to be a guarantor of the loan. As I mentioned earlier. Everybody, you know, anyone who's involved with the loan is going to be a personal guarantor, you know, for for and the reason that we do that is so that you know this this person

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Daniel Paloscio: we require that everybody do these loans and Llc's because we don't do any consumer loans. But that Llc. May own no assets. And so if there's ever an issue of default, we want to make sure that

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Daniel Paloscio: the

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Daniel Paloscio: the borrower's other assets are collectible that might not be held in that specific Llc. And that could be, you know, if if needed. It could be a car boat primary residence all those assets around the table when when someone signs a personal guarantee

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Daniel Paloscio: and so I kind of got off track there. But what? Yeah. And so from there. Then it's just gonna once the appraisals back. Once we have clear title. That's another important thing. Our our attorney looks at every title policy, you know. I there's still things that surprise me, and so we don't do any of the

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Daniel Paloscio: We don't do the final review of any of our of our title policies, our our attorney over to Anthony and partners who prepares our our loan docs for each file also looks at the looks at the title report. Make sure that there's no, you know, surprises on there. Nothing we need to worry about

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Daniel Paloscio: gets the the title companies which in our State we're title State, Florida. They get the title company to remove any exceptions that that that we need off

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Daniel Paloscio: and once we have clear title. Once we have the value worked out, we can close that same business day.

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CAELI RIDGE: Well, that's quick. And then just II you know, I I'm hopefully this is useful because II make the mistake. I've been doing this so long. I make the mistake, and I assume that people just understand what certain milestones of a loan, transaction or life cycle of a loan means.

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CAELI RIDGE: The title, and clear title is super important for anybody that is not aware. This is where the attorneys in Florida, Danny's Danny's team make sure that there are no encumbrances or liens or mechanic leans, or anything that is clouding the title of that property, so that in the event of default, in the event of D of of foreclosure, there isn't somebody that would take a first lean position, so if you had to sell it

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CAELI RIDGE: right, or files fire, sale it, or whatever somebody else isn't in line getting paid first, or they're not coming to attach the property that could ultimately take it back when you've got this other lean, so free and clear title is a big one. Just anybody that that may not be aware of that. Okay, let's see. What else? What time is it? What is the typical loan duration of these, Danny.

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Daniel Paloscio: I I'd say, with our fix and flip guys, we're we're typically 6 to 8 months. We have some of our bur guys that, you know just sometimes just refine, you know. Extend the loan year after year, but I'd say our average loan is 6 to 8 months.

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Daniel Paloscio: but we always have deals, you know, loans coming in. We all we frequently have deals paying off every month. And so, you know, there's always opportunities for investors to roll that capital over and do another project, or another loan, or, you know, take the capital back at at that. At that. You know point that the property sold or refinanced.

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CAELI RIDGE: Do you make sure that they have? How do you? How do you scrutinize their exit strategy? So let's say that that you know, it's a a burn hold right? They're not gonna sell it. They're gonna they're gonna keep it. How do you quantify if they're qualified, or what their means are to get out of that loan in 6 to 12 months.

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Daniel Paloscio: Yeah, great question. And well, we're gonna pull, look credit initially. And so the first thing is, if if they've got a you know 510,

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Daniel Paloscio: you know credit scorch. I think II have seen one of those. I know that it's not likely that in a year they're gonna be able to refinance. We honestly will hold the notes. We're we're not looking to kick people out at the end of their loan, and and we do have investors that when they sign up for, let's say, a one year. Note

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Daniel Paloscio: they're only obligated to stay in that known note necessarily for one year. Right? If at the end of that year that investor does not want to hold paper anymore, and they want to pull the capital back to put it into something else. I would essentially buy that investor out of the loan before I, you know, before I foreclose on the borrower, for you know, staying in the loan too long.

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Daniel Paloscio: but by and large our investors just want to keep their capital to work, you know, as long as possible, and so we'll just in a situation like that where they don't have a clear exit. Strategy. You know, we're just gonna make sure that the loan to value is low enough so that there's if there's any hiccups. You know, we're we're in a good spot, but we honestly want them to extend into infinity.

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CAELI RIDGE: Okay, alright, even even better. What types of properties does scp capital end on

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Daniel Paloscio: so investment residential. So you know, single families we consider as a as residential at 4 units or less. Yeah. As long as it's for an investment purpose. And then we do everything else. We'd consider commercial. So we do small balance commercial, I'd say loan sizes under 3 million, and that could be, you know, strip, strip, center, strip malls that could be small apartment buildings. It could be, you know, mid size, apartment buildings.

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Daniel Paloscio: It could be a, you know, a commercial, you know, any any commercial

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Daniel Paloscio: storage? Yeah. So our loan to values change quite a bit in commercial. So we're gonna Max out at about 50% loan to cost. And then on re, on refinances, we we get, we get into the weeds and those types of deals just because the risk is level is a little bit higher. And so we're you're really betting more on the jockey and on those small or betting more on the horse, I think. And and those small

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Daniel Paloscio: asset classes, smaller loan sizes.

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CAELI RIDGE: Okay?

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CAELI RIDGE: Let's say, where do I? Wanna ask next? You know, this may be kind of obvious to private lender and hard money lender.

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CAELI RIDGE: Is there a minute just to define what is the difference? I mean, how does the lending differ between private and hard money for those that may be interested in that?

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Daniel Paloscio: Sure. So a

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Daniel Paloscio: so a hard money lender would describe both a private lender and an institutional lender. So a hard, hard money lending is essentially lending against a hard asset. So

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Daniel Paloscio: send you want to be looking at the collateral more than anything else. A hard money loan is just a loan against, you know, a a home. It could really be against the boat or jewellery, but it's loaning against the hard asset. So what makes a private lender? A private lender is someone who's lending money that's in their bank account. It's or it's money that they directly control and so they get to make the decisions on on the money that they're lending out, or how they wanna lend that money out. And so.

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Daniel Paloscio: private hard money lenders all do business differently. You'll find that you could talk to someone who might do 100 financing on some of the other lenders. Yeah. Won't do it right. Those are going to be the, you know, and then, but with institutional hard money lending. That's gonna be your like. I mentioned earlier, Ki Kiabi's your lending homes. Those are those are the guys that

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Daniel Paloscio: are borrowing money many times off Wall Street and and and in order to get that money they have to agree to a specific criteria, and they have to tell their investors, hey? You know, I'm only going to lend on deals that do XY and Z. So if it doesn't fit into that box, you know they don't, they don't do the deal, so there's really no negotiating, there's no flexibility. They are going to have the lowest prices. But honestly, since the Fed's been hiking the rate.

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Daniel Paloscio: The money that they're borrowing is is gone has gone up significantly, and a lot of those guys aren't much cheaper than what we're offering, and they're a whole lot more. Hassle

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CAELI RIDGE: navigating a battleship in a creek that paints a picture. It should. It should paint a picture. Okay, couple more questions here, and then we're gonna find out how everybody can contact you. You know, I probably should have had a slide for that that I can have up here that people can write down. But you'll you'll tell us How do you make your money as a private lender.

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CAELI RIDGE: or how do? Sorry. How do you make money as a private lender?

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Daniel Paloscio: That's the question. Yeah. So a private lender can make their money in a number of different ways. But there's

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Daniel Paloscio: personally, we write all of our notes at between 12 and 1299

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Daniel Paloscio: and we look to make a 2 to 3 point yield spread. So what that means is we we write a loan at, let's say, 12% an investor signs onto the loan at 10, and we make a what's called 2 2 point yield spread on that money. So if we have a hundred $1,000 and capital out we're gonna make $2,000 a year that that money is invested

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Daniel Paloscio: and then we also make our money through points. And our our average loan is gonna be 2 to 3 points and a point is just one percentage point. So on $100,000, we make $1,000 for originating the loan.

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CAELI RIDGE: got it. And then I think, finally, here.

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CAELI RIDGE: oh, no. What is there? A minimum investment size? That's a good one scp, capital have a minimum investment size.

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Daniel Paloscio: Yeah. So you know, I have, an investor presentation that I sent you. And if you want to link that, you know, people look at it. It is gonna say on there that that we have an initial investment of $100,000.

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Daniel Paloscio: That's not really a hard and fast rule. A lot of our investors like I mentioned earlier, have retirement accounts where they have, you know. Odd.

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Daniel Paloscio: you know, dollar amounts, you know, 26,005, and they just want to get it to work. We frequently take that capital on and so, you know, if if anybody's interested, and didn't, you know, have $100,000 per se to put into the deal. We actually do all of our loans

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Daniel Paloscio: to our investors as fractional participations. And so you don't have to take the entire loan. If if a loan is $300,000 and you want to contribute $100,000 towards it. You have the ability to do that, and then the Re. And then the remainder would go to another investor.

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CAELI RIDGE: Okay, good. To know, Carly. Would you make sure that that presentation is available to the community. Post this recording. Thank you, dear. And then last question is going to be, if you want to summarize for us. Dp. What are the benefits of investing with a private lender?

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Daniel Paloscio: Sure, I think the benefits of of investing with a pro with a private lender like myself would probably be that it is a truly passive investment, you know, like I mentioned, we're handling the underwriting of each deal. We're handling the servicing of each deal. You know we're we're handling everything from start to finish. And so it's an opportunity for somebody who's busy as an opportunity for somebody who has, you know, other things to do to be able to place capital to work in a in a

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Daniel Paloscio: relatively lower risk investment and then collect interest payments every single month.

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Daniel Paloscio: and then you know, the horizon on when these loans pay off is relatively short, and so you get to make a decision every you know, 6 to 8 months. As to whether you wanna roll that into something else, or whether you wanna pull that capital back. And so, you know, especially in times like this, where stocks are kinda up and down. You know, I've got a lot of guys that have, you know, kind of pulled back their their capital or what they have invested in their portfolios and done more hard money lending. And then, when the when you know stocks look better again, then they'll pull out of the hard money loans and get it into

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CAELI RIDGE: stocks. Yeah, yeah. The window is is short enough that they can make those quick pivots and moves which actually is another question that that I don't know. It was in this this list. When when does the payout occur? Is it annually? Is it monthly? How? When, when can the investor expect

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Daniel Paloscio: every single month? We collect payments from our borrowers on the first of each month we usually give it about 5 to 7 days to clear, and then investors usually get their payments by the 10

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CAELI RIDGE: excellent excellent! Okay, my friend. Then, this concludes us, I would like you if you could, for everybody that's gonna be watching this. Please let us know how we will find you, how we're gonna reach you if they're interested for more information, or to deploy their capital.

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Daniel Paloscio: Sure. So the best way to reach out to me would be by email, that's daniel@sepcapitol.com.

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Daniel Paloscio: We've got the website at Scpcapitalcom. We're working on that now. So there's not gonna be a ton of information. But the best way to reach out to me would be by email. I I'm looking at my email all day long. Okay, yeah, he's very, very responsive. I thought I was responsive. No, Danny, Danny PE is responsive. So we'll put all that up on the community as well, Harley. And I'm assuming that the presentation to Danny has all the contact information. And if if they want? Right? Yeah.

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CAELI RIDGE: So gang we have just I mean, well, I guess, depending on on how much time Danny has. Or you guys have. I've got a little bit more time. Let's do anybody who's got QA. Do we have anything in there now? Open up for questions? I thought there would probably be a ton. But maybe you we were so efficient that

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CAELI RIDGE: you know, we answered everything. Let's see.

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Karlie Libby: I think there's 2 in here. I can see. Yeah, we do have one from Tanya here. She asks. Are you purchasing batch notes from banks? Are the investors able to choose which notes they would like to invest into.

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Daniel Paloscio: Yeah, that's a great great question. We're not buying any batch notes from banks where or from other lenders. For that matter, we're originating all of our own notes.

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Daniel Paloscio: And as far as choosing the notes. Yeah, so we're not set up like a fund model. This is like I mentioned earlier Co. Lending model. And so all of our deals are relatively going to be the same. So probably you could make the argument that if you don't like one of them. You may not like any of the others.

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Daniel Paloscio: But for the most part you it's not. You're not just giving us your capital, and then we're a investing it like a fund into all of our deals. You get to look at the the package or the loan, docs, you get to look at the appraisal. You get to look at the insurance stocks. You get to look at everything, and if you're like, if you like to deal, and you're comfortable with it. You do that specific deal.

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CAELI RIDGE: Hmm, so they're they do get some voting rights in terms of where their dollars are are deployed

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Daniel Paloscio: 100 voting rights. Yeah, that's unique. Wow, that's kind of cool. Okay, what else? Guys anybody else have anything? Currently, what else we got?

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Karlie Libby: Remember, everybody put your questions in the chat. And if you want to answer that, or ask them out loud, just raise your hand, and I can unmute you.

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Karlie Libby: Oh, let's see one from Javier here. Is there a portal to see currently available investment opportunities?

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Daniel Paloscio: You, you know, we don't have a portal you know, as it stands. Now, whenever an opportunity comes up. I'm I'm calling our investors personally, and I'm putting it in front of them or sending an email. If if you'd like to see what we have available, shoot me an email, and then I'll add you to our list. And as something comes available I'll I'll I'll make sure I send it out.

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CAELI RIDGE: Good question. Come on, you guys, don't take it that easy on this kid. Let's go. What do you got? You guys don't have anything. Some tough questions for for Danny. Anybody.

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CAELI RIDGE: Okay, we're going begging.

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CAELI RIDGE: Well, this was this was awesome. Man. Thank you for taking the time really really appreciate it. Again, diversification. People for anybody that that has any interest in learning from my mistakes. And my my wins

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CAELI RIDGE: diversify. And this is a piece of it. Private note investing is definitely, if if not be feasible. Today, at some point in your real estate career, you should have this as as a piece of the pie and like I started the call. II trust this human implicitly. This is where I would put my money.

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CAELI RIDGE: Okay, so that does it. If you guys need us. Carly, you wanna tell them how to how to get you guys on how to get us, don't you? Origin Groupcom Info Ridge, letting group com and 8, 5, 5, 74. Ridge is how you can pick up the phone and and reach us that way. Thanks for being here. I'll see you guys in a couple of week. Danny, you demand.

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Daniel Paloscio: Alright guys, take care.

Calling All Real Estate Investors

Guest Speaker Daniel Paloscio with SEP Capital

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