Jonathan Davis joins Bill Fairman to talk about Carolina Capital Management and how they work as a boutique fund.
How do they decide the best projects to invest in and how they diversify their investing so as to maximize returns for investors in the fund while giving good value to the real estate investors who use the money from the funds.
This allows them to give competitive rates.
Carolina Capital is a hard money lender serving the needs of the “Real Estate Investor” and the "Small Builder" borrower who is striving to build wealth and generate income for themselves and their families. We offer “hard money rehab loans” and "Ground up Construction Loans" for investors only in NC, SC, GA, VA and TN (some areas of FL, as well).
As part of our business practices, we also serve as consultants for investors guiding them to network with other investors and educating them in locating and structuring transactions. Rarely, if ever, will you find a hard money lender willing to invest in your success like Carolina Capital Management.
Hi everyone. Bill Fairman, Carolina capital management along
with Jonathan Davis. He is also with Carolina capital management. You may have
met him in a previous recording. Wendy will be joining us for a later episode.
She always likes to say that she's the one that does all the work. So
apparently she is, cause she's not here right now. Most of you who join us, you
usually see this nice little brick wall behind us. Just so you'll know that's
fake. We have a, a green screen that's behind us. Sometimes it works, sometimes
it doesn't. But this is really our conference room in our office. And we do
have some fancy panels that are not just for looks, but they're also acoustic
panels. So it sounds a little better in here. You don't hear much of an echo.
So by the way, make sure you share and like our podcast and our videos, please,
you can contact us at carolinahardmoney.com again, Carolinahardmoney.com now we
do talk a lot about investing.
with Jonathan Davis. He is also with Carolina capital management. You may have
met him in a previous recording. Wendy will be joining us for a later episode.
She always likes to say that she's the one that does all the work. So
apparently she is, cause she's not here right now. Most of you who join us, you
usually see this nice little brick wall behind us. Just so you'll know that's
fake. We have a, a green screen that's behind us. Sometimes it works, sometimes
it doesn't. But this is really our conference room in our office. And we do
have some fancy panels that are not just for looks, but they're also acoustic
panels. So it sounds a little better in here. You don't hear much of an echo.
So by the way, make sure you share and like our podcast and our videos, please,
you can contact us at carolinahardmoney.com again, Carolinahardmoney.com now we
do talk a lot about investing.
Yes. And if you're going to the website, there's a tab
that says investors. If you want to find more information out about the
investment side of things, click on the investor to admin and that'll take you
to where you can learn more about loaning your money or investing in our fund.
Now, before I get started with anything, I have to do the disclaimer. We're not
selling any type of security or any kind of a stock. This is strictly
educational purposes only. You must read your PPM, which is also a word for the
prospectus. There are risks with any investment. Consult your financial
advisor, your mileage may vary.
that says investors. If you want to find more information out about the
investment side of things, click on the investor to admin and that'll take you
to where you can learn more about loaning your money or investing in our fund.
Now, before I get started with anything, I have to do the disclaimer. We're not
selling any type of security or any kind of a stock. This is strictly
educational purposes only. You must read your PPM, which is also a word for the
prospectus. There are risks with any investment. Consult your financial
advisor, your mileage may vary.
That said, so this is end of the year for us. A lot of
companies like to just do, and we're a smaller fund. We're a boutique fund. You
know, we don't have thousands of investors in our fund as a matter of fact, nor
do we want thousands of investors. That's right. Our PPM, our fund documents
actually state that we cannot have it. Puts a cap at 500 investors. I think our
current number is right around 90. Okay. Yeah, that sounds right. So here's
what we like to do at the end of the year, instead of doing a broadcast or
sending out a letter, it says how we've done we.. Charts and graphs, everyone
loves charts and graphs. Yeah, pie charts. What we like to do is send out an
invitation to all of our investors and schedule a 15 to 30 minute meeting with
them and go over how we did for the year. Yeah. What our expectations are for
following year and then find out from them personally how we can better serve
them. Right.
companies like to just do, and we're a smaller fund. We're a boutique fund. You
know, we don't have thousands of investors in our fund as a matter of fact, nor
do we want thousands of investors. That's right. Our PPM, our fund documents
actually state that we cannot have it. Puts a cap at 500 investors. I think our
current number is right around 90. Okay. Yeah, that sounds right. So here's
what we like to do at the end of the year, instead of doing a broadcast or
sending out a letter, it says how we've done we.. Charts and graphs, everyone
loves charts and graphs. Yeah, pie charts. What we like to do is send out an
invitation to all of our investors and schedule a 15 to 30 minute meeting with
them and go over how we did for the year. Yeah. What our expectations are for
following year and then find out from them personally how we can better serve
them. Right.
Absolutely. And that fits into kind of what we talked
about last time I was on here where we're not trying to build a machine that we
have to feed and that's not just on the lending side. That's on the fund
investor side. Sure. Like you want to, do you want to call 10,000 people and
tell them what's going on and hear all their complaints.
about last time I was on here where we're not trying to build a machine that we
have to feed and that's not just on the lending side. That's on the fund
investor side. Sure. Like you want to, do you want to call 10,000 people and
tell them what's going on and hear all their complaints.
I would have to start before a long time before the
[inaudible].
[inaudible].
Yeah. Yeah. So it's, it's not our goal to, to grow on the
lending side, nor on the investment fund size to that amount. We like the
personalized service that we can offer.
lending side, nor on the investment fund size to that amount. We like the
personalized service that we can offer.
Right. And while we don't talk about returns only shows,
cause again you have to read the prospectus. When you do have that large
machine you have to feed and you're having to deploy lots of capital, what
typically happens to the yield?
cause again you have to read the prospectus. When you do have that large
machine you have to feed and you're having to deploy lots of capital, what
typically happens to the yield?
Well you, you end up, so when you build something like
that, you're sacrificing one of two things and it's always one or the other.
And usually both. But you're sacrificing your personal relationship with those
investors and then you're also sacrificing yield, right? And usually it's both,
right? Yeah.
that, you're sacrificing one of two things and it's always one or the other.
And usually both. But you're sacrificing your personal relationship with those
investors and then you're also sacrificing yield, right? And usually it's both,
right? Yeah.
What, what happens with a lot of the larger funds is you
have capital that can't be deployed in a timely manner. Yeah. So the capital
that's sitting there and not being deployed is a drag on the yield because it's
not working money. At the same time, if you have too much capital working or
not working, rather you have this tendency of perhaps making it work in a
higher risk situation that you're, you would like to because you need to get
them anywhere.
have capital that can't be deployed in a timely manner. Yeah. So the capital
that's sitting there and not being deployed is a drag on the yield because it's
not working money. At the same time, if you have too much capital working or
not working, rather you have this tendency of perhaps making it work in a
higher risk situation that you're, you would like to because you need to get
them anywhere.
Yeah. You make poor credit decisions based on a need to
get the capital moving. Yeah.
get the capital moving. Yeah.
And then the only way to combat that is by having really
low yields. So yeah. And you know, while that's it can be safer and it is
safer, you might as well put your money in the bond market.
low yields. So yeah. And you know, while that's it can be safer and it is
safer, you might as well put your money in the bond market.
Yeah. For a lot of those returns. Yeah. That's very, very
similar.
similar.
Right? Yeah. You're not going to get a ton there. So
we're, we're in the middle of our calls and it's funny, the different investors
and how they, all of them, by the way, really appreciate the fact that we're,
we're calling them in and doing those personal touches.
we're, we're in the middle of our calls and it's funny, the different investors
and how they, all of them, by the way, really appreciate the fact that we're,
we're calling them in and doing those personal touches.
Yeah. And several are, you know, raving and just shocked
you all do this. You know, I have, cause you know, the thing is bill mentioned
before, we don't want all of someone's money. We want them to diversify. Just
like we diversify. And the people who we talk to are, none of our other fund
managers are calling us and, you know, having these conversations,
you all do this. You know, I have, cause you know, the thing is bill mentioned
before, we don't want all of someone's money. We want them to diversify. Just
like we diversify. And the people who we talk to are, none of our other fund
managers are calling us and, you know, having these conversations,
well, part of that is two fold. I'm going to be honest with
you, we're always looking for capital. So if you're calling people and talking
about how well you did, you can always ask, do you have any friends that are
accredited investors as a, as a way of asking for, for more capital without
taking all their capital. Again, we want them to be diversified, but you know,
we're always asking for more capital because it's a, I would rather have our
investors make the return than have these larger funds make the return. And
when you're, you're operating a, a smaller fund like ours, you're partnering a
lot with institutional capital in order to constantly have enough money to
deploy, see in our case, because we are smaller and we are really entrenched in
the investment community, investor community, we have lots of deal flow.
you, we're always looking for capital. So if you're calling people and talking
about how well you did, you can always ask, do you have any friends that are
accredited investors as a, as a way of asking for, for more capital without
taking all their capital. Again, we want them to be diversified, but you know,
we're always asking for more capital because it's a, I would rather have our
investors make the return than have these larger funds make the return. And
when you're, you're operating a, a smaller fund like ours, you're partnering a
lot with institutional capital in order to constantly have enough money to
deploy, see in our case, because we are smaller and we are really entrenched in
the investment community, investor community, we have lots of deal flow.
Yes. And our problem always is we have more deal flow than
we have a capital to deploy. So the only way we can do that is by, in a lot of
cases, selling off loans that are in our portfolio to recapitalize that we have
money to make new loans with. And then at the same time we also partner with
other companies where maybe we have 20% of the loan or 25% of the loan or 50%
of the loan, but that's the way we're able to make loans and utilize that
capital, keep that capital working. And at the same time, because we are the
people that find the deals, we're able to do what with with these partners?
we have a capital to deploy. So the only way we can do that is by, in a lot of
cases, selling off loans that are in our portfolio to recapitalize that we have
money to make new loans with. And then at the same time we also partner with
other companies where maybe we have 20% of the loan or 25% of the loan or 50%
of the loan, but that's the way we're able to make loans and utilize that
capital, keep that capital working. And at the same time, because we are the
people that find the deals, we're able to do what with with these partners?
Yeah, we're able to arbitrage yield spread because they
are seeking deal flow. Because I think we actually had a conversation earlier
today with an investor just about this and they said, well that doesn't make
sense. Why would someone give you yield spread? You know on their side if
they're bringing most of the money, like because they're built to find money
and aggregate that money, they aren't built to find deals. So we are uniquely
positioned. We were built to find deals. Sure.
are seeking deal flow. Because I think we actually had a conversation earlier
today with an investor just about this and they said, well that doesn't make
sense. Why would someone give you yield spread? You know on their side if
they're bringing most of the money, like because they're built to find money
and aggregate that money, they aren't built to find deals. So we are uniquely
positioned. We were built to find deals. Sure.
Yeah. We're also getting paid because we have connections.
And by the way, if you're doing loans on your own and you know lots of people
that need loans and you're, you know, you have the wherewithal to underwriting
of yourself, you know, you can find your own arbitrage yourself. You have
people that have money that would like to deploy it. You have friends or people
that you know that need it. You can put a little bit of your money with it and
do the same thing. They make most of the money from somebody else. You
essentially, and we'll, let's give them an example. So let's say we make a loan
at 10% and the other party who has most of the cash who isn't out there and has
the connections to find people that need the money, they're happy to get 8%
yeah. So you keep the 2% difference. So let's say it's a $100,000 loan. You're
putting up 25,000 you're getting 10% on your $25,000 the person is putting up
$75,000 they're getting 8% and you're getting the 2% difference on the other
$75,000 right? Yeah. And then if you're charging points on these loans, you get
the majority of the points, if not all of the points on the total a hundred
thousand dollar loan. So that takes your 10% yield way up. Probably 16, 17, 18
even higher.
And by the way, if you're doing loans on your own and you know lots of people
that need loans and you're, you know, you have the wherewithal to underwriting
of yourself, you know, you can find your own arbitrage yourself. You have
people that have money that would like to deploy it. You have friends or people
that you know that need it. You can put a little bit of your money with it and
do the same thing. They make most of the money from somebody else. You
essentially, and we'll, let's give them an example. So let's say we make a loan
at 10% and the other party who has most of the cash who isn't out there and has
the connections to find people that need the money, they're happy to get 8%
yeah. So you keep the 2% difference. So let's say it's a $100,000 loan. You're
putting up 25,000 you're getting 10% on your $25,000 the person is putting up
$75,000 they're getting 8% and you're getting the 2% difference on the other
$75,000 right? Yeah. And then if you're charging points on these loans, you get
the majority of the points, if not all of the points on the total a hundred
thousand dollar loan. So that takes your 10% yield way up. Probably 16, 17, 18
even higher.
Yeah, it's high. I mean cause on the 75 you're adding
$15,000 of additional income to the $25,000 investment. Right. That's significant.
$15,000 of additional income to the $25,000 investment. Right. That's significant.
And don't do this secretly, I mean there's nothing wrong
with you making money. Hey, you're bringing the deal to the table. This other
person would not have access to your deal otherwise. Right? Like why do brokers
get paid?
with you making money. Hey, you're bringing the deal to the table. This other
person would not have access to your deal otherwise. Right? Like why do brokers
get paid?
Right. You know, they're valuable. The relationship's
valuable when you bring something to the table that otherwise wouldn't be
there. You are valuable and you should be compensated for it.
valuable when you bring something to the table that otherwise wouldn't be
there. You are valuable and you should be compensated for it.
And we're just doing it on a, you know, a larger scale.
Right. So that's part of how we're the market currently, there were a wash in
money. Now you said you saw a deal that was in the fives. Yeah, I just had one,
an advertisement come in my email today where it was a fix and flip loans and
it was 7.49% interest and they didn't charge you any interest on the funds that
were used for the rehab. So until you actually drew it out.
Right. So that's part of how we're the market currently, there were a wash in
money. Now you said you saw a deal that was in the fives. Yeah, I just had one,
an advertisement come in my email today where it was a fix and flip loans and
it was 7.49% interest and they didn't charge you any interest on the funds that
were used for the rehab. So until you actually drew it out.
So it was non Dutch. So yeah.
And, you know, it's a smaller fund, we can't do that and
give our investors a decent return.
give our investors a decent return.
No. Cause then that's lazy capital that's not making
yield. Yeah.
yield. Yeah.
So in order for us to compete with those kinds of rates
and still be able to do that, we need to be able to arbitrage the difference in
what we're charging and what we're selling some of these for or participating
in ourselves. So yeah, as a fund, we are conservative in nature. We're always
trying to stay in the single family side of things. We're trying to stay in the
affordable housing market. Right. That said, we do the same thing in
multifamily, but with the multifamily deals we're going to participate with
other investors, sometimes it's insurance companies, sometimes it's
institutional capital. Yeah. But we're able to take the single family loans
where we're not going to make that much money on them and then take the
multifamily loans and make up that the yield difference that we're not able to
get with the single family, inside the fund and still be quite diversified
because we're in it at a smaller percentage.
and still be able to do that, we need to be able to arbitrage the difference in
what we're charging and what we're selling some of these for or participating
in ourselves. So yeah, as a fund, we are conservative in nature. We're always
trying to stay in the single family side of things. We're trying to stay in the
affordable housing market. Right. That said, we do the same thing in
multifamily, but with the multifamily deals we're going to participate with
other investors, sometimes it's insurance companies, sometimes it's
institutional capital. Yeah. But we're able to take the single family loans
where we're not going to make that much money on them and then take the
multifamily loans and make up that the yield difference that we're not able to
get with the single family, inside the fund and still be quite diversified
because we're in it at a smaller percentage.
Yeah. I mean the beauty of it is, you know, if we, if you
get down in the weeds real quick, it's the single family loans are highly
liquid. We can sell those to anyone at any time. They are the most liquid of
any security instrument that we have out there. You know, whether, you know,
cause you know, commercials is more illiquid or a specialized assets is more
illiquid just because there's less buyers for it. So with the compressed rates
that we're seeing on the single family side, it's not that we don't want to do
those because they are so liquid. We want to do those. And that's what you
churn, that's what you keep turning over. Sure. You know, month after month,
quarter after quarter, and then the longer term commercial loans that you are
participating in or arbitraging, those are the 12 to 18 month longer terms. But
they have that higher coupon rate that they're creating. So with the two of
those going together, the churning and the longterm, you create an ideal yield
for an investor while utilizing multiple mechanisms, right? Yeah.
get down in the weeds real quick, it's the single family loans are highly
liquid. We can sell those to anyone at any time. They are the most liquid of
any security instrument that we have out there. You know, whether, you know,
cause you know, commercials is more illiquid or a specialized assets is more
illiquid just because there's less buyers for it. So with the compressed rates
that we're seeing on the single family side, it's not that we don't want to do
those because they are so liquid. We want to do those. And that's what you
churn, that's what you keep turning over. Sure. You know, month after month,
quarter after quarter, and then the longer term commercial loans that you are
participating in or arbitraging, those are the 12 to 18 month longer terms. But
they have that higher coupon rate that they're creating. So with the two of
those going together, the churning and the longterm, you create an ideal yield
for an investor while utilizing multiple mechanisms, right? Yeah.
And at the same time we're able to offer competitive rates
to the borrowers that are doing this single family fix and flip as well as the
people that are fixing to hold property. And we actually, we're starting to do
some longterm rental programs too. And again, we're not holding those in our
fund, but we have other lenders that will take those from us, but we have
access to them, right? Yes we do. And in the meantime, the funds don't make
money on those.
to the borrowers that are doing this single family fix and flip as well as the
people that are fixing to hold property. And we actually, we're starting to do
some longterm rental programs too. And again, we're not holding those in our
fund, but we have other lenders that will take those from us, but we have
access to them, right? Yes we do. And in the meantime, the funds don't make
money on those.
Well, we wouldn't do it otherwise. Yeah.
Yeah. And it's funny, we were talking about getting into
the weeds. We tend to do this, we forget that not everybody works in our
business. We've been doing this a long time and it's funny with our
conversations with our investors, everybody has a different personality type
and a different makeup. Some people are more passive than others. It's funny,
I, I'll explain what it is we do and somebody will ask me 72 questions, which
is fine. I'm happy to answer them. And then you'll have some that'll just say,
the weeds. We tend to do this, we forget that not everybody works in our
business. We've been doing this a long time and it's funny with our
conversations with our investors, everybody has a different personality type
and a different makeup. Some people are more passive than others. It's funny,
I, I'll explain what it is we do and somebody will ask me 72 questions, which
is fine. I'm happy to answer them. And then you'll have some that'll just say,
all right, here's the check. Yeah. Are you a, are you, are
you making money? Yes, we're making money. Well, you're communicating cause
you, you've called me, I'm good. It's like, okay, that's all you're interested
in. All right. When you're not making money, I want it back. Yeah, exactly.
you making money? Yes, we're making money. Well, you're communicating cause
you, you've called me, I'm good. It's like, okay, that's all you're interested
in. All right. When you're not making money, I want it back. Yeah, exactly.
And again, that's part of the beauty of having the smaller
boutique funds that you're able to communicate, you know, directly with the
fund managers, the people that are running the deals. You know, you get into
these, these larger funds and okay, good luck trying to talk to the managers.
boutique funds that you're able to communicate, you know, directly with the
fund managers, the people that are running the deals. You know, you get into
these, these larger funds and okay, good luck trying to talk to the managers.
And the, one of the beautiful things is we, we not only
recap what we did the year before and not only do we tell them what our goals
are for the coming year, it's how we're going to achieve those goals. So you're
running more or less a kind of secret sauce, if you will, by your investors and
saying, Hey, does this make sense to you? Do you have questions about this? And
you know, you have, we had some that had, you know, multiple questions, well
how are you doing this? How's this achieved? You know, and we answered those.
And then some are just like, Oh yeah, that, that makes perfect sense. We love
that. Sure. So it's, it builds that interaction and it's a, I think it's a
great tool that we can offer our investors.
recap what we did the year before and not only do we tell them what our goals
are for the coming year, it's how we're going to achieve those goals. So you're
running more or less a kind of secret sauce, if you will, by your investors and
saying, Hey, does this make sense to you? Do you have questions about this? And
you know, you have, we had some that had, you know, multiple questions, well
how are you doing this? How's this achieved? You know, and we answered those.
And then some are just like, Oh yeah, that, that makes perfect sense. We love
that. Sure. So it's, it builds that interaction and it's a, I think it's a
great tool that we can offer our investors.
And a lot of you folks that invest in the stock market are
asking, well, how is this any different from, you know, an earnings report
coming up. And then the, the CEO is explaining how the earnings were derived
and what their forecast is going forward. Well, you're not in a room with a
thousand people or on a conference call with a thousand people. You actually
get that ask questions directly, not listening to someone else ask a question. And
it's a lot more personal. And again, you can ask individual questions about
your investment, not specifically how they, how the company is doing. Now, you
know, granted with what we do, there's only one way you can invest, which is as
an equity member. So, but you know, you can still throw some scenarios out
there that it's easy for us to answer versus you're not going to be able to do
that in these calls. It, the CEOs do for, you know, each quarter when they're
given out their, their reports. And by the way, most of the time it's the big
giant investor in those funds that get the call. Or it's the business reporters
that are asking to call. They're, they're not even investors in the fund.
They're just porters that are going to be on the business channels or are
reading the wall street journal type of folks. Any last tips, comments?
asking, well, how is this any different from, you know, an earnings report
coming up. And then the, the CEO is explaining how the earnings were derived
and what their forecast is going forward. Well, you're not in a room with a
thousand people or on a conference call with a thousand people. You actually
get that ask questions directly, not listening to someone else ask a question. And
it's a lot more personal. And again, you can ask individual questions about
your investment, not specifically how they, how the company is doing. Now, you
know, granted with what we do, there's only one way you can invest, which is as
an equity member. So, but you know, you can still throw some scenarios out
there that it's easy for us to answer versus you're not going to be able to do
that in these calls. It, the CEOs do for, you know, each quarter when they're
given out their, their reports. And by the way, most of the time it's the big
giant investor in those funds that get the call. Or it's the business reporters
that are asking to call. They're, they're not even investors in the fund.
They're just porters that are going to be on the business channels or are
reading the wall street journal type of folks. Any last tips, comments?
I think the uncommon would be that we just don't only
explain what we're doing to the investors, we take commentary from them and
suggestions. We realize that we're not always the smartest people in the room.
And if we are we chin, we try to leave that room. So
explain what we're doing to the investors, we take commentary from them and
suggestions. We realize that we're not always the smartest people in the room.
And if we are we chin, we try to leave that room. So
yeah, it's not good to be in a room when you're the
smartest person in it. You're not getting anything back from it.
smartest person in it. You're not getting anything back from it.
And a lot of our investors are very, very savvy and offer
a lot of good insights into things that you and I would never think of just
because we're too close to the situation.
a lot of good insights into things that you and I would never think of just
because we're too close to the situation.
Well the best thing as a fund manager you can have is an
educated investor and we want to have the most educated investors in our fund.
One reason is selfish. If I have an educated investor in our fund, I have to do
less work explaining things. And while we don't have a thousand fund investors,
you know, we all have busy days and we're constantly asking the, or answering
the same questions. Um, you know, it gets a little tough. Yeah. Again, we want
people to ask questions, but we also love the educated investor and we try to
educate everyone best we can. So you want to find out more about our fund,
Carolinahardmoney.com. Again, Carolinahardmoney.com. Go to the investor tab and
click that on and you'll be directed to a fund information where you can get
started. Okay. Again, don't forget to like and share us. Um, we also have some
other videos that are available in archive, so please check those out as well.
And we'll see you guys on the next show.
educated investor and we want to have the most educated investors in our fund.
One reason is selfish. If I have an educated investor in our fund, I have to do
less work explaining things. And while we don't have a thousand fund investors,
you know, we all have busy days and we're constantly asking the, or answering
the same questions. Um, you know, it gets a little tough. Yeah. Again, we want
people to ask questions, but we also love the educated investor and we try to
educate everyone best we can. So you want to find out more about our fund,
Carolinahardmoney.com. Again, Carolinahardmoney.com. Go to the investor tab and
click that on and you'll be directed to a fund information where you can get
started. Okay. Again, don't forget to like and share us. Um, we also have some
other videos that are available in archive, so please check those out as well.
And we'll see you guys on the next show.
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