In 2016, our business crashed. But we weren’t lenders. I was flipping houses in Michigan with
my wife and partner, Marcia. We had never dreamed of lending.
Following the Great Recession, Marcia quit her job to flip houses. She spent a year, like a young lioness perfecting her stalking, learning everything she could. And then she jumped into the market. Back then, I still had a day job and was helping on a part-time basis—finding and vetting contractors, agents, lawyers and such. Our business grew steadily, with only minor hiccups.
We began noticing, as a few years passed, that properties available via tax deed or county foreclosure sales were creeping toward retail prices. HGTV-watching “flippers” were entering the market, and value quickly fled. We knew folks who simply wanted to “do a deal” but never considered their margin or holding costs. They were desperate and they were our competition. That’s why our business suffered: Opportunities providing solid value became scarce.
That’s when our first borrower, an LLC owned by a woman named Lydia (not her real name), asked us for funding. We met Lydia through our local real estate investment club (REIC), and she knew we had cash ready to deploy for the right deals. But she wasn’t looking to flip. Lydia was an Airbnb investor looking for a modest loan to fund another Airbnb project. She needed just enough cash to cover the monthly payment, furnishings and first month of expenses—and a Keurig.
Lydia’s terms were generous. So generous, in fact, that we discovered she was offering us usurious rates. But since we didn’t have any flips pending, we tackled learning more about private lending. The more we researched, the more excited we became. Here was a way to match our flip profits without ever dealing with capricious contractors or city inspectors. In hindsight, it seemed that we’d been wasting our time. But our experience rehabbing gave us an advantage in our underwriting.
And so Green Block inked a two-year deal with Lydia’s LLC. We eventually wrote three more loans to her LLC. Given our entrepreneurial background, we quickly developed three standard products—flip, rental and line-of-credit loans—and began word-of mouth marketing at a few local REICs. By year’s end, we had written 16 loans.
Although private lending is all about maximizing returns while mitigating risk, we’ve found great success by consistently evaluating our position in the marketplace and pivoting when appropriate, an inherently risky move. There have certainly been oversights in the process. Not predicting the flight in value in southeast Michigan three years ago was very disruptive to our company. It was like searching for a parachute once the engines had died.
Overall, however, we’ve managed the risk of pivoting via two avenues: (1) consistent learning, which is Green Block’s foundational principal and (2) strategic partnerships with successful local and national companies such as PeerStreet.
Ongoing learning has also helped us add transactional funding to our quiver when the opportunity presents itself. We love the risk and returns of a new opportunity educationally and financially.