A Conversation With Carrie Cook, President of Ignite Funding
Since joining Ignite Funding in 2004, Carrie Cook has risen through the ranks to become one of the most influential leaders in real estate investing’s “asset-based lending” realm. As president of a trust deed investment firm, Cook has an all-encompassing role overseeing underwriting, client relations, compliance, sales & marketing and more. She also is a licensed mortgage agent and the Principal of Ignite Funding.
In this Q&A with Personal Real Estate Investor Magazine Editor-in-Chief Linda Wienandt, she discusses the challenges of bringing visibility to this often-misunderstood aspect of real estate investing
Q: Hard money lending can seem an intimidating topic for many. Why is that?
A: Carrie Cook (CC): Just the phrase alone – “hard money lending” – is something that people flinch at. So first, let’s define what that means.
Carrie Cook
The word “hard” pertains to the asset itself; the asset requires money to be acquired, developed and constructed upon. As such, developers and homebuilders need investors to invest in that hard asset in order for that project to get to fruition.
If we look historically at hard money or asset-based lending in this country, it has probably created thousands upon thousands of jobs. It has also assisted in development of thousands of communities, both on the commercial and residential front. Yet all we hear and all we think about is that banks provide this level of financing.
Not really; just look at our company: Ignite Funding – on its own, as a small company in Las Vegas, Nevada – has funded over $200 million in three years. That means that banks didn’t do that. So if we – as one, hard money lender – were able to accomplish that in a three-year period, imagine what hard money lending has done for every state in this country over the last 30-50 years.
Q: Kind of an unsung hero?
CC: Exactly. People tend to forget that those hard money providers are a key component to lending in general in this country. And to be able to put an investor or any person in this country, in a position to act in the capacity of a bank – which is what we’re doing – is pretty powerful. That means that we as individual investors are really supporting the shortfalls that the banks can’t support.
Q: So we need to shatter the myth that hard money lending is lower stature, or even “shady” …
CC: Yes; lots of people think that, “If you have to go to a hard money lender, you must not be bankable” (“bankable” meaning a borrower who can get bank financing), which is absolutely not true. Hard money lenders lend on a percentage of the value of the asset. Do we want our borrowers to complete the projects identified for a loan? Of course we do. But if they don’t, we are prepared, if needed to take the property back through foreclosure on behalf of our investors. This is why we don’t lend 100 percent on the value of the asset.
We’re very much like a bank: You give a percentage of what the borrower is asking for, so you always have equity left in the project if you have to take the project back. So to think that hard money lenders are only providing second trust deeds and “they’re the place you go when you need more than what you can handle” – absolutely not true! We’re in a first priority position, just like a bank.
Q: And that provides a certain level of protection for the investor who’s providing those funds?
CC: At Ignite Funding, we do not do seconds, so you are always in the first position. Your collateral is always protected. There is a promissory note, there is a deed of trust that is recorded, there is property insurance as well as title insurance. The asset, on behalf of our investors, is protected.
So if Ignite Funding, as the hard money lender, were, for whatever reason, to walk away, file bankruptcy, who knows, if that ever happened, it doesn’t matter for an investor. Why? Because that promissory note is made out to you. The deed of trust: You’re a beneficiary. The property insurance: you’re a beneficiary. The title insurance: you’re the beneficiary. It doesn’t have Ignite Funding on there; it identifies the client.
So hard money lending has always been seen as, “Oh, it’s not protected; it’s a fly-by-night way to get money” … absolutely not. We’re very heavily regulated. And you’re very much protected on that asset as the investor who’s investing it in. You own it; or you own a percentage of it.
Q: Is that unusual (to list the client as the beneficiary of those items)? Does that happen with most hard money lenders?
CC: It should. If they’re not doing that and you do not receive a deed of trust that shows you as the owner (or one of the owners, in the case of a multi-beneficiary loan), if they will not provide you a copy of the promissory note or the recorded deed of trust with your name on it, and you are unable to find the public record of the recorded deed of trust in the county the property is located, then there is a high probability you’ve been scammed.
We take it a little further than some hard money lenders, because we do provide protection for property insurance as well as listing the beneficiary(ies) on the title policy. Some hard money lenders don’t do that.
Demand it as an investor. You have that right.
Q: When an investor is going about trying to find a company like yours to invest with, where does he or she start? Especially if the investor doesn’t know much about hard money lending.
CC: I wish I had that “secret sauce.” In this day and age, everybody goes to the Internet. And one of the things they might type into the search is “trust deed,” as an example. Well most everybody has some type of deed, so that is a very broad search.
In my opinion our industry has very little presence, which makes word of mouth and referrals approximately 90 percentage of our marketing strategy. Nine times out of 10, when we’re working with a new client, this is the first they’ve ever heard of this type of investing. In all reality, many people have some type of investment specialist, planner or CPA that they discuss their strategies with. Why not ask them about how you can diversify your portfolio with trust deeds?
As trust deed investments become more mainstream, you may find financial planners offering these products to their clients as a great source of return.
Q: And it doesn’t help that people can’t even agree on what “hard money lending” means, does it?
CC: That’s why we don’t like to use the term “hard money lender,” because it has such a horrible connotation. You see it on people’s faces. It’s just because they don’t know; it’s really just a fear of the unknown.
Q: So let’s talk about some misconceptions that an investor might have. There’s some misinformation out there in regard to having to use all cash, or having to have a massive amount of funds to invest, isn’t there?
CC: Yes, I’ve heard that a lot. Regarding the first point, many of our investors invest through a qualified plan or their IRA. And I think that’s important because sometimes we forget about our IRA and why the IRS created it: for you to be able to earn a greater return than that of what potentially the market bears.
In fact, most of our clients invest through their IRA because of the tax-deferred or tax-free option that’s available to them. There are very few things in this country that have a tax-deferred or tax-free option. But investing with a hard money lender in real estate does allow that through your IRA.
We work with clients who are really thinking about their future and are thinking about financial security and retirement and building it and recovering from market losses and those sorts of things.
An investment collateralized by real estate will far outweigh the risk of loss in a stock as it relates to recovery of capital.
Q: And to the second point?
CC: Let’s face it: Middle America is comprised of hard-working individuals that are doing their best to plan for retirement. They may have a 401(k), a little cash on the side, maybe an IRA. Many of them have never considered having the ability to invest in real estate beyond the point of owning their own home; they’re thinking they’re going to have to invest $100,000 in order to make an impact in investing in real estate, and that is absolutely not the case!
And we – an alternative investment option – have the answer for those types of investors.
Because you can invest as little as $10,000 in one of our commercial projects and earn the same types of returns you could if you personally buy a property for rental purposes or flipping it … those things are great, but most Middle Americas don’t have the ability to quit their 9-to-5 jobs that pay the bills to go flip a house. So we are a very good answer to that. Trust deed investing is a turnkey real estate investment option without the sweat equity. But if the industry keeps referring to itself as hard money lenders, we’re never going to break through those walls or those barriers to spread the word about the positive impact these investments offer for all involved.
Q: So what can be done to make this aspect of investing more visible?
CC: There are some associations out there, but how many people know the phrase “hard money lending”? What does that mean? Does it mean anything to anybody? I think as an industry we need to stop using key phrases for which nobody knows the meaning and break it down into what we really do as an industry. Your publication is a great way to let people know what kind of investment options are available.
Q: Is there some sort of licensing or certification that would help both the investors and borrowers to separate the hard money lenders of high quality and high integrity from those who aren’t?
CC: Anytime a borrower has a financing need and is looking for a hard money lender, he or she has to do due diligence in the state in which the property is located. Licensing requirements vary, state by state, throughout the entire country. There are some states that we lend in that do not require a hard money lender to have a license in order to operate there. There are others that do.
For instance, in Nevada, where our company is located, we have a mortgage broker license through the Mortgage Lending Division of the State of Nevada. And the mortgage broker license allows you to broker loans, both residential and commercial. We obviously specialize in the commercial side, but you can broker both sides – residential and commercial.
So if an investor wants to do some due diligence, which we highly recommend, they certainly can go to the regulatory bodies of those states. In addition, the mortgage broker or hard money lender should provide them that licensing information.
Q: How else can they do their due diligence?
CC: The only other way that an investor – or a borrower, for that matter – can do their due diligence to make sure a hard money lender will follow through on its commitment of “Yes, we will be able to fund this in two weeks,” is by verifying references with other borrowers that the lender is working with.
We always tell our prospective clients, “Don’t base your opinion off what we tell you, do your own due diligence.”
When a potential client contacts the regulatory bodies, they will provide you with any complaints filed against the company you’re looking to invest with.
And there obviously is the Better Business Bureau. It’s a tell-tale sign; when the client is not happy, they’re going to do everything within their power to report their dissatisfaction with your company.
Q: Is there other documentation that someone can reference?
CC: The other thing I should point out with hard money lenders – at least in the state of Nevada – is that we are required to have a regulatory review annually. We are also required to get third-party audited financials. Audited company financials can be requested and will be provided to all clients of Ignite Funding.
Q: Obviously your company goes above and beyond in what it does. But what about the hard money lenders out there who do not? Is there any way that someone can identify a scam operator?
CC: One thing I would say to any investor out there who is considering loaning money through a hard money lender, is “transparency.” If you go to their website, they should very freely be providing information about their history and their track record. One thing that should readily be available to you is their track record of underwriting of the asset – and as we know, the asset is the most important component of this.
You need to investigate that the underwriter for that company or that department is qualified to analyze real estate, because just being a broker is not a qualification.
Q: What should a potential investor be looking for?
CC: Give me your track record over the last five years. How has your portfolio performed? How many defaults have you had? How have you responded to those defaults? Do you do your own underwriting in-house? Do you service your own loans in-house? Do you collect on those loans on behalf of your investors? Do you have an individual who has the ability to sell those properties and is licensed to sell those properties on the investor’s behalf?
If you’re working with a hard money lender who says, “No, we outsource our servicing,” or, “No, we don’t collect on behalf of our investors if a borrower decides not to pay” … if you hear that, then turn around and walk away.
Q: Why is that?
CC: Because that means there are so many hands in the pot, the chances are, that hard money lender doesn’t know how to analyze real estate and/or collect on the real estate. Lenders need to be able to do that in a multifaceted way, all in-house. If they don’t have those capabilities, chances are at some point – it’s not a matter of “if” but rather a matter of “when” – a project will default, and what’s going to happen to that asset? Who will you be passed on to then?
Q: So how does a lender set itself apart?
CC: For instance, at Ignite Funding, we are a one-stop shop. When a borrower comes to us, we do all the originating and the underwriting of our loans in-house, we do all of our own raising of dollars, we work directly with our investors … we service our own loans, so we have a pulse on everything that’s going on with every loan at any given time. We don’t have to go out and ask somebody else if things are moving along as they’re intended; we do that. We have the ability to collect on our own loans and have the individuals in place that are qualified to do so – if needed.
We also have the ability to market and sell the properties on behalf of our investors. So when you invest with Ignite Funding, you are getting all of the knowledge and expertise to have everything done for you. We truly are a turnkey investment company.
Q: Is that unusual in the industry?
CC: Very. Most hard money lenders have service components or servicers that work with them. And if you look back and do some research of hard money lenders, particularly in the state of Nevada, most didn’t have the knowledge or the financial backing to be able to collect on their properties so a lot of hard money lenders, during ’07-’08-’09, closed their doors because they couldn’t react to what was happening in the market.
What I mean by that is, they couldn’t take back properties, because they were not servicing them. There were probably upwards of 40 hard money lenders in the state of Nevada and that number dwindled down to a handful.
So you really need to make sure you are working with a company that has all of those knowledgeable people in place to be able to facilitate the entire transaction, not just bits and pieces of it.
About the company
Ignite Funding is a non-depository credit institution that matches quality real estate borrowers with investors seeking capital preservation in collateralized turnkey real estate investments. These asset-secured loans can earn a 10% to 12% annualized return. The company, founded in 1995, began as a traditional home mortgage lender providing lending to homebuyers. The demand for lending from homebuilders and developers reshaped its business model in 2011. Since that time, Ignite Funding has funded more than $200 million in loans with investor capital across the Southwest United States.
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About the author
Editor-In-Chief Linda Wienandt is an award-winning journalist with more than three decades’ experience in a variety of media and roles. Wienandt is an experienced reporter, editor, designer, photographer and manager whose credentials include stints at a number of prestigious newspapers in Texas, California and the Southwest, including the Fort Worth Star-Telegram, Austin American-Statesman, the Bakersfield Californian, (Denver) Rocky Mountain News and Abilene Reporter-News. She also was Chief of Bureau overseeing news bureaus for the Associated Press in Arizona and New Mexico before joining Personal Real Estate Investor Magazine. She has directed a number of award-winning projects, including one receiving the prestigious Scripps Howard Foundation National Journalism Award for Literacy while she was managing editor at the Bakersfield Californian.
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