Development Lending with Clayton Silva: How Locals Finance Smarter from Day One | EP #21

Episode Summary

Clayton Silva’s story is a strong reminder that sometimes the fastest way to grow in real estate is to understand the side of the business that keeps saying yes or no.

 

Clayton grew up in Lodi, California, studied accounting and finance, served in the Army, and first got into real estate the same way many investors do. He saw an opportunity, bought a house, filled it with roommates, and realized the numbers could work. Then he kept buying. But once he tried to scale, the financing got harder, and that frustration pushed him to learn the lending game from the inside. 

 

That is what makes this episode so useful.

 

Clayton is not just explaining loan products from a banker’s desk. He is explaining them as someone who has personally used many of them and built a business around helping investors and developers find a better fit. He walks through the basic lending buckets, including retail banks, brokers, and correspondent lenders, then breaks down why different products exist in the first place. It is not just about rate. It is about matching the borrower, the project, and the real goal behind the deal. 

 

One of the biggest themes in the conversation is that most people focus too narrowly on interest rate and miss the bigger picture. Clayton explains how a slightly more expensive loan can still be the better tool if it improves tax strategy, creates flexibility, or gets a project across the finish line more efficiently. That shift alone is valuable for new developers.

 

He also gets very practical.

 

Clayton explains DSCR loans in plain English, talks through bank statement loans, blanket loans, and then spends time on a concept most smaller developers may not know about at all: forward commitments. He breaks down how builders can use them to market a more attractive rate to buyers, move inventory faster, and create a stronger sales story without defaulting to just dropping price. 

 

The deeper lesson, though, is not just about loan products.

It is about timing the financing conversation early enough to shape the project itself.

 

Clayton makes the case that developers should talk to lenders before they finalize product, before they assume rents, and before they back themselves into a corner. Because the wrong product in the wrong market can kill a deal even if the vision is good. He gives the example of townhomes that could not sell fast enough, then shows how he helped reposition them into long-term DSCR debt so the developer could stabilize, rent, and buy time instead of bleeding out under construction debt.

 

He also gives a reality check that aspiring developers need. Not every lender understands development. Not every loan officer understands the project. And not every “yes” is a good yes. The people worth working with are the ones asking real questions about location, density, comps, product type, and exit strategy.

 

The takeaway is simple.

 

If you want to become a local developer, do not wait until you “need a loan” to learn lending. Learn it now, while you still have room to make better decisions.

Timestamps

0:00 — Intro
https://youtu.be/qNBLuKclNOQ?t=0

3:18 — Clayton’s path into real estate and lending
https://youtu.be/qNBLuKclNOQ?t=198

6:22 — Why financing got harder as he scaled
https://youtu.be/qNBLuKclNOQ?t=382

9:10 — Retail banks vs brokers vs correspondent lenders
https://youtu.be/qNBLuKclNOQ?t=550

12:04 — Why loan products are created
https://youtu.be/qNBLuKclNOQ?t=724

14:45 — What DSCR really means
https://youtu.be/qNBLuKclNOQ?t=885

17:33 — How forward commitments work
https://youtu.be/qNBLuKclNOQ?t=1053

20:33 — Why builders use forward commitments
https://youtu.be/qNBLuKclNOQ?t=1233

23:05 — When a developer should not use one
https://youtu.be/qNBLuKclNOQ?t=1385

24:50 — A real loan example with 35 townhomes
https://youtu.be/qNBLuKclNOQ?t=1490

28:24 — Built-to-rent and blanket loan strategy
https://youtu.be/qNBLuKclNOQ?t=1704

29:58 — What a bank statement loan is
https://youtu.be/qNBLuKclNOQ?t=1798

31:20 — How to vet lenders for your project
https://youtu.be/qNBLuKclNOQ?t=1880

33:49 — First-time developer lending options
https://youtu.be/qNBLuKclNOQ?t=2029

36:25 — Red flags and what to listen for
https://youtu.be/qNBLuKclNOQ?t=2185

37:49 — Tiny homes, modular, and appraisal hurdles
https://youtu.be/qNBLuKclNOQ?t=2269

44:27 — Where Clayton sees opportunity right now
https://youtu.be/qNBLuKclNOQ?t=2667

47:38 — Best advice for new developers
https://youtu.be/qNBLuKclNOQ?t=2858

49:13 — How to connect with Clayton
https://youtu.be/qNBLuKclNOQ?t=2953

🔗 Related Episodes

 

How to Become a Local Developer: Katie Neason on Infill and Taking the First Small Bet | EP#29
A great companion episode on local infill, city relationships, and taking practical first steps in development.

 

How to Start Real Estate Development: Steph Weber Bought the Land First and Built the Plan Later | EP #41
A real look at taking your first development deal from idea to execution without having everything figured out.

 

Small-Scale Development: How She Left Her Corporate Career and Built a Tiny Home Village | EP #39
Another path from traditional career to building a community-driven development project.

Full Transcript

LRED (00:41)

Welcome to the local real estate developer podcast. I'm Kristi Kandel, your host today. I'm a developer investor and I teach locals how to become developers in their own backyard. And today we have a special guest, Clayton Silva, who is here from the lending perspective. He also has a background in real estate and we'll kind of dive into how he got into the business in general and then speak to some of his lessons learned and from a lender's perspective, how they can work with developers and how you can.

 

bring your projects to the table and kind of work through and brainstorm from the beginning how you might finance the deal. and the various facets and your exit strategies. So Clayton, welcome to the show.

 

Clayton Silva (01:21)

Thank you so much, Kristi, for having me.

 

LRED (01:23)

Awesome, so when we initially start talking to our guests, we want to get a little bit of your background. So can you maybe give us the couple minute pitch of who you are, where you're from, and how you got into real estate and then lending?

 

Clayton Silva (01:35)

Sure, so I'm from small town Lodi, California. It's a little farm town, lot of wine and dairy basically where we live. I grew up here and then I ended up going to college in Point Loma, San Diego, got a degree in accounting and finance and then didn't know what I wanted to do after that. So I just signed up for the army and didn't tell my parents and surprise them with that.

 

I've been in the army almost 10 years now. I used to be full time, now we're just part time. But from there, I was a machine gunner in the 82nd and we got to jump out of airplanes. I got to go to Iraq. I got to meet a lot of really great people. And that's where I started getting into real estate initially. I was in a really unique market with a lot of military housing and I was kind of looking at the numbers. I was like, man, I could.

 

I could buy these houses for so cheap out here because I'm from California and I was like, and I could rent this out and actually make a little bit of profit. So it kind of got my wheels turning and I bought my first house based on the shower height of the house. Cause I had a roommate that was six foot five and he wouldn't fit in any of the showers. And so that's literally how I bought my first house was this shower fits Danny. Great. We're going to get this house. And, I had.

 

LRED (02:44)

It's phenomenal.

 

Clayton Silva (02:48)

roommates and we all kind of just pitched in and paid for the house while we were living there and then I kind of got the bug. I moved back to California for my commissioning program and I got my master's down in Claremont and I started just buying more houses out there in North Carolina. I like this is fun and so I bought like two or three and then the financing got really really difficult and I was like I don't understand like I'm making money on these why is the lending so difficult and so I started reading Bigger Pockets and all that stuff.

 

And I got into lending because of that. was like, I need to learn this game and figure this out because I think this is the secret to really scaling my real estate investing. That's about the time I met my now wife. We have one little two-year-old basically and another one on the way. So I got a little girl coming in February. I know it's a little random, but that's kind of all the things about me. I've been in lending for over five years now and I've run.

 

One branch, kind of another branch, I run about two branches of a bank right now. So one is specifically for developers. And then one is specifically if you're going to like buy your own home. So we kind of have like two separate branding branches that way. And I have a partner on the development side, and then I run my residential branch by myself. So we've been doing that for quite a while now and trying to help a lot of developers get some pretty sweet exit strategies.

 

LRED (04:03)

Right on.

 

Very cool. So did you ever figure out why you couldn't continue to get financing?

 

Clayton Silva (04:15)

The lender I was working with kept saying DTI. He didn't offer any of the creative products. So that's when I started learning about DSCR, bank statement loans, all the non QM stuff. And he didn't even know what any of that was. He was just kind of a mom and pop lender. He was a really nice guy, but I got really heavily into the non QM space because I wanted only to work with investors. So I do probably 80 to 90% of my business is all DSCR, a lot of cash outs.

 

LRED (04:36)

Mm-hmm.

 

Clayton Silva (04:41)

I do a little bit of like fix and flips and things like that, but I love just working with the investors. So I do a lot of the non QM stuff. And then for myself, we were using, I've used blanket loans. I've used DSCR loans. I've used HELOCs. I've used conventional VA. I, there's nothing I sell that I haven't bought. think the only loan I don't have is an FHA loan. But just about every other loan you could think of we've got.

 

LRED (05:05)

Okay, so you just dropped a ton of terms and a ton of jargon out there that I know that no, no, no, this is great. I think one of the biggest things that that when people go out, they go, I need a loan. going to a bank and every bank has the same product. ⁓ Can you maybe give a little more shed some more light on that? Because we strongly encourage people shop with different banks and that they use regional banks for development. But at the same time, you all have different products to maybe

 

Clayton Silva (05:09)

Sorry.

 

Mm-mm.

 

LRED (05:32)

maybe explain how that whole network is set up from a lending standpoint.

 

Clayton Silva (05:36)

Sure. So

 

the way I like to break this down is there's kind of three different mortgage banks. There's retail. So you go to, you know, the big, big banks, Wells Fargo, you're to get Wells Fargo loans. If you fit in their buy box, you're going to get a very good loan product, but they have a very small buy box. Like this is the only people, the only types of loans that we want to do. So that's retail. And that's where you're going directly to the funding source.

 

Then there's brokers. They don't lend you any of their own money. All they do is they go out and they shop a bunch of different banks. So I used to work at a brokerage. That's how I got started. We had like 137 different banks that we could shop at. We can price all of them out. We can see who's kind of the most competitive. And that's what a lot of people go to when they go to a mortgage broker. Then you have the middle guys, which are correspondent lenders. And that's what we are. We can do both. So I actually shop in-house.

 

We have about 90 different banks that we can fund in our name and we're just selling it to that bank. But I have all their underwriting guides, everything like that, all their different pricing. Or if it's a program we don't offer, I can still go out and broker it. So something like Fix and Flips and Helox, don't, we don't fund those in-house. So I have to go out and broker those. When it comes to product and project fit, I think the biggest thing that people miss

 

There's a couple of things that people miss because lending just makes everything unnecessarily complicated. It's really not as complicated as they make it seem is hyper focus on rate and missing all of the other elements of the thing. So one of the best examples of that is typically like a DSCR or a bank statement loan. People like, why would I take that loan product? The interest rates higher than conventional. I'm like, okay, the interest rate is quarter percent higher than conventional. You paid an extra four or $5,000 in interest that year.

 

Not an insignificant sum, but you paid $5,000 extra. However, when you talk to your CPA and we don't need to look at your income and you're self-employed and you can write off all of these expenses and save $40,000 on your tax bill, who's not going to pay five grand in interest to save $40,000 on their taxes because they don't have to show an enormous amount of income when they qualify. I think lenders and clients tend to miss that stuff of like looking at your whole financial picture holistically, basically of like,

 

Yeah, it's $5,000 in interest, but you just save $40,000 on your taxes, things like that. And then certain lenders will try to force a product fit. Whereas a lot of what I do is just consult with them. Let me just know your whole scenario. What have you got going on? Where are you trying to go? You're at point A, we're trying to get you to this point B. What does that look like ideally for you? And then I'll throw in maybe some suggestions because there's probably products that you don't even know exist and things like that.

 

LRED (08:11)

Mm-hmm.

 

Clayton Silva (08:13)

And then how do we get you from A to B as efficiently and as cheaply as possible? That's kind of what we're looking at. And so there's newer products coming out all the time. So there's stuff that people don't even know exists. have like a, we have a non QM full doc program right now for someone wanting to buy like a primary with weird income. And it's better price than a conventional loan. You are getting a lower rate than a conventional loan and you're providing like two income documents as opposed to like all these different income paperwork.

 

LRED (08:42)

So when you have something like that come out, what's the catalyst for a new product hitting the market?

 

Clayton Silva (08:42)

And like.

 

Usually it'll be some kind of need. as a need arises, you know, like, Hey, we've got all these like high net worth, high FICO self-employed people or investors that are getting all of their income from passive income. So they'll have like, we have a rental property one where if all your income comes from rental properties, like passively, like you're an older person and you don't have like a W two or even a self-employed job, we can use that. And like most banks won't use that. And so just finding those products.

 

LRED (09:10)

Mm-hmm.

 

Right.

 

Clayton Silva (09:17)

to fit these little needs in the market. One of the cool ones that came out recently is like DSCR for anyone that doesn't know is debt service coverage ratio. It's just, does your rent cover the mortgage on an investment property? If yes, you could probably get a 30 year fixed, but there's a DSCR loan combined with an asset depletion loan. So you can like, if the rent wasn't quite enough to cover the mortgage, but you had a lot of money in reserves, they'll use a calculation to

 

Deplete the reserves basically to cover the rent and there's really good rates and it was like a they're not really good They're medium good. It's a little bit riskier for the bank So they're not as good as like the grade a DSCR loans but it's just another cool way to like fill a niche of like Prices are high rates are high right now and the rents just haven't quite caught up So here's another way to like make this work in the short term for the next three to five years until the rents can catch up You can get a no. So just a lot of cool product out there that people probably don't even know exists

 

LRED (10:11)

Yeah. And so like.

 

Clayton Silva (10:12)

And just finding a lender

 

that does know that those are out there.

 

LRED (10:16)

Yeah. And they need to lend the money. that's their business is lending money. which is a big reason why they're coming up with products. They're like, we've qualified this group of people to go, okay, this is a risk profile we're okay with. Now we need to create a loan product towards that. Do you, is there a certain amount of each type of loan products, like each year that you're able to lend on and there's a cap or? Okay.

 

Clayton Silva (10:39)

Not usually

 

what'll happen. So that's a great question, but not usually. So 99% of the programs are borderline unlimited. mean, we just at our shop alone, we run like a two and a half billion dollar warehouse line of credit, I think. And so we probably run through four to 500 million a month in loans. and then we sell them every 30 to 60 days. So we're constantly recycling this money.

 

It would be very hard for us to run out of some of these things, especially with how many options we have. Cause even like one of those niche products, there's at least two or three banks that all offer it at the same time. And so if we happen to max out, the only thing I will say is every now and again, because some of these get sold to hedge funds and insurance companies and things like that, the hedge fund will hit a quota and they don't want anymore. And you'll see their interest rate go from like really, really good at the top of the chart to just.

 

fall off to the bottom of the chart and like they'll just price it out of the market basically. So they could still offer it, but it's pricing horribly. So I only usually see that in like November, December. A lot of times the pricing is actually really bad in November, December for that reason, cause they've hit their fiscal year quotas. So if people can wait until January, a lot of times you can get some pretty sweet deals cause now it's new year and they're trying to make their quotas and they're all amped up. So actually a lot of bank pricing does.

 

sometimes get better relative to the recent market in like the early January, the January.

 

LRED (12:09)

And does that go across all types of loans? that just residential? Does it go to commercial? Is it?

 

Clayton Silva (12:15)

You won't see

 

as much movement in the like standard Fannie Freddie FHA, all that stuff where it's like big government buying, but in these kind of niche products, you'll absolutely see it where it's like one or two banks, one or two hedge funds offering the product. You'll absolutely see the price of difference.

 

LRED (12:26)

Mm-hmm.

 

And then can you maybe explain the whole selling off of the loan part I know early in my career? I'm like, wait, what? I thought I got a loan from this group and then it was sold off and now there's these servicers and these people who sold it off and who's even buying them? Maybe explain what that market is.

 

Clayton Silva (12:48)

In the simplest terms, they get treated like bonds. So the same way you trade a stock on a brokerage, you might buy Apple stock today and then you might sell it tomorrow and Jim down the street bought that stock and he holds it for a bit. And then he sells it to Sarah down the street and she holds it for a bit, right? Bonds trade similarly and actually so do mortgages. So the way it works is we're an origination company, meaning we talk to the clients, we bring them in, we do the loans, we fund the loans, we underwrite the loans.

 

we package the loans and we're the initial seller. When I run pricing for a scenario, I'll see usually 50 different banks that I can sell that particular scenario to and what all their different interest rates are. It gets fun when you have to dig through each of their guidelines to try to figure out if you're going to be able to fit this little piece here or if this is going to be a problem with this one. But once that's done and we know exactly who we're locking with, we lock it with that investor, we tie up those funds,

 

Say it's a $400,000 loan, we'll tie up 400 grand of our warehouse line. We'll lock you in at that interest rate. We fund the loan. The problem is if we service them, we'd run out of money in like three months, three or four months, because we're doing like four or 500 million a month.

 

I didn't understand that when I was first starting either, but basically we only have so much money that we can fund all these loans with and we have to get it back. So it's kind of like a fix and flip basically, but for mortgages, we have to get in, get it funded, get the deal done, get it packaged up, get it ready, and we got to sell it so we can get that money back and go do it again. And then there's other businesses like hedge funds and insurance companies where they want that stable passive income. So they're the backend long-term investor that's buying your fix and flip as a long-term rental, basically is how I think of it.

 

And now they're holding onto it for the passive income because they have a different objective and a different goal than I do. I'm effectively the fix and flip guys. So we're just turning over loans as quickly as we can. They're buying these great products or whatever their buy criteria is, and then they hold onto them for the long-term benefit.

 

LRED (14:44)

Yeah, that's awesome. And then, so you're the loan originator who's helping that. Do you also help with the sale or is that a different person in your?

 

Clayton Silva (14:45)

I think that's the easiest way to explain it.

 

No,

 

I know a little bit about it because I just kind of nerd out about this stuff and I'm always bugging them and asking them like, how did this work out? Like, what did you do? And I get a lot of, because I market to investors and weird stuff, I get a lot of weird scenarios that come across my desk. So every now and again, they have to make like the Clayton exception basically. So I'm sure my operations team loves that, but they,

 

LRED (15:10)

Mm-hmm.

 

Clayton Silva (15:19)

he'll call me and be like, hey, you can lock it at this as this investor is like, but I'm going to sell it to this investor, like on a secret side deal and all this stuff. And was like, that's kind of cool. So like, I'll hear about some of it, but I don't, I don't work on the secondary market.

 

LRED (15:30)

Yeah, no, that makes a lot of sense. Okay, so then specifically to what you guys offer and how it might correlate to developers who are maybe working on it, maybe they're looking at it and they're going, hey, I just created this 10 single family subdivision and I'm going to build it and it'll either be built and sold off to individual homeowners or maybe it's a build to rent. What types of loan products do you have?

 

and when would they want to come talk to you?

 

Clayton Silva (16:02)

Definitely before you even start the project. So we don't really do a whole lot of the construction financing per se. I'm not doing a whole lot of horizontal and vertical. We can do a couple one-off deals, but you're better off going to a lot of different places. In the broker world, those loans get really expensive really fast. There's a lot of fees that get out of those. So I generally try to stay in my lane. I don't really want to do those ones.

 

As far as helping them out, always recommend starting before you start to build, because there's a few things that can come up with a project that might make it easily eligible for a forward commitment or ineligible just based off of a few missed details. for example, we're, I've got a call today actually, but.

 

LRED (16:40)

and maybe explain

 

what a forward commitment is to.

 

Clayton Silva (16:43)

Sure. I'll start with that and then I'll break out into kind of the detail stuff. But the forward commitment is basically kind of like an insurance policy. So when you see big, big builders like Lennar and DR and they're offering these builder rates of 399 or 499 or whatever they're offering, all they've done is they've paid a bank like us to lock up a certain amount of capital at that interest rate for usually 90 days and

 

they pay a big heavy fee for that, like a very big heavy fee for that. can be on a $500,000 home. It could be anywhere like 30 to 50 grand per house that they're paying to lock those funds up for that set amount of time. They're using that to attract buyers. Buyers come in and now they have access to that interest rate because it was already locked by Lennar and DR. If you want to get real nitty gritty,

 

It helps them get around the seller concession limits because they paid for it prior to the escrow starting. So it's no longer an IPC, which is an interested party contribution. It's actually just a cost of doing business for them. So they don't have to worry about going over the seller concession limits. so it's pretty cool. Like it's a great product, but the way the big guys do it is very, very expensive. And if they don't sell those homes or they don't use all of the $10 million, they locked up, they pay all these pair off fees.

 

They have to relock it again for 90 days and it's the same cost again for 90 days. And for most small to midsize developers, that's the kind of difference that would like make or break your business. You're going to just get crushed if you're having to pay that fee every 90 days. So that's what a forward commitment is. We do it very differently and I'm happy to get into that. Now is the right time for that.

 

LRED (18:21)

Yeah,

 

go for it.

 

Clayton Silva (18:24)

So like I said, they'll typically do $5, $10 million is like the minimum for most banks. We do a million. So we start really small. We only do a two house, two unit, let me rephrase that, two individual units. So like not like one duplex, it's gotta be like two duplexes if you're building duplexes. So two individual properties, a million dollar minimum, and you have to hit both of those minimums. So if you're in like a low cost area and they're like three, 400,000, you probably have to do like three or four of them to hit that million dollar minimum.

 

We let the developer pick the interest rate. So we'll show them the cost of every single rate at every eighth. So you'll see what a 499 costs, what a four and a half costs, what a five and a half costs, all the interest rates. You'll figure out what works for you and your business. You can go market that interest rate for free. You don't pay anything. And we sign a marketing agreement. You say, hey, I want to market a 499 rate. That one seems to be pretty popular right now, or 399.

 

And I'm going to go market. If it brings in buyers, wonderful. Once you get enough buyers to hit that million dollar loan amount, then we'll get it locked in. your buyers will get a reservation. They're not going to get a purchase contract because we got to lock this up before they get the purchase contract to avoid those seller concession limits. So they'll get a reservation. Wonderful. If they reserve that lot, we'll go underwrite them and get them pre-approved, make sure they qualify. then you'll get a purchase contract.

 

and you'll pay half upfront of whatever the cost of the floor it is. And then we let you pay the other half once it closes. So you're really helping manage cash flows that way. It feels much more like a partnership with the developer. Like we're interested in your success because we're putting out this offering for free basically until you actually get people in there. So a lot of times if they're local to us, we'll go into the sales offices and we'll sit there and explain some of our loan products.

 

It's a really cool way to be able to offload properties quickly, get a good deal for the buyer, and then sell the properties faster for the developer. Because you, like me, you're trying to recycle this stuff, get that money back, and get right into the next project. And so it's very conducive to that business model. I can go more into that, or if you have any questions from there.

 

LRED (20:33)

Well, and I

 

think you kind of answered that at the end, but what would entice a developer to want to do that? is there a certain amount and granted, yeah, then it's okay. You're, just making this more attractive to the buyer. So all the other inventory that's out there, they're coming after, is there a sweet spot? Like if you know that you've got, is it five, is it 10 is it, and it clearly depends on the market too, or 20 and maybe you're just not sure what the market can hold or

 

if it's too saturated and there's, there's a community there and there's a community there. So is it based on the competitiveness of the market? So I guess when would you and would you not want to use this as a developer?

 

Clayton Silva (21:50)

the only time you probably wouldn't use this as a developer is if you've somehow managed to figure out like a pretty significant cost savings thing. So like we were working with one in Santa Barbara and they are making houses for almost 200 grand cheaper than the next competitor. And it's like, you're already the lowest on the market. Like you got a great sales price. You probably don't need it. Maybe a little forward commitment if you wanted like a tiny one, but you probably don't need the whole thing.

 

And where we typically start like in a consultation is we look at what the market rent is. Cause if it's cheaper for someone to rent your house than to buy it right now, frankly, you're going to have a very hard time selling. It's a very good, accurate measure in all markets of whether or not you're going to have a hard time selling your house. And so if I can rent your house for 2,500, but my mortgage is going to be 3,200, we got to get that mortgage down to 2,500 or lower for it to start enticing people to actually buy. so.

 

We'll go through and we'll pick, this is your sale price. This is the approximate loan amount. Here's all the rates that get us as close to 2,500 or whatever that market rent is. And that's one of the biggest analysis we do. when builders see that a lot of times it's that light bulb moment of like, no wonder no one's buying my house. They could go rent the next door house for like two thirds of the price and get the same product and they're just renting it and they don't have to deal with maintenance. So you have to find a way to.

 

LRED (23:01)

Mm-hmm. ⁓

 

Mm-hmm.

 

Clayton Silva (23:12)

be competitive in the market. And it's one way to do that without giving up all the margin and just dropping the price all the way down to zero. So we help you price that in too, because you can, you know, it's a big fee. Like don't get me wrong, it is not a small fee per se. But one of the things we'll do is we'll go in and we'll analyze K, you're already giving up 6% in seller concessions, typically on a lot of these deals, a lot of like midsize builders, that's pretty standard where I live here in California. I'm like,

 

You're already giving up 6% right there. That's like the bulk of the cost and you would be getting them a better deal without doing that. Can we add maybe 2 or 3% to the purchase price now that we're offering this super low rate? Build back some of that margin. We might be losing on the commitment. Can we pass on 1 or 2% to the consumer? Like no consumer is going to be mad about paying 1 2 points for a 399 rate when they would cost them 14 points at any other bank right now.

 

and so things like that where it's like, you don't have to eat all of these costs. can play around with this so we can pass a little bit off to the consumer here. We can add a little bit to the purchase price here. We can do all these things to help keep your margin the same and still offer this great deal for the buyer. So again, back to the holistic thing, looking at the whole picture, like how do we help every party here? How do we help the buyers get a good deal? How do we help the developer get them the profit margin that they're looking for? Cause without that, like they go under, we all understand that.

 

How do we get it to the exact bare minimum we need based on what they're looking for and stuff like that? Let's look at the market rent. Let's look at the mortgage payment. So those are all the things that we do when we have these conversations with developers to make sure that everyone's on the same page and we're actually creating a win-win rather than just, you know, square peg round hole kind of thing. And the, and the wrong, it's the wrong product fit. So, and it's not a fit for every developer and we know that. So we go look at it it's like, your price is so good and your product is so good.

 

LRED (24:54)

Yep. Mm-hmm.

 

Clayton Silva (25:03)

I don't think you're gonna have a problem selling these. We'd love to be your preferred lender and pre-approve all your potential buyers, but you don't need a forward commitment. And like, that's that.

 

LRED (25:13)

I love it. Okay, so maybe that was amazing tactical. Do you have some stories or some examples of some loans that you have done that can help people picture and go, okay.

 

Clayton Silva (25:24)

Sure. So one of my recent ones is like November through January of this year or November of last year, January of this year. we had a developer that was building some very nice kind of luxury town homes in North Carolina. And he, he built like 35 of them. He sold four, but it took a very long time to sell those four. And he was like, this is going to break me paying all these construction debt on these other

 

30 basically, he's like, I got to get out of this. I got to be able to rent him out and his construction loan at the time was really restrictive. They would not allow him to rent it while it was on the construction loan. So he's just eating that, that mortgage basically on 31 town homes. So we came in, we'd kind of analyzed it. He did not want to do the forward commitment to try to sell them, which looking back, I think would have been the best option personally, but.

 

LRED (26:01)

Hmm.

 

Clayton Silva (26:18)

He didn't want to do that. And so we did DSCR loans on every single townhouse And then he got them all rented out. He got like seven and a quarter rate They're on pretty short prepayment penalties so it buys him like two or three years to just collect rent let the market cool off or repeat up hopefully in his case and Then he'll go back and reanalyze the time to sell them and he'll probably sell them in phases at that time Once he's ready to go, but he got in out of this short term

 

high interest rate construction debt into long-term, low-rate, fixed 30-year debt to be able to kind of hold onto them, rent them out, and he was making a small profit in the meantime just to be able to hold them over until he could sell.

 

LRED (26:58)

And was

 

it it was individual DSCR loans because they were on separate parcels or?

 

Clayton Silva (27:03)

We were going to do

 

a big blanket. I ran into all the hurdles on this one. So he was a non-permanent resident, which is one hurdle. The DSCR initially came in lower than one, which is hurdle number two. They're townhomes with like 100 % ownership in the HOA, which was like hurdle number three. They're new builds from a developer and they were vacant, which is hurdle number four. So it got very hard to kind of

 

LRED (27:16)

Hmm.

 

Clayton Silva (27:30)

thread this needle and we found a good product that would do it on the individual level, but we just couldn't get it to work on the blanket level. The other issue with a lot of blankets is typically they want to see a much higher DSCR ratio. And I was already maybe barely at one with like an interest only payment option and all these things. So that's what we ended up doing was interest only payments on the first 10 years for these to get the cashflow semi-positive at least for a bit. So he's not bleeding.

 

LRED (27:53)

Yeah.

 

And then, okay, so to that extent, when someone's coming in and they're maybe a first time or a second time developer and they're looking for those stabilized products maybe on the back end that you can help with, what types of products might be out there for that and how and what should they say in early conversations with you to see what's possible? Or do they need someone with experience to come in with that?

 

Clayton Silva (28:24)

So typically, again, this comes back to like those initial consultation calls. We really, really want to level with each other on where we are and where we want to go. So if you're designing the project to be built to rent, wonderful. OK, let's do a whole lot of market analysis. What is kind of the loan amount, the price point that you're thinking these are going to be at? Is that even remotely in line with where the market rents are? Because a lot of these a lot of builders want to build nice homes, which they should.

 

LRED (28:32)

Mm-hmm.

 

Clayton Silva (28:51)

Sometimes it'll be like a four or $500,000 house and it'll basically, you you're looking at the market rents like only 2000 a month and I'm like, you're going to be cashflow negative on all these periods. Like out the gate, I can just look at that and be, you're going to be negative. So making sure that they have, again, that product placement fit on

 

LRED (29:06)

Mm-hmm.

 

Clayton Silva (29:14)

For your specific question, would say blanket loans are a great option. If it's three or more properties, typically it's fine for like a small blanket. I've done one of those for myself. I had a couple of houses in North Carolina and we threw them all on a 30 year fixed blanket. They do have to be pretty cashflow positive. So just making sure you have that rent analysis down pat and your loan amount. then individual DSCR, there's a lot of creative options. There's bank statement loans. If you have like a self-employed business that's generating a lot of

 

deposits in your banks, even if you're showing expenses on your tax returns and you're not really claiming a ton of income that way, bank statement loans are a fantastic product to be able to get really good debt.

 

LRED (29:52)

Maybe explain,

 

you've said that one a few times, so blank statement loans, what they are.

 

Clayton Silva (29:58)

Typically we'll look at 12 months of either your personal bank statements or your business bank statements or both. We do an income calculation just based on the number of deposits and then the number of withdrawals going out. it's pretty cool actually. We have this new AI software that I've been geeking about and I can dump all 12 of your bank statements in there. I close the program and it'll send me an email in like 30 minutes and it goes line by line. It analyzes every single deposit and it says like, this one's income, this one is,

 

some random deposit that we can't count for whatever reason. And it'll just spit out a number and it just says, hey, you know, we give this person credit for about $180,000 a year in income, just based on their deposits and their bank accounts. And sometimes that's more than what they show on paper, be it expenses or whatever else they've got going on with the business. And so that's a really good program to be able to get creative lending without having to deal with all the tax returns and the pay stubs and the W-2s.

 

LRED (30:55)

Yes, yes, the less paperwork. Yeah, exactly. Okay, so say someone's coming in there, they've got their project, they've figured out their zoning hurdles, they've worked out the deal with the seller, they want to find lenders to start to vet to say who is the right partner. How would you recommend they go about even finding ones that are the right ones to talk to and then types of questions they could ask and then knowing

 

Clayton Silva (30:56)

paperwork mess.

 

LRED (31:20)

Will this person jerk me around or are they actually going to help me close?

 

Clayton Silva (31:25)

That's tough without being in the industry. Honestly, it's a great question. That's a tough one to answer. On most construction or fix and flip, my personal philosophy is that it's kind like a little pyramid. You have good interest rates, you have high leverage, and you have an easy, good process. And you don't get all three. So pick one or two of those that are the most important to you.

 

and white knuckle the other ones because it seems like no bank seems to do all three of those. But I would, again, I always start with the goal. So if they're like, hey, I am trying to maximize leverage. Okay, that's going to narrow down your banking options super quickly because a lot of the good ones, you know, they want really low leverage. Meaning they want you to put heavy, heavy down payments. And you're like, no, I'm really trying to keep my capital freed up on this project because we expect, you know, some

 

potential hurdles or some potential like over draws and I want to keep that cash close to my chest. So starting with the goal and making sure that the bank that you're working with or the individual lender aligns with your goal. And then again, if you're working with private investors and private money, making sure that your debt and equity are structured the way that you actually want them to be. So, you know, a lot of people just go for debt because they don't want to give up equity and they end up

 

honestly given up more in debt than they would have just on the little bit of equity. So just making sure you have all of those pieces pretty dialed in. Again, I don't deal too much with the construction side, but I know a lot of banks out there do do that construction lending. Also, the big one to keep in mind is your experience level. If you've never done this before, you have like three options basically out there. There's only like two or three banks that will do a first time.

 

construction loan. only one that I know of off the top of my head is like Park Place. And they're pretty much nationwide. They're based out of Texas, but they they're like the only guys I know that'll do first time construction. But that's a great way, know, knowing that they're a little more expensive, but they're pretty easy process and they're pretty high leverage actually for even a new investor.

 

And that's a great way to get your three, four, five deals done with your name on title, get the experience you need. You might have to start with that slightly more expensive, but pretty decent product. had a Park Place loan myself. One of my rental properties in North Carolina has a Park Place loan on it. And so like, I don't know, not to pitch them or anything like that, but they're, they're a great program. It's a niche that they fit.

 

LRED (33:49)

Yeah, it's just, it's

 

good to know that there's different lenders and things that you can do. Because we also talk a lot about maybe it's you're bringing in a strategic partner, maybe you're bringing in a contractor and using his builder's line of credit, maybe you're bringing in an architect who's done multiple deals in a market and a bank goes, OK, well, if you're partnering with them and they're an equity partner, we know what they've done in the community. So there's multiple ways to go about it. And I think the

 

Clayton Silva (34:01)

Correct.

 

LRED (34:17)

The bottom line is just be curious, just ask questions. Would there be any red flags if they're talking to someone? What could either a broker or a bank say that could be a red flag or just things to look out for?

 

Clayton Silva (34:31)

don't know if there's anything specifically that would be a red flag. but few things I would be looking for myself, almost all construction loans are non-Dutch. would 100% do a non-Dutch loan versus a Dutch loan. All that means is you're only paying interest on the money you draw. So if it's non-Dutch and you start with a $20,000 loan and then you draw another 20,000, you're just paying interest on each draw. You're not paying it on the whole boat of the

 

$600,000 note or however big the mortgage is. If it's Dutch, you're paying interest on the whole thing the whole time and that will quickly eat up your costs and your savings. So that's a big one, especially in construction loans. Almost all construction loans are non-Dutch. So you shouldn't have to worry about it. But if your lender doesn't even know what that is, that might be a red flag. I would be really wary of that. If it doesn't feel like your lender has a firm grasp on the project and the understanding of what they're doing and they're not asking, you

 

Where is this property located? Give me an address. Because I want to know if this is rural or not. I want to know what type of house you're building. Is this manufactured? Is this an actual single family? Is this attached, detached? If they're not asking really thorough questions on the project itself, they probably don't understand all the potential hurdles that are going to come up with that. I think I've run into every possible lending wall that you can. So my head hurts from all the head bangs against walls that I've had.

 

I really try to solve or find the problems upfront. I want to know how rural is this property? I want to know what's the population density. Are we even going to be able to get an appraisal on this? Because I've done ones where they're so far out in middle of nowhere. like, there's two houses that have appraised in the last 300 days out there. I can't get an appraisal on this property. You will never get this finance. You need private money for this. Things like that. Or, you know, if it's manufactured, does it have the stamp? Like all the questions that they need to know about the

 

LRED (36:25)

Mm-hmm.

 

Clayton Silva (36:25)

project and really feel like you're heard and your lender understands what's going on, I think it's going to be a huge difference for most people. And people know intuitively, you're like, OK, this guy's just smiling and waving at me like the penguins from Madagascar, but I don't think there's anything going on up here. That's typically a red flag to me. Sorry, I got a two-year-old. watch a lot of Madagascar and stuff like that. So top of mind. Yeah.

 

LRED (36:45)

Yeah, yeah, I mean, you're saying trust, trust your gut. And we

 

all have that even if you're in a new industry, even if you're in a new sphere, you still have your spidey senses, you still should trust your gut and use that then to go, okay, well, I'm going to go do more research. And we do have like you mentioned AI, we have that as a way to go, okay, this guy said this, and you can literally have a conversation with Chad or perplexity or Gronk or whatever it is, and use that as a way to help and like in this

 

Episode we broke down a lot of it But if there were things that you didn't know you could plug it in and you could go, okay Because now you're coming even more intelligent into the next conversation and then maybe that's allowing space for the the Loner originator on the other side to go. Okay. Well, let's now think one level deeper, too But you had mentioned the the manufacturer do you guys also do you have any insights on either tiny home financing or

 

possibly modular construction and like how those could or couldn't be financed or is that more on the construction side of things?

 

Clayton Silva (37:49)

Man, I got this question a lot back in 2021 and 2022. Everyone wanted to build a, not necessarily a tiny home, but the shipping container homes and the geodomes. Those were like the thing. And the truth is they're pretty much non-financeable. They're extremely illiquid and you're going to have a very hard time selling them is just the honest truth. Unless you have a million existing comps or not a million, but if you have 10 existing comps within a five, 10 mile radius,

 

LRED (37:59)

Yeah, yeah.

 

Clayton Silva (38:19)

dive in, I would not recommend being the first mover. As someone who has bought and sold quite a bit of real estate myself on regular single family homes and what a nightmare that has been sometimes, let alone a tiny home or something that has no comparable sales. I usually generally avoid those altogether. I know what the banks look at. I know that they're extremely hard to appraise. They make banks really nervous.

 

If you happen to do it in a community where it's already the big thing, like there's a ton of them everywhere, it's actually not that difficult. But if you're a first mover into a market, it's damn near impossible.

 

LRED (38:46)

Do you?

 

Yeah.

 

We ran into that ourselves, I think it was 2019, doing infill projects in Reno, Nevada. And we had an amazing shipping container builder in Washoe Valley. And he had his proof of concepts and we were like, great, we can take this infill out. We can build two stack townhomes on each, have this great common area, have them condoed off, them individually to the future buyers. And the problem was because we were trying to create first time homeownership at a reasonable level and the banks were like, we can't lend on it. We're not going to be able to

 

give them that loan. what is it that that couldn't have been? it because it was a shipping container that what was it? There just was no comp and because there was no comp for that.

 

Clayton Silva (39:31)

Mm-mm.

 

So

 

a lot of people ask me this question and that's an amazing question. everything from the bank's perspective is a risk calculation. Interest rate is literally the sum, the end number that they figure is the risk, right? That's what they need to justify the risk they're taking on your loan. So from your credit score to your down payment to...

 

LRED (39:46)

Yeah.

 

Clayton Silva (40:00)

the location of the property to all these things. They're factoring in this giant matrix of risk that they're willing to assess and they spit out that 7% interest rate or whatever it is. And they're like, this is the bare minimum amount of risk we're willing to take on this property. The big one, especially for most banks is appraisals. People do not realize how much that factors into the bank's decision because the bank wants to know if I have to take this house,

 

that I'm going to be able to sell it on the open market for at least this amount on the appraisal. And when an appraiser goes out and he can't find any other shipping container homes or tiny homes, it's not saying they're a bad product. It's saying he has no data to justify what this value could be. And that makes a bank wildly nervous because they're thinking in their minds, worst case scenario, they missed their payments and I got to take these shipping containers. I have no idea what these are worth. How do I assign

 

a debt amount to them. And that's how the bank is thinking, whether it be right or wrong. So I'm coming obviously from the banking perspective and I look at these things and I just know I'm like, I would love to do this. think it's an awesome project. think you're affordable housing, like all these things that we need desperately in the United States, but it's very hard to do it first mover. You typically see people get those done with private money and then seller financing for a while. So if you want to sell it, you're going to be the bank.

 

LRED (41:12)

Mm-hmm.

 

Clayton Silva (41:23)

for a while until you can get enough of your own comps that you've created that market. That's typically how that works. And that works in every market, whether it's geo domes out in, you Utah or Red Rock, whether it's the tree houses and smoking mountains and Tennessee, whatever crazy thing people want to do to like get creative and have some of that artistic flair. That's amazing. But when there are no comps, I'll never forget, I tried to finance a church.

 

LRED (41:27)

Mm-hmm.

 

Clayton Silva (41:50)

This dude had converted this giant church into a beautiful house. Like, but it was a steeple basically. And every bank was like, I don't care what comps you throw at me. No one has a converted church in this entire town of Louis whatever Louisiana. And I was like, dang it. Like I really wanted to do this one. It was kind of cool, but there just weren't any comps. And he was great borrower, grade a paper, tons of income. Wasn't asking for that much debt relative to the size of the property. Price per square foot was way below market. They wouldn't do it.

 

LRED (42:10)

Yeah.

 

Mm-hmm.

 

Clayton Silva (42:19)

just because there were no cops.

 

LRED (42:21)

Yeah. Yeah.

 

And we ran into that issue where we're like, sure, we can do seller financing, but it's always how do we do things at scale? And that wasn't fixing the problem by us doing that. So we ended up tabling that project, which was unfortunate. then, okay, so then we have tiny home manufacturers and others that will do their own in-house financing. Have they then at that point, do they have their own private money network and that's how they're doing it? Or how do you know about that?

 

Clayton Silva (42:30)

Correct.

 

When you

 

say in-house financing, you mean for the buyers of their prospective property or for themselves?

 

LRED (42:53)

You know, that's a good point. So like if it's buying a tiny home and they have the financing, it might just be for the structure itself. So I don't know what that resale value is then, like if you could get a traditional loan.

 

Clayton Silva (43:05)

So

 

right, just kind of, each project's very different and each like investor group, all these things are different. One of the things that I kind of forgot to mention that I think is critically important on the builder forwards though, to your point of in-house lending, that's one of the best parts I think of our forward commitment program is we will white label our services to the developer if they want. So if you're building 20 homes a year or whatever, and it's

 

I don't know, just make up a name. live in Lodi. So Lodi construction, basically. We can set up Lodi lending within a week, basically. Have it fully staffed. It's already licensed in all 50 states except for New York. And we'll white label it. So it looks like you, that's what a lot of banks and builders do. They just kind of partner up and they're not really starting their own mortgage company. They're typically white labeling a service. And that's kind of where we come in. We make it.

 

one stop shop where you're going to the builder for the house, you're going to the builder's lender for the loans, and we're communicating weekly with the builders. We give them full reports on like, hey, these three are pre-approved, these three are in underwriting, these three are clear to close, all this stuff. And so you're just getting constant feedback and updates from us on exactly where all your projects are. So you can sleep easy at night and get right into your next project. But I really like that feature because I can set up an unlimited number of these white labeled projects.

 

LRED (44:24)

Mm-hmm.

 

Clayton Silva (44:27)

And you can name them project by project if you really want to. You're going to cause me a lot of paperwork and headache, but that's OK. We'll do it. So I'm here for it. That's what we do.

 

LRED (44:36)

Oh,

 

that's awesome. So where, and you see a lot of stuff come across your plate. Where are you seeing the opportunities right now? And maybe it's regionally, maybe it's just in general or there are trends or other things that maybe are starting to turn.

 

Clayton Silva (44:53)

I have always had an awesome bird's eye view of the real estate market because I do a lot of business all over the country. Like I do a lot of stuff in North Carolina and the South Georgia was been huge for a while now. I remember in 21, I think I only did Tennessee loans for like six months for everyone and their mother was buying a cabin in the smokey's. And, so I get to kind of see where people are moving and going to, I think.

 

Opportunity wise, I think there's a ton of opportunity almost in every market right now. We're in a really weird market and time in the cycle where I think there's great, great, truly great opportunities in every single market. think developers and flippers are actually going to fare the best. I genuinely believe that right now. If you had asked me two years ago, I would have said the long-term buy and hold investors that are getting these 2% rates.

 

they're gonna crush it. And all the investors that did get those two, 3% rates, and they're still holding onto them, they are crushing it right now. Rents have still gone through the roof. They're doing fine. But right now in the high rate, high price environment, I think the short term projects are gonna fare the best. You don't wanna hold those seven to 10% rates any longer than you have to. I think the developers that can understand

 

the buyer profiles in the market they're in are gonna do better than others. So I think a lot of people are missing product market fit, because they wanna build nice luxury homes. And you have a massive swath of millennial buyers that are my age or a little bit older or a little bit younger that are getting ready to buy homes and they are not affording eight, $900,000 homes. I think those three, four, five.

 

thousand dollar home prices are right in that sweet spot that a lot of them can still afford even in the high interest rate environment. And if you can knock that interest rate down 2% with a forward commitment, you're going to be selling them like hotcakes. I think the developers, the flippers that understand their market and their product market fit are going to do better than everyone else right now in the real estate game. I truly believe that. And if great suddenly turn around, you'll

 

probably hear me go back the other way, back to long-term investors. But I think developers can do well in any market. Again, it's just product-market fit, finding the right product for where you're at and what people are buying.

 

LRED (47:11)

And that's why we say that as a local, you're the one who understands your community and your market best. You're the one seeing it, feeling it, spending money in it. And even if you haven't done a project, you know what's missing. You know what's there. You know what's needed. And that's the biggest factor. Like you just said, you've already dropped tons of wisdom and advice, but do you have any other wisdom advice recommendations from the lending perspective that you would give any?

 

any new developers or.

 

Clayton Silva (47:38)

a new developer specifically, I think as nerdy as it is, is dive in and like, I mean, you can look up even Fanny Freddy guidelines online and just understanding some of the lending guidelines is going to really open your eyes to like, why is the bank telling me no? I know when you asked me earlier about red flags, one of the other ones I was thinking about is private and hard money, especially for developers is very deal by deal. So.

 

You and I could go apply for basically the same loan in the same area and based on your experience and your FICO and your reserves versus mine, like we can get way different outcomes from the bank. And they're also subject to change a lot. And that might seem like a red flag to most people. It's only to me, a red flag. If your loan officer cannot explain why the changes happen, they might be hitting you with a bait and switch, but just because it changes does not always mean it's a bait and switch. I'm not coming to.

 

any hard money lenders defense here, but I am saying if you don't feel like they're able to articulate why those changes happen and you're unfamiliar with lending guidelines and why things change and what is loan to value? What is appraisal comps? What are all these things that the bank is looking at? think really understanding the lending landscape as much as possible and just asking questions. Make sure you really have a firm grasp on what it is you're trying to do and working with a lender that

 

gets that and can help you get from A to B.

 

LRED (49:04)

Love it. Love it. Awesome. Well, thank you so much for being here today. If people want to reach out to you and learn more, what are some good ways for them to get a hold of you?

 

Clayton Silva (49:13)

People can call my cell phone. That's totally fine with me. If you want to throw my cell phone in the show notes, I do take a lot of phone calls a day. So I usually quickly text and say, I'll call you right back. email is great. Instagram at Atlas mortgage GRP, short for group. Someone stole the Atlas mortgage group handle before I could get it. online, we do have a pretty nice, beautiful website that my wife, so lovely, tailored for us.

 

She's really good at all that stuff. don't know how she does it. So atlasmortgagegrp.com, all those things. I'm not really into Twitter, Facebook, or anything like that. The less social media I can be on, that's somehow the happier my life is. we got Instagram. That's all I got. So yeah.

 

LRED (49:50)

True story, true story.

 

Awesome. Well, thank you again so much for being here and for all the listeners out there. If you could just like and subscribe on all the platforms around Apple, Spotify, YouTube and all the major platforms. The more reviews and subscribes and shares that we have, the more we can reach a broader audience and keep bringing guests like Clayton to you. So thank you guys and we'll see you next time.

 

Clayton Silva (50:15)

Thank you so much.