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Inside F2 Finance with Christian Faes · Private Lending Insights

• [00:00:00] Rocky Butani: Welcome to Private Lending Insights. I'm your host, Rocky Botani. In this episode, I interviewed Christian Faye from F2 Finance. F2 was formed just a few years ago, but Christian had previously founded and built up a large private lending shop in the United Kingdom. We talked a little bit about his journey, but mainly focused on F2's loan program and specific guidelines. [00:00:22] We talked about the states that they lend in, and F2's capital source. I hope you find this episode to be insightful. Here's my conversation with Christian fas. Alright, Christian, thanks for joining me for this episode of Private Lending Insights. Um, you know, uh, you've had, we've had you on our platform for, uh, you know, most of last year. [00:00:43] And, uh, and you have a unique loan program and a, and a unique story. So I wanted to get you on to talk a little bit about, about your story and, and your loan program and, and what you offer to real estate investors and brokers. [00:00:56] Christian Faes: Great. Yeah. Thanks for having me, Rocky. I'm, I'm really glad to be here. [00:01:00] Rocky Butani: Absolutely. So let's start off with a little bit of your story. You, uh, started a successful, uh, lending business out in the UK and then you moved to California and started F2 Finance. Tell us a little bit about that journey. [00:01:15] Christian Faes: Sure. So, uh, it's been a long journey, I guess I'm originally Australian, so, um, grew up in Australia. [00:01:21] Uh, was was originally a lawyer, um, studied law, um, was a lawyer and acted for, um. A couple of private lenders in Australia. So I sort of got to know the, the private lending space or I guess from the other side of the table being, being an attorney, putting together the loan documentation and working on enforcements and all that kind of stuff. [00:01:42] Um, and then had a small lending business in Australia, but, but moved to the UK um, sort of around the time of the financial crisis. Um, so it was a pretty terrible time to be. Starting a business, but I crazily, um, set up a private lender there, um, called Lend Invest. And that, um, business, I spent about 15 years scaling that business. [00:02:07] We raised VC capital and we're very focused on building technology and kind of, um, I guess like, uh, similar to like the IVs of the world here, here in the us. Um, and scale that business. We, um, through to IPO. So IP that business in 2021. Um, and then I sort of stepped back from the business and, uh, are less involved. [00:02:29] I'm, I'm still on the board there now, um, and, and a large shareholder in the business. But, but I, I, I'm no longer sort of involved day-to-day, certainly. And, and that's a, it's, it's a large scale business. Um, we do about, um, probably in the US dollar equivalent about $2 billion a year. Of lending. Um, so, um, we're one of the largest non-bank mortgage lenders in that market. [00:02:54] And, um, yeah, and, and, and it's good business. I, I, I guess when we, um, raised VC Capital in like 20 15, 20 16. We started to look at the US market, very sort of, kind of, um, uh, ambitious in terms of, I guess when you raise visa capital you gotta go and try and take over the world. So, uh, at, at that stage we started looking at the US market and Fancily thought that maybe we could go into the, to the US market with that business. [00:03:24] Um. Fortunately we didn't do that, but, um, because I think we would've got killed trying to sort of come into this market. But, but I guess since that time, I've had an eye on the US market and been relatively familiar with it. Um, had sort of known from the early days the guys at P Street and, and, and Lending Home now Avi and so on. [00:03:44] So kind of had, had a, had a reasonable feel for the US market, um, and was always keen to. Have a go at building a business here. So, um, yeah, so took the opportunity to, to move here and, and, and set up F2 finance. [00:03:58] Rocky Butani: And why California? Do you have any ties to California? [00:04:03] Christian Faes: Not, not really. Um, we had a, um, well I guess we did, we, we, we had a holiday house here, so, um, my wife's Australian as well. [00:04:11] Um, living in London for sort of 15 plus years kind of LA was kind of the halfway point, although it didn't make a lot of sense, um, for when we were going back to Australia. So we'd do Christmases and Easters here and sort of got familiar with LA as a city. Um, and so, so it kind of felt like the logical. [00:04:30] Place for us to land. Um, and kind of, you know, we're very happy with, with the lifestyle here and, and, and living in California despite kind of some of the challenges of, you know, um, uh, regulation and all the sort of stuff that goes on here. [00:04:45] Rocky Butani: Nice. And since you already were FA little familiar with the US private lending market and you, you already knew how competitive it was, especially in California. [00:04:55] How did you think about that when you were looking to start up a, a new business here? [00:04:59] Christian Faes: Yeah, it's a good question. I mean, it's kind of, um, I think I've spent a bit of time just when I've sort of got here. Trying to figure out like, where's the white space? And I think you learn pretty quickly in the US market, there's not a lot of it, like kind of, there's a lot of competitors, very competitive, a lot of money, um, a lot of very sort of sophisticated players. [00:05:21] So, uh, it was interesting, but one, one thing I did do is I, well, one of the early things I did is I went to like the A A PL conference. Um, and. I found it quite interesting. You walk around, you get the tear sheet from all the lenders that are there, and it kind of felt like it was all very similar. You know, they all kind of had, it was a broad generalization, but they all kind of had like the same product sheet. [00:05:44] Um, in terms of, you know, the same minimum FICO scores homes instead of LTVs. They're lending to, they weren't sort of lending to foreign nationals and kind of, um, mainly focused on resi and so on. Um, so I thought that was interesting. And I guess as you sort of look at the, the way the market's set up structurally here is, I'd say the vast majority of the markets sort of sell their loans, um, or have like big bank warehouses, or they sell their loans to aggregators that then go and securitize the loans. [00:06:12] Um, and so ultimately kind of the, the, the, um. The, the credit box that they're underwriting to is one that's determined by sort of institutions in the background, and that's why that all kind of looks the same, I guess. So, so from my perspective, I thought, I don't, I don't want to go and do that. 'cause it kind of feels like that's really a marketing business where you're just originating to a, to a box and obviously people do it and, and they make, um, good businesses out of it. [00:06:37] For me, I wanted to do something that was slightly more interesting, um, and really ultimately have proprietary capital rather than just sort of selling our loans. So, so what we did was, um, just basically set up a balance sheet, which is, which is how we started the lend invest business. We had sort of little bit of capital and um, and raised a fund there and that, that's what we've done here. [00:06:59] So we've gone and set up a fund. So we are a true balance sheet lender, and I think we do then offer a product that is quite differentiated. [00:07:07] Rocky Butani: Right. And let's get into that and talk about the loans that you do offer. Um, you know, I'll, I'll come back to the geography, but, but, uh, from what I know you lend in, in 15 states, um, in various parts of the country, uh, tell us about the, the, the loans that you offer, like the property types you like. [00:07:25] What are the, the loan amount ranges, you know, your leverage pricing and borrow requirements. [00:07:31] Christian Faes: Yeah, sure. So I guess coming back to that kind of like the genesis of the business is trying to sort of create a credit box that's slightly outside of where probably the vast majority of the market is. Um, so in terms of asset types, we like to lend against, we'll, we say we can do anything and you know, technically we can. [00:07:48] So we, you know, we have and do lend against vacant land. We do it in a pretty cautious way, but we can do mixed-use commercial. If it's, if it's a, if it's a real, real estate asset, we can lend against it. Um, we are taking a portfolio approach, so, you know, if we've done too much of a particular asset class, we will try and sort of like originate less of that. [00:08:09] And we're also trying to price for risk, um, pricing. We're kind of like as low as 9.9 through just kind of like 13. Um, we try and sort of again, get a good spread there. Don't wanna do all of the book at 9.9, don't wanna do it all at 13 either. Um, FICO scores is a sort of an interesting one where we can be pretty flexible there. [00:08:31] Um, I think, you know, we openly say that we'll lend as low as 550 The reality is if it's less than 600, I've been someone I've said, heard the joke a few times, you, you gotta try to get a FCO less than 600. And I think there's probably a bit of truth to that. Um. And so we've done it. We've done a little bit of that lending. [00:08:49] It kind of ends up being quite scrappy and probably not really where we want to be. And actually across our book, our average FCO is about 700. So it's actually pretty sensible. But again, we can do lower FICO, lower LTV. So you'd, if someone does have a 600 FIO, but it's a 30% LTV against an SFR asset, then you know, that's the sort of thing we would, we would look at. [00:09:10] Um, as long as we can get a bit of an understanding of what the borrower's circumstances are. Why, why kind of, we're not catching a falling knife, but there's kind of maybe someone's gone through a period of time in which they're gonna come out of and, and sort of be a better credit risk o over time. And then in terms of LTVs, we don't really compete too much on LTVs, so we're more around about 75% max. [00:09:32] I think we can, we do lend up to 80, but pretty rarely. Um, we really try and focus on a borrower that's got a bit of cash or is not gonna sort of trying to leverage every last bit out of it. Um. And that's, yeah, we kind of think that's a, a sensible sort of risk profile. So it is, it is pricing for risk and trying to take a sort of bespoke underwriting approach. [00:09:54] Rocky Butani: And what about the loan types? Are you mainly doing purchase and refinance bridge loans? Uh, is there value-add rehab? Uh, I, I believe you're not doing any ground-up construction. Right. [00:10:04] Christian Faes: Yeah, so we don't do any ground-up construction. I think when we set up the business, I certainly thought RTL was kind of where we probably would be. [00:10:12] Um, typically though, it's um, it's like stabilized assets, so it's like a, it's a, it's maybe a cash out refinance where someone's done the fix but they haven't done the flip or they just need a quick purchase. Um, and, and that's probably where we do excel, I think, where we, we can be very quick and provide really good service, which I know in this business, like everyone says that. [00:10:33] You know, we spend a lot of time reviewing our, our, um, customers after we've lent to them and working with our brokers and so on, and they do say, you know, we are very, very quick. Um, and I think some of that comes back to being a true balance sheet lender. If we like the deal, we can, you know, we we're actively working on their side to try and get it done. [00:10:50] Um, but um, yeah, it's typically, typically a stabilized asset. Typically bridge 12 months or less. We can go to 24 months, but we prefer, I mean, it doesn't, it's very hard to get your head around why Boro can. Fund those interest rates, or we would even want to for, for, you know, longer than 12 months. But, you know, there are instances where it might make sense and we, we can, we can do it in those cases. [00:11:12] Rocky Butani: And the leverage, you mentioned 75, 80% maximum, I'm assuming that's for purchase. What would you go up to on a cash out refinance or just a, a straight refinance? [00:11:23] Christian Faes: Cash out refinance would be more around 70%. If, you know, it's a decent FICO. I mean, again, we will be pretty cautious on, you know, cash out refinance, trying to understand what, what are the purposes for that. [00:11:34] But there might be reasonable ones, like we did one recently where it was, um, as it was last week as a, a partner buyout. Um, you know, they kind of, if they can move quickly, they can get their partner out. Then there's obviously a cash out. A decent asset. They've, they've, they've sort of built the house. [00:11:49] They're just put on the market for sale and so on. So in that instance, like we're not too fixed around. Oh, it has to be within a certain LTV. It's more trying to understand what the story is. But, um, but yeah, again, we don't, we LTVs not really kind of like if someone comes to us, you know, max cash out. [00:12:08] It's sort of, you know, that, that that inquiry may not go that far unless they're prepared to be a bit more sensible around like, you know, well, what, what do they need the cash for? And I'm trying to understand what, what, what's actually going on. [00:12:20] Rocky Butani: And you mentioned a, a partner buyout. Could you tell us about some of the other scenarios that you've seen that you've, that you've actually funded where they need a, a cash out refinance or a purchase, and then what's the exit strategy? [00:12:31] In a lot of those cases. [00:12:33] Christian Faes: Yeah, so, so that was an interesting one last week with the, um, the sort of cash out partner buyout exit is a sale. Um, we did one, uh, earlier this week, which is a, a house in Los Angeles. that was like quite flood damaged. Um, and so like. But it was an experienced borrower. We've dealt with them before. [00:12:52] Um, we, we know their track record, um, and kind of like an asset that I guess most lenders would look at and think, oh, this is pretty scrappy. Um, but again, it was like 60% LTV and he, he basically was telling the, the seller that he was a cash buyer. You know complete in like a week. Great. I love that sort of business. [00:13:11] Um, similar, we did, we did a decent sized business, uh, just a loan in, um, in, um, Miami, uh, house purchase. Again, guy had, a pretty decent earnest money deposit down. The seller was being quite aggressive and got a sort of take that deposit. Um, and he needed like $3 million to complete the purchase. We did that within five days. [00:13:34] Um, and you know, he, he, again, good FICO borrower he, this, this, these people can get out of the loans, but they kind of, there was a, there was a, there was a sort of a little quirk on his, um, you know, without going into much detail, but, you know, a, a quirk on his background that kind of like, we could understand, but a traditional lender might need a little bit more time to do so They'll, they'll just refinance us out. [00:13:57] Rocky Butani: And what about a commercial property loan that you've done? [00:14:00] Christian Faes: Well, you know, we're pretty cautious on commercial. Like, uh, it's hard, it's interesting 'cause investors ask us that we're on the fund side sort of talking to investors. We do say that, you know, we're focused on residential and that's kind of, the majority of the book is kinda like 70% probably on and residential assets. [00:14:16] But we can do a commercial and then you know, the typical thing, an investor will say, well, tell us about a commercial deal that you like. Um, I think the ones that we like are actually quite low. LTV. So, and that's how we can kind of get our head around it, where it's, um, we did one recently with, it was a restaurant, but again, it's not like, these are not landmark deals in terms of, you know, lending against a restaurant in, um, is in, uh, in, in Denver in Colorado. [00:14:41] Not, you know, that's not probably like the, the, the greatest loan, but it was like a 20% LTV. Good. FICO borrower, good asset, they just sort of needed some cash 'cause they were gonna buy another business. And again, we sort of verify all of that. So it's less that we're sort of chasing lending against that asset class. [00:14:59] It's more that kind of like, it's a situation that made sense and so it's a real asset that's got value, that's got income. We can sort of get our head around it. [00:15:08] Rocky Butani: And, uh, how about a land deal? Have, uh, have you done any land deals in the last six months or 12 months? [00:15:14] Christian Faes: We have, we've probably done more land deals than we would like to have done in some respects from a portfolio perspective. [00:15:19] But I think we do. The ones we do, we kind of like, so where we've done, um, I think we've done three in the last 12 months, is in the Palisades, the Pacific Palisades, here in la. The warehouses burned down. Um, again, some of those have been pretty low. LTV sort of 50, 60%, um, 60 on the higher end, but, you know, um, that that's kind of a market and, and where these buyers were buying relatively well. [00:15:48] I mean, that's kind of, it's been an interesting market. Obviously there's a lot of stock down there. Um. Trying to sort of figure out what, where, where that lands. But I think we're pretty well covered there. Again, sort of borrowers that have a track record of building house and so we won't fund the build, but we'll fund them to sort of move quickly and acquire the asset. [00:16:06] Rocky Butani: And what would be the leverage on that? How much, what the [00:16:09] Christian Faes: Yeah, sort of like 50 50, 60%. Yeah. There was one, there was one that we did was like 20%, which it didn't even really make sense, but we kind of happy to do it. Um, and just to sort of, you know. Keep the wheel spinning and try and build a relationship with that borrower. [00:16:24] Rocky Butani: Meaning it did make sense that the, the bar was putting down [00:16:27] Christian Faes: 80%. Oh, it's just a small loan for us. Yeah, it did. Yeah, it did. Like 80%. Like why is he kind of coming to us for a couple hundred grand? Um, but you know, again, it's sort of, it's, it's a, it's taking a relationship view and, um, and, and you know, we, again, we, we kind of say our minimum loan size is 300,000. [00:16:43] So 300,000 through to 3 million. Um. But we'll often do lower than that and we can do a little bit more than 3 million again, if it kind of makes sense. [00:16:51] Rocky Butani: Okay. [00:16:52] Christian Faes: Not having too firm a credit box and trying to sort of have a real portfolio approach to sort of, how does the book sit at any, you know, particular month and, and where do we wanna sort of take things. [00:17:02] Rocky Butani: Okay, nice. And, uh, and, and going back to, um, to sort of the, the lending activity, uh, you said that, that you, you left, uh, lend invests in 2021, so I'm assuming F2 was just started in. Uh, 2022 or 2023, is that correct? [00:17:19] Christian Faes: Yeah, yeah. I started in 2022. We moved here in 2022. Um, I started, uh, we did actually, we didn't start till 23 and I was doing initially just some lending with my own capital, trying to sort of eat, eat my own dog food in terms of like, just learn the market, trying to get a feel for things. [00:17:37] Actually started off buying some notes, um, and building some, uh, relationships with other lenders that kind of. Have now become, you know, good partners and kind of like referrers of business and kind of people that have helped us get embedded in the market here in the us And that was a great way to sort of learn the market, but, um, been ramping up certainly through the course of last year, um, as, as we sort of get more comfortable with what we're doing and get more capital into our fund and get some more backing from, from the institutional side as well. [00:18:06] Rocky Butani: And, uh, with the, some of the data that we have access to through for CASA and Elements, it seems like your loan volume mm-hmm. Last year was somewhere in the range of 45 to 50 loans. Does that sound about right? [00:18:18] Christian Faes: Yeah, it's a bit, it's, it's, it's a bit more than that. So we've di we've done, well, we've done a couple of hundred loans in the last couple of years, um, and that was ramping up through the course of last year. [00:18:28] We've got a couple of vehicles that we lend out of, including our fund and then two SPVs, so I'm not sure those. Yeah, we've got SFR analytics, which we use as well, and it's, it's pretty accurate, but not yet. So we're, we're, we are a small lender in the scheme of things for sure. [00:18:43] Rocky Butani: That's, that's still a pretty good size for, for, you know, the amount of time you've been in business. [00:18:48] Um, [00:18:48] Christian Faes: yeah, it's good from a standing start, I mean, I guess I'm coming from the perspective of like, you know, only a few years ago was running a business that was doing a lot of volume and now I'm kind of like back into the weeds of, yeah. Uh, inch by inch growing the business. But I've enjoyed it. It's, it's been, it's been a good challenge and, and, you know, certainly have ambitions to be, to be a big, big, be big business where a as as we evolve. [00:19:10] Rocky Butani: Great. And, uh, tell us about some of the trends you've seen in the last two years. Um, has anything surprised you, um, and anything significant that you've seen happening? [00:19:20] Christian Faes: Um, I think that most surprising thing is just like the liquidity of this market is, is, is really interesting. And I think, um, just the weight of money that is chasing this opportunity is, is, is quite interesting that flows through to being, you know, uber competitive. [00:19:37] Um, I think it also to some extent de-risks the asset class. So, um, you know, in, in the UK market, which I'm sort of most familiar with previously, you know, the average mortgage takes three to four months. It's just a very slow, that's obviously on the conventional side, but, um, it's just a very slow moving property market. [00:19:57] Um, we used to think it was really competitive there 'cause there's like a hundred. Private lenders. You know, you come to the US there's 8,000 and kind of like there's rated securitizations and kind of institutions of all types from, you know, sovereign wealth funds to insurance companies and so on, sort of chasing origination. [00:20:15] Um, and so I think, you know, when we have had borrowers that have got into trouble, which is kind of like a natural part of lending, I've often been surprised that I've been able to find a way out. Or another lender that'll take on the loan or they can sort of figure it out. Um, and so that, that does put a bit of a safety net under the asset class. [00:20:35] I don't, don't wanna sort of rely on that, but that, that has been a sort of a surprising part of seeing that in in action here, here in the us. [00:20:45] Rocky Butani: Nice. And, uh, how about, uh, since you mentioned, um, you know, bars getting into trouble, uh, uh, have you seen a good amount of defaults? Have you done a, have you gone through a, a full foreclosure. [00:20:57] Christian Faes: Yeah, we've been through a couple. Yeah. Um, which I think is kind of like par for the course. Um, I think it's, uh, I always try and sort of spin it to an investor that's a skillset set that a lender has to have. So, you know, I think we're, we now have, um, some capable lawyers that we work with and a bit of a team and sort of know our way around that. [00:21:17] And again, that process here is very different. To other markets, um, particularly in the UK um, for example, like the, the borrower keeps their equity in the assets. So you're kind of like perversely, the cash for keys in, in that market is more of a. Concept that makes sense in here in the US market in terms of, you know, if it goes in default in uh, sort of, um, in Australia or all the UK basically you've gotta cut the, the borrower check once you sell the property and you're under a duty to get fair market value and kind of like all these kind of restrictions on you. [00:21:46] Where here in the US. Certainly you deal with a state, like in Texas where you go in 45 days, um, you might own the asset and, and, and the borrower's equity is kind of gonna be quite challenged if they, if they can't find a, find a way out. So, um, again, I think that kind of makes for a very liquid asset class here in the US and kind of, yeah, it's kind of something we, we are getting familiar with. [00:22:07] We prefer to have, you know, less defaults. Obviously we, we don't really want to be in the business of foreclosing on assets. Um, but yeah, we, we've done it. [00:22:17] Rocky Butani: And, uh, let's go into geography. You've, um, you know, you, you have 15 states that you lend in, at least that's what list, that's what's listed on your private lender Link profile. [00:22:28] How did you choose those 15 states, um, when you, when you first started F2 and, and, um, do you plan to expand that or, or are you happy with just those 15 states? [00:22:40] Christian Faes: Yeah Great question. I mean, it's actually 16 now, so we've just started lending in Arizona, got our license there. [00:22:45] Rocky Butani: Nice. [00:22:45] Congrats. [00:22:46] Christian Faes: In terms of how we've chosen those states, we are, um, we're were focusing on non-judicial foreclosure states, which with the exception of Florida, which we are pretty active in. [00:22:56] Um, and. I guess from my perspective, the, the thinking there is just trying to de-risk the loan book as much as possible. And that, and, and again, you know, I'm talking about it being a very liquid asset class 'cause that's our experience, but I know there's some markets like New York or say Hawaii, where. [00:23:11] It's probably, you know, maybe people in actively in those markets are not talking about it being that liquid, an asset class in terms of the foreclosures just taking a very long time. Um, so we're trying to focus on states where in a worst case scenario, we can have recourse against the asset and ultimately recover our investors' capital and just sort of recycle it in into new loans. [00:23:31] So that, that's the main thinking with those states. Um, and we're most focused on California, Texas, and Florida. Um. We kind of are comfortable with the liquidity in those markets, although sort of the more we lend in, um, you know, Texas and Florida, they've been pretty sticky kind of markets I would say the last 12 months. [00:23:50] Like it seems like borrowers are taking longer to get exits there and, and we're particularly cautious around what parts of those, those states where we're actively lending in. But um, but yeah, the thinking is kind of, we can be in those states. I mean, we've got. I mean, we don't say it, you know, publicly, but you know, we've got, let's say we've got like a hundred million of capital. [00:24:08] We're, we're, we're managing at the moment that's growing. Um, I don't think we need to be in 50 states with the quantum of capital we've got. So we're kind of like just focusing on having a good performing loan book and we'll, we'll grow over time. Um, and I think it would. Naturally makes sense to be active in, in more states, but it's not, it's not like something we're sitting here going, oh, we wish we were in Nevada. [00:24:31] Although Nevada probably is a good state to probably to be in, but, um, but yeah, we're kind of, we're happy where we are at the moment. [00:24:37] Rocky Butani: And, uh, tell us about, uh, you know, you, you mentioned non-judicial, foreclosure states, um, but with the exception of Florida. So what, what was your thinking in Florida and what, what's the foreclosure process like over there? [00:24:53] Christian Faes: Um, uh, not that I'm an expert, but, um, Flo, Florida, uh, I think it started really, we had a couple of introducers that we'd built pretty strong relationships with, um, started lending there. I mean, I think, look, the first thing you always say is that, uh, a lender sitting here in Santa Monica when we're getting a deal in Florida or in Texas or, you know, wherever it is outside of our local areas, like why is it coming to us? [00:25:16] And, and I know as a, as an early lender coming to a market, you're definitely seen as a sucker and a target for kind of like for. Crappy deals. Um, so yeah, we, we, we saw our fair share of that early on, but I think now Florida is the market that we do have good introducer relationships. We also have some good borrowers that are repeat borrowers, um, that are kind of pretty good relationships. [00:25:37] I like going to Florida, I kind of, you know, stay in touch with those people personally. Um, and I think we've just managed to build a decent book of business there. Um. On the foreclosure side. Yeah, it's just a bit harder. You know, you've, it is a judicial process, so you've gotta serve the borrower, go through, you know, court filings and all that kind of stuff. [00:25:55] Having said that, it's still pretty pro-lender You know, you can, you can sort of go through that process in six to nine months and, and kind of like do a recovery. Um, but, um, yeah, and, and I think it's, yeah, it's pro lender, it's pro business just generally, and so, yeah, I think it's, it's a, it's a good state to have, you know, be participating in. [00:26:16] Rocky Butani: And you said only certain parts of Florida, which, uh, markets within Florida are you lending in? [00:26:22] Christian Faes: Well, I try and not be the sort of expert of like the, uh, you know, on the origination side. So I, I, I'm guided by my, um, head of credit here that kind of is, is more of an expert and very data driven on this stuff, but kind of like, it's the, it's the main city centers. [00:26:36] So Miami is probably the, the, the place where we do most business. Boca Raton um, little bit in Jacksonville, kind of like the main areas. [00:26:44] Rocky Butani: Okay. How about the west side of Florida? Is is, is that of any interest? Tampa? [00:26:49] Christian Faes: We, we have done some lending there, but I kind of, I'm just always nervous turning on the TV and seeing hurricane go through there. [00:26:56] Where, where, where the, probably the asset's still there. Um, [00:26:59] Rocky Butani: we have done some in the early days, I think we do, we, we'd, we would still lend there, think we would just be quite cautious around making sure we have the, you know, right. Insurance cover and we're pretty. Covered from an LTV perspective and ideally lending to a borrower that's got maybe a portfolio of assets and kind of like we're not just leveraged against one asset in one area. [00:27:19] Sure. Makes sense. [00:27:20] Christian Faes: Yeah. [00:27:20] Rocky Butani: All right. Um, with that, why don't we take a quick break and we'll be back in one minute. Support for this show comes from Four Casa and amazing data platform for private lending and real estate investing private lenders. Note buyers, capital providers, real estate investors use for CASA in a variety of different ways. [00:27:39] You can see which lenders have funded which loans. You could see which real estate investors have gotten funding or sold a property or purchase a property. You can see loan assignments to know where the loan was sold to. After funding, many people use forecast as a prospecting tool. I personally use it to vet lenders and for general market insights. [00:28:00] It's become an essential part of our business and I just wish I had access to it sooner. We published some of forecast as data on private lender link.com. When you do a search for lenders, you could see the top 20 lenders in each market. And we've also added, uh, the top real estate investors in each state and for some of the metro areas. [00:28:19] Visit for casa.com to schedule a demo and please mention that you heard about them from Lender Link and the Private Lending Insights podcast. And we're back with Christian Faves and F2 Finance. Um, so we talked a little bit about Florida. Tell us about, uh, Texas. What's your take on Texas as far as lending? [00:28:36] What are you seeing in, in that state? And which markets are you, uh, excited about lending in there? [00:28:42] Christian Faes: Yeah, so I think Texas is pretty similar in terms of our house view to Florida in terms of like, there's parts of that market that have got quite sticky and kind of you hear stories about sort of. Lenders getting caught up, um, in, in sort of problems there. [00:28:57] Um, we, we've been less active in Texas and it's probably less of a focus of ours, mainly because we don't sort of have the same sort of introducer base there that we, we do in Florida and, and certainly here in California. So, but, but it is, it, it's a, it's statistically it's where we've done a lot of lending. [00:29:13] Again, city center tr you know, not doing anything rural. Um. All sort of SFR pretty straight down the line business where we can, um, so yeah, not, not too adventurous there, but, but it, but it is a, it's a key market. [00:29:28] Rocky Butani: And how about California? [00:29:31] Christian Faes: California, I mean, California's good market. It's just super competitive here. [00:29:35] Um, and so I think it's kind of, I feel it is a market where's slightly harder to price for risk and feel that you're getting paid the right amount. Um, which is I think is a broad generalization across the market. You know, there's certainly lenders that I kind of look at, and so obviously they've got a lower cost base than maybe what we do, but. [00:29:53] If I had free money, I wouldn't be doing the deals that cut of like 95% and a hundred of rehab and all this kind of stuff. So there's parts of the market that just don't make sense to me at, at like such a ridiculously low rate. Um, and so Cal, there's, there's parts of California. I feel like that is the case, but again, it's our home market. [00:30:12] We're licensed here, it kind of makes sense for us to, to have a presence, um, here. And, and we do do a lot of, um, you know, a lot of business here, probably more in la but it's harder to sort of keep within our loan sizes, you know, to, and so we're not doing, you know, large houses in Beverly Hills or anything like that, but blocks of land in the Palisades makes sense. [00:30:33] Or, you know, kind of like smaller houses. Uh, uh, uh, you know, sort of fringe parts of LA makes sense. And again, ultimately we're just competing on speed and service. And as you know, like I say, everyone says that they're, they're quick and easy to deal with, but once a borrower has dealt with us, or certainly an introducer does, um, they, they kind of, they, they, they see that and they kind of, they do bring us business. [00:30:56] So over time we kind of get that slight flywheel effect going where people do come back. Have a good experience and hopefully we can condi continue to deliver for them. [00:31:04] Rocky Butani: Yeah. Just to clarify, introduced or you mean, uh, a broker originator? [00:31:08] Christian Faes: Oh yeah, bro. Yeah. So is that UK language? I was confused. Yeah. Mor Mortgage Brokers typically, I mean, we've got some real estate agents that give us some business, but, um, and, and also just, you know, um, there's a, there's a law firm that gives a bit of business. [00:31:21] So broader introducers, but typically it's mortgage brokers. Yeah. [00:31:24] Rocky Butani: Okay. And, uh, are most of your deals coming from brokers or, uh, are you getting to real estate investors directly? [00:31:32] Christian Faes: We, um, it is more broker introduced than probably where we'd want to be in a perfect world. But having said that, the longer we're in business, the more we do have borrowers come back to us direct. [00:31:42] So we're able to form that relationship. Obviously that's a sensitive one when it's come to us originally through a broker and we've gotta sort of make sure everyone gets paid and it's, you know, it's a fair, fair relationship. But, um, we do, uh, you know, so we're do, we're doing more borrow direct business, but it's still kind of, it'd be 75% broker introduced at the moment. [00:32:01] Rocky Butani: And, uh, besides LA what other parts of California, uh, have you done lone in? [00:32:07] Christian Faes: Yeah, we've done, um, you know, um, Sacramento, uh, San Diego, we've done quite a bit down in, but, but again, that's an area where there's a lot of lenders down there, so it's sort of, you know, it's hard to, to get the business or you're scratching your head in terms of why it's come to us. [00:32:20] Um, but, uh, yeah, they're, they're the two that come to mind not being too adventurous. We did in the early days, we did some stuff outta like, um, Joshua Tree and um. You know, Palm Springs, but again, they're kind of like not loans we're chasing at this stage. Um, I think that market is a bit bit soft. [00:32:38] Rocky Butani: And, uh, and, and going back to land loans, um, because you mentioned land in la the types of land loans that you're, that you'd consider, these are, these are mainly urban areas. [00:32:50] Are they, are you only looking at land that's, that's going to be developed? [00:32:55] Christian Faes: Yeah. Yeah. It's gotta be residential, it's gotta be permitted and kind of ready to go. And ideally, um, well, it would have to be an experienced borrower that knows what they're doing. We're not gonna fund the construction, but, you know, they've got a track record of being able to get construction financing. [00:33:09] Um, and so yeah, it's, it's a pretty sort of narrow range that we're going after. But there, there is a need for that and certainly for these guys that. Where, and I wanna be careful how I sort of phrase it in terms of that particular area, but there are opportunists that kind of like, you know, if, if like, you know, it's, it's today's Thursday and they're gonna complete next Wednesday and they're a cash buyer, or they look like a cash buyer to the seller, then um, you know, it, it, it, it could be a deal that makes sense and one that we'd be happy to try and help out with. [00:33:40] Rocky Butani: Sure. And, uh, and, and as, uh, as far as leverage, you said 50 to 60%, uh, maximum, but, um, what if it's a case? Yeah. Land? Yeah. Yeah. What if it's, it's a case where someone is cashing out equity on land. It's not gonna be developed for the foreseeable, I mean, it, maybe it's more than 12 months out, uh, before it could even be developed. [00:34:01] Maybe they just needed the money for something else. Um, how do you look at deals like that? [00:34:07] Christian Faes: I think we're, we'd be open to having a look at it. I think we'd want to try and understand what that something else is in terms of what that cash is for. Um, I guess where we'd like to try and start that conversation is like, what other assets does the borrower own? [00:34:20] Because, you know, if they've got a. Big vacant block of land they don't really care about. Um, maybe they've got other assets as well that we can sort of take a secondly and against and just kind of like find our way to get comfortable with the situation. And again, if it's a, if it's a very low LTV loan, then, then maybe it is something we'll do. [00:34:37] I mean, ultimately we're looking at the liquidity of the asset we're taking security against and trying to sort of calculate if we, if we end up with this in a year's time, how long is it gonna take us to sell it? And, and, and what are we really gonna get for it? Um, and, and can we be comfortable that our investors capital's protected? [00:34:53] Rocky Butani: Are there certain areas that you wouldn't consider land or maybe a state? Would you, would you just say no to, to land deals in Florida versus California, or, [00:35:03] Christian Faes: uh, not really, no. I think, um. We, we wouldn't really have that approach to it. I think it is really trying to take a holistic view in terms of who is the borrower, what's their track record, what's their focus at FICO score, um, FICO score, and what sort of assets are they got? [00:35:19] Rocky Butani: And, and the exit strategy obviously of top. [00:35:23] Christian Faes: Yeah, it's. Very key. Yeah, [00:35:25] Rocky Butani: sure. Alright. Sorry for jumping around. I, I came back to land 'cause I've got to ask you those questions earlier. Um, but I, [00:35:31] Christian Faes: I'm, I hate talking about land. We don't want to do that much land, but I keep saying that to the guys and then they bring us one, it's like, ah, this kind of makes sense. [00:35:38] We can get our head around it. But, you know, across our book it's like. It might be like 15% of what we do. So it's, it's, it's, it's, it's probably a meaningful part of our book, but it's not, it's not something, it's not the sort of business that we're chasing, but I think it is a good example of where kind of, it certainly doesn't fit the box of most of the rest of the market. [00:35:57] And we can take a, you know, a different view on it. [00:36:00] Rocky Butani: And it is an important conversation to have because as soon as you say that you'll do land loans. You know, you're gonna get flooded with all these land loan requests. So you have to, to, yeah, [00:36:08] Christian Faes: that's why I'm reluctant too. [00:36:09] Rocky Butani: Yeah. So you have to at least clarify that these are the types of land loans we do and this is the leverage and this is the situation. [00:36:15] So, no, that's why, that's why. Yeah. No, [00:36:17] Christian Faes: I say to my sales guys, like, when they're out on the phone talking to people, it's like, just don't even say we do land. Like, you know, if it's kind of, they got a land deal and they bring it to us, we can look at it. But, um, yeah, certainly. And we, we learned that, you know, you put out the marketing material, it's kind of like that, that's all you'll be talking about for the next month. [00:36:33] Um, so. There's an opportunity there. I mean, I think as if we had significantly more capital, maybe we'd be a little bit more aggressive with it. But I think at the moment, just, yeah, we we're trying to build a business that's gonna be here for, for decades ahead and kind of like, just be sensible with what we do. [00:36:48] Rocky Butani: And assuming that, uh, if you did a land loan, it wouldn't be a $3 million land loan, which was the, the high end of your, of your loan amount range. Right. You're probably talking, yeah, less than a million. [00:37:00] Christian Faes: Exactly. Yeah, it's less than a million. I think around half a million is kind of where we're starting. [00:37:05] You know, we we're sort of comfortable to write a check beyond that. We're sort of looking much closer. Yeah. [00:37:11] Rocky Butani: Okay. So I jumped around a little bit. I'm gonna come back to geography. Yeah. So we, we talked about Florida, Texas, California. Um, tell us about some of the other smaller states around the country that you land in, that you've done loans in lately, and, um, which ones you're, yeah. [00:37:25] You like to lend in. [00:37:28] Christian Faes: I think without wanting to sound political, it kind of feels like the blue states are often the harder states in terms of like slightly less lender friendly or I'd say business friendly. So, um, Massachusetts, um, Oregon on commercial side, we can lend in, I think they're two states that we've done some stuff in. [00:37:46] I don't think we're actively kind of like trying to push. More into those states. Um, but obviously California is, is a pretty blue and you know, it still is, is a good market. So, um, that's a bit of a broad generalization, but yeah, I think we're kind of, it, it depends more on the asset and the opportunity and the liquidity of kind of the, the, the area and the sort of demographics of what, what we're dealing with. [00:38:10] So it is trying to sort of. Have a box that is not a box in terms of like, it's more of trying to, you know, let our underwriter have a good understanding, get a good understanding of what the story is and see if it's something that we can, we can partner with that borrower on. [00:38:24] Rocky Butani: Sure. And, uh, what are some of the smaller states outside of the big three that you are, uh, that you'd like to do more loans. [00:38:33] Christian Faes: So I think Arizona is a state, like I said, we, we recently got licensed there. Um, I think that's a state where kind of you've got the licensing sort of threshold, so there's probably less competition, which is part of our thinking of being there. We, we've got an introduce that we know pretty well that is, is able to send us some business from the states, so keen to try and do more there. [00:38:54] Um, and, um, uh, yeah, Georgia, South Carolina. Those states are, are pretty good, although they're not, not necessarily small, but, um, yeah, but, but small and obviously in California and so on, so yeah, there, there, there are some states we're happy lending in. Yeah. [00:39:10] Rocky Butani: And how about the DC metro area? Virginia. [00:39:13] Washington, dc, Maryland is, [00:39:15] Christian Faes: yeah. [00:39:16] Rocky Butani: Is that a market you're excited to lend in more? [00:39:18] Christian Faes: Yeah, I think, um, it's not a market I'd say I personally know particularly well, but we have lent there and it kind of makes sense. Um. But again, it'd be on a case by case basis, but yeah. But we are active in that state. [00:39:32] Rocky Butani: How have you approached being able to compete with, with lenders in these, in these different markets? [00:39:37] Are, are you just getting these mortgage broker relationships that, that like what you offer and they're sending you business? How do you, how do you break into those markets? [00:39:47] Christian Faes: Yeah, it's a good question. I mean, so we've got, um, I've got two loan officers that are actively on the phones and kind of like doing the conference circuit and kind of like networking, um, you know, pr pretty aggressively. [00:39:58] We've got a pretty, um, good marketing list. I think we've kind, we don't take ourselves too seriously on the F2 finance side. It's kind of a fun email, um, that goes out every, uh, every two weeks. And, and that kind of makes the phones ring whenever, whenever that goes out. Um, and I think we just try and compete on having that kind of like a, a vague credit box. [00:40:18] But you know, we, we, we always pride ourselves on giving a fast no as well. So, you know, there's this sort of pitch to a broker is kind of like, give make us your first phone call 'cause it'll take five minutes and we'll tell you no. And we, we pride ourselves of knowing the market relatively well. We might even be able to tell you where London is worth going to have a chat to. [00:40:35] Um. And if it's a yes, we're not gonna mess you around. And kind of like, we don't have to go and answer to an institution. We're not selling the loan. We are a balance sheet lender. If we're giving an initial appetite for the loan, if you are telling us the true story or you know, is kind of the what, what, what, what the situation is, we'll be able to give you an answer and, and, and give you a feel for what our true appetite is. [00:40:56] So it is kind of like speed and service, which, like I say, everyone says they're doing, but once someone experiences with us, they, they will see that. And I think that goes through the life of the loan. So. We, we use a lot of technology here. We're using ai. I know probably everyone says they, they are, but you know, previously built a technology business myself with, you know, a hundred engineers in it. [00:41:15] So I'm pretty for, you know, um, savvy with the technology side of things. We've got a little in-house system that we've been building that can again, help us, you know, give a view on a, a signed appraisal. For example, you know, if someone comes with an appraisal. We could run it through our system in 30 seconds, tell you if it sort of fits our general sort of credit box and whether we've got an appetite for it through to using, um, I think you'd be familiar with like Petra loan servicing, who, you know, um, uh, when I met Joe a few years ago and he was setting Petra up, I kind of thought he was pretty mad, you know, try wanted to sort of set up a loan servicing business in this space. [00:41:49] But his vision was pretty ambitious and he's very tech enabled. And, and you know, we've had a very good experience using them as a servicing platform, so that kind of makes the whole experience great for the borrower as well. You know, if they need to pay off, they get it pretty quickly. Um. And so that helps us, um, give the borrower a good experience, not just at the front end in terms of getting the capital very quickly, but also through the life of the loan through to completion. [00:42:15] And ultimately, we want them to come back to us. Um, I think the, you know, the best source of business is your existing book of business. So if we can, we can be a good capital provider and a good partner for, for, for a borrower, you know, they, they pay their interest, they pay us back then for sure we wanna lend to them again. [00:42:32] Um, so that's kind of. That's how we compete. It's, it's, it's kind of, it's, it's, it's a, it's a vague messaging and it's hard to sell because I think everyone is saying that, but I think once a borrower or, or a broker has experienced it, they, they become relatively sticky with us. [00:42:48] Rocky Butani: Great. And you mentioned appraisals. [00:42:50] Uh, how do you approach appraisals or are you requiring an appraisal on every property that you lend on? [00:42:56] Christian Faes: Yeah, we, we, we say we do. Um, I, I kind of, I, I laugh a little bit 'cause I do, I do think appraisals are a big issue for this industry in terms of, I would say that it's probably unfair, and it's a broad generalization, but the vast majority or of appraisals are junk. [00:43:14] You know, they kind of like, they're, they're, they're nice pieces of paper with lots of words on them, but kind of like, don't make a lot of sense. Um, in terms of, you know, just our own desktop work. And in terms of what, what the true value of a property is, that's why obviously we like purchases better. [00:43:29] 'cause you kind of like got real cash going in. You've kind of got a bit of a, a, a sort of a a sense point to or, or a data point to sort of hang some sense to, um, uh, but yeah, so to answer your question, we do require appraisals, but we can often take an appraisal post completion if it's really, you know, if, if there's a, you know, like there's an earnest money deposit at at risk, um, it's a purchase. [00:43:54] And it's like a 60% LTV with a 700 plus FICO borrow, we can get their appraisal post completion, or maybe we can even just get a BPO. Um, but we, we always want something for our records, and that's part of our pitch to our investors is, you know, we're always having an independent, experienced, verified, um, set assessment of value. [00:44:13] But I think increasingly as I get more involved in the business. Here in this market. I kind of feel like it's, it's, it's, it's, it's, um, it's, it's like a data point. It's not something we necessarily would just hang all of our reliance on. And interestingly, like different to the UK market where, you know, when you get an appraisal, what they call a valuations there, the, the, the, the value we is is insured. [00:44:35] And, and you know, in my. Last business. We, we've sued value as many times and very successfully recovered. It just becomes an insurance matter. So, you know, if you've lent someone on a 12 month basis and 12 months later you recover, you're trying to sort of, um, recover your capital by selling an asset and you sell it for 30, 40% less than what it was appraised at. [00:44:55] You've gotta claim there. Where in the US it's kind. You got, you got nothing. It's just a piece of paper. So, um, yeah, they, it, it, it's something we require. It's a bit of a rant there, but yeah, I think it's kind of, it's not something that is, um, the most important thing of, of the, the underwriting process. I think if anything, it's just having someone go into the property, you know, make sure it's not concrete down the sink or the kind of like the place is a total mess inside. [00:45:23] Um, which I know, you know. Everyone's seen has been in the industry long enough. You've seen those sort of disaster scenarios. So I think it's kind of just, it is useful to have someone sensible go inside and take photos and kind of like give a view on it. But, um, that, I think that's all it is. [00:45:38] Rocky Butani: And then let's switch gears a little bit. [00:45:40] Uh, let's talk a little bit about, um, your company and your capital. Um, so you told us a little bit about the journey of, of starting F2 over the last few years. Um, tell us a little bit about your operation and, and your office location. [00:45:56] Christian Faes: Yeah, sure. So we, uh, we're based in Santa Monica. Here in, in Los Angeles. [00:46:01] Um, normally beautiful weather, but not today outside. Um, we're an office based team, a small team. There's only 10 of us at the moment, but we are all in the office. Pretty old school. I kind of feel like, um, we are a startup and, and sort of trying to build a startup culture where it's very collaborative. [00:46:20] People can swing around on a chair and talk about a deal or, you know, what's happening. Um. And also as you touched upon, so we, we, with the way we're funded is we've got our own fund that we market to accredit investors. So there's a couple of guys here that are, you know, all day everyday sort of meeting and talking to accredited investors, high net worth investors, um, and sort of building relationships through RIA channels. [00:46:44] Um, we've recently got our fund, um, approved by Charles Schwab, so it's on that platform. So kind of like that's a, it's a good sort of channel of capital for us. Um. And we have two institutional funders that sort of invest alongside our fund. Um, they're UK institutions from my previous life. Um, one is a private credit fund that was actually the first capital provider to my UK business and they followed me over here and sort of backed us with capital, um, for, for lending here. [00:47:14] Um, so yeah, we're kind of got. Capital, it's not the traditional capital for this market, which comes back to us sort of having that credit box is a little bit different. Ultimately, our capital is discretionary in terms of the way it's set up. So we are able to sort of take a view on a deal, sit around the table, um, you know, and see if it makes sense. [00:47:34] Kind of old school, hard money lending, I guess in, in many respects. [00:47:39] Rocky Butani: Nice. And um, so that was where you mentioned earlier the SPVs. You have, you have two different ones that, that you might Yeah. Lend under if it's not F2 Finance technically. [00:47:50] Christian Faes: Yeah, exactly. We've got three, um, three different vehicles. [00:47:52] One's the fund, F2, and then an SP V, but they're all SPVs under our sort of group, um, group, uh, parent. [00:47:59] Rocky Butani: Okay. And as far as F2 finance the fund, what's the size of the fund at this time? In terms of, um, we [00:48:06] Christian Faes: don't say [00:48:07] Rocky Butani: access under management. [00:48:08] Christian Faes: Yeah, we don't. Yeah, we don't, don't say. Okay. Um, kind of, I, my issue with that is if, if I say a number of people might say it's too small and then it'll be bigger next week, uh, it's always, yeah. [00:48:19] We're always raising capital. So yeah, we've, we've, we've got about a hundred million of capital across the sort of three funding sources that we've got. [00:48:26] Rocky Butani: That's very impressive still. Um, uh, what about, uh, the types of investors that you're looking for? Are you, are, are you mainly dealing with high net worth investors and, and tell us about the fund opportunity. [00:48:38] Christian Faes: So the fund opportunity, it's a great opportunity for investors. I obviously would say, um, we, it, it's, it's, it's a relatively unique product, so we offer investors a fixed coupon, um, which is different to, um, I guess a lot of other real estate focused funds. It comes back to my it, which is exactly the same way we set up our first fund at Lend Invests. [00:49:00] Um, and I remember them sort of doing research and when I got here did sort of sort of sense check that research and a lot of sort of criticism of real estate related funds or even lending related funds is, well, you know, the fund targeted a an 8% return, but. It only paid me five the last, you know, three years and there was sort of no recourse for that. [00:49:19] Um, and so kind of people just take the targeted return with a grain of salt. So what we've done is we, we've set up a fund that it just pays a fixed return. It almost, it's kind of like a high yielding bond, um, but it is structured as a fund. Um, if you invest over $250,000, we pay 9.5%. If you invest less than that, we pay eight and a half, um, percent per annum. [00:49:41] Um, and it's a hundred thousand dollars minimum, and it's only a one year lock in. So we're kind of like matching the underlying liquidity of the, the loan portfolio that we've got. Um, but most investors kind of. Reinvest and sort of compound their return. And you know, we touch wood, we haven't really had any redemptions in the fund yet, so it sort of continues to grow. [00:50:00] And I think as we just continue to say what we will do, the one that says says on the tin what does what it says on the tin, people kind of like stay. And actually most people just re-up and invest more over time. And those investors are everything from Yeah, private individuals, obviously gotta be accredited investors. [00:50:18] Um, it's a 5 0 6 C, um, Delaware, um, LLC fund. Um, but we also have a Cayman feeder fund. So the fund was originally seeded by sort of network of high net worth investors I had from Europe that came in through that Cayman feed. And so it's a great product for, we've got a couple of investors like in Dubai and Singapore for example. [00:50:38] It's a tax free jurisdictions where they get paid this return, you know, net of withholding tax. So it is, it is quite an interesting product, particularly for, say, an offshore investor. There's interest in getting exposure to the US residential real estate market and sort of get a fixed return instead of a very tax efficient way. [00:50:57] Um, through to kind of like domestic, um, self-directed IRA investors. And, and obviously like I said, that the RIA channel is really what we're trying to crack. Um, and we're getting some pretty good traction there, but it sort of takes, it's a long sales cycle to get in front of an RIA Sometimes you could just educate them as what is private money, um, and then kind of, um, and then go from there and sort of get them to the point where they can get comfortable to sit in front of their client and talk about it. [00:51:23] But, um. But yeah, that, that's kind of what we're doing on, on the capital side. [00:51:28] Rocky Butani: Nice. And the, the Cayman entity or, or fund, is that, is that something you have to set up in order to get international investors? [00:51:37] Christian Faes: We didn't have to, but it's, it just makes it, uh, um, much more attractive for an offshore investor because if, if we didn't have that, then um, an offshore investor would have have to file US tax returns, which, um, you know, having sort of experienced dur tax jurisdictions and other markets coming to the us, like it is something you should try and avoid in terms of like, um, you know, it's, it is pretty, uh, pretty extensive process with the IRS here. [00:52:00] Um, and, uh, and also with the Cayman vehicle, we're able to do it in a, um, um, not only no tax returns, but it can be effectively paid up, gross and sort of sort out the withholding tax there. So that 9.5% return, which will lower over time, but that's what we're paying at the moment for investors that come in. [00:52:17] Um, you know, they receive that, that they received that whole nine and a half percent return. [00:52:22] Rocky Butani: Interesting. Yeah, that's a, that's a unique structure that I haven't, uh, heard of from other, other funds as far as I know. Yeah. Excellent. Yeah. Um, [00:52:31] Christian Faes: yeah, it is unique, which, which is, I think, I think that's good because it's a good conversation to have with people, but also there's a bit of an education process for people to get their head around, oh, is it a bond? [00:52:39] Is it a fund? Like, how does this work? [00:52:42] Rocky Butani: I think initially an investor might question. But you know, hey, what if, what if at a particular time there's, there's a loss or, or something significant happens? Yes. How are you able to, to continue paying that fixed return? [00:52:56] Christian Faes: Yeah. So that, that's a good point. So, um, and it's something I should have mentioned. [00:52:59] 'cause you know, going back to that criticism of other funds that kind of say they're gonna pay x, we're kind of just doing the same, obviously it can't be a guaranteed return. That would sort of, um. Blow, blow our attorney's minds up. You, you, it would just be silly, you know, it's, it's not a guaranteed return. [00:53:13] So it is a fund that can be gated in a worst case scenario, and, and there could be losses like capital is at risk. But to show our confidence in being able to achieve that, what we've put into the documentation is essentially a self-destruct mechanism, so that if we don't pay that full return to investors in any two quarters, then the fund automatically winds up and we as the manager sit last in the waterfall. [00:53:36] So basically if an investor kind of does invest in, in that scenario where kind of we're promising eight and a half and we deliver five in any two quarters, then the fund winds up, they'll get their capital back, plus the sort of, you know, the, they've gotta make up that return. And then we would sit last, obviously not sort of, I haven't made this investment and sort of, you know, I've got a large part of my net worth, um, in, in it as well. [00:54:01] For not doing this because we think we can't meet that return. Um, so, so yeah, we're kind of, um, pretty conservative and cautious in terms of how we are constructing the portfolio with a view to ensuring we can sort of, uh. A bare minimum, you know, hit, hit, hit that return for investors, which means, you know, when it comes to competing with a lot of sort of mainstream lenders that lend at 95% LTV and a hundred percent of rehab and kind of do that at an 8% coupon or whatever, you know, that's not the business we're gonna be able to compete in, and I just don't think that makes a lot of sense from a pricing for risk perspective anyway. [00:54:38] Rocky Butani: Absolutely. All right. And then, uh, final question or topic is, uh, tell us about your thoughts on private lending in 2026. What are you excited about for this year? What are your, uh, what are your thoughts on, on how it's gonna play out for the next 10 months? [00:54:53] Christian Faes: It's gonna play out. I mean, I think, um, it's interesting times. [00:54:56] I, I think just from a macro perspective, lower interest rates I think is good. It feels like the last couple of years have actually been like interesting time for me to be setting up this business. 'cause it doesn't feel like it's a bull market by any stretch. You know, just, you know, if you look statistically at the volume of transactions for residential house sales, like you can see it's. [00:55:15] Not particularly a strong market. Um, so that, that should ease up. I think with interest rates coming down, I think there'll be more, um, supply into the market and, and, and maybe more demand as well with people sort of looking at, at the, the end buyer and, uh, sort of, um, able to, to afford a mortgage as, as rates come down. [00:55:36] I think some, a lot have touched upon in terms of things. It's, it's interesting to see some lenders have been hit with big frauds and things like that, and obviously don't wish Ill on, you know, anyone, um, in the market. But it feels like there has been a huge amount of capital chasing what ultimately is a. [00:55:52] Finite ish opportunity. And so I just wonder if, um, some of that comes home to roost with some lenders where they kind of have been super aggressive. I mean, you can be the smartest lender in the world, but if you're lending it 95% LTV, I mean, there's no, there's not even margin for error. You know, the market's just gotta move a little bit and you, you're outta whack. [00:56:12] Um, so, uh, obviously some of those lenders take a portfolio approach, but there's gonna be limits to what. Amount of pain some people want to take with that. Um, but again, maybe the market. Sort of saves them in terms of like the, you know, more liquidity comes back in and so on. So, yeah, I, I, from my perspective, we're kind of just, um, you know, I go to the conferences and try and sort of build relationships in the market and get to know everyone and sort of just wanna be a participant in, in this sector for, for a long time here and, and just for us, just put our heads down and, you know, keep, keep building the business inch by inch instead of just trying to keep grow growing year after year. [00:56:51] Rocky Butani: No. Love it. All right, Christian, that's all I had on my list for today. Anything else I missed? Anything you'd like to add? [00:56:58] Christian Faes: No, it's been comprehensive chat. No, I appreciate, I appreciate you having me on the, on the show and, and the opportunity to, um, to participate. Of course. [00:57:05] Rocky Butani: Yeah. Thank you for your time and uh, look forward to seeing you at a conference coming up in the next few months. [00:57:10] Yeah, [00:57:11] Christian Faes: see you soon. [00:57:11] Rocky Butani: Alright. Alright. Thank you Kristen. Take care. Right, and that's a wrap for this episode. F2 Finance is listed on private lender link.com, and they pay a monthly subscription to be on there. Visit their profile. I'll put a link to that in the description. You can contact them directly by phone. [00:57:27] Fill out a short email form or a detailed loan request form. When you reach out, be sure to let them know that you heard about them from Lender Link and the Private Lending Insights podcast. Thank you for tuning in and listening all the way to the end.