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Brick by Brick - From the Flipping Trenches to Running a Fund · Brick by Brick - Wealth Building Conversations

• Loren Wernette: Welcome to another episode of Brick by Brick. Today I'm joined by the great and powerful Will Harvey of Harvey Capital Funding. Will is a hard money lender based out of Virginia, just north of where I am. And I think that reading through and talking to him before all the things he's done and where he's at, there's gonna be lot of similarities on our stories. And so I'm really excited to hear how he got into hard money lending, what he's doing now, what type of loans he's done, and what kind of got him out of the world. of operating real estate, similar to what I was doing, you five years ago. So Will, thanks for joining on the podcast today. Will Harvey: Yeah, thanks so much for having me, Lauren. Loren Wernette: So I gave just a real high level overview of kind of who you are, but can you give the audience kind of more flavor about how you got into real estate, who you are and what you're all about? Will Harvey: Yeah, yeah, absolutely. Like, like you mentioned, I, ⁓ doing hard money now. It's not the only thing I'm on. I also buy, I also buy seller finance notes. I that in a separate fund, but, yeah, my main focus is now on hard money and it took a while to get there. It took a lot of bumps and bruises along the way and just sort of figuring out what I don't like. ⁓ And, ⁓ also the elements that I do like. And you know over the course of a decade or so I've really ended up just migrating more and more to the finance side of things and ⁓ and I'm happy to unpack that and tell you exactly how I started but that's that's pretty much it in a nutshell Loren Wernette: Yeah, so let's go all the way back. Like, did you go to college? What did you do after you got out college and what transitioned you from whatever that was to kind of where you are now? Will Harvey: Yeah. So I did go to college. I did not graduate. I'm a double dropout. So I originally went to the University of South Carolina and then had a little bit too much fun there and ended up coming home and getting sober, which was one of the best decisions I've made in my life. And then about a year and a half after that, I walked on and was a school in Ohio playing football for a short time until I had ⁓ two hip And that was sort of the the end of that. then from there, I dropped out, came home, and I got into the mortgage business in my early 20s. So I had a family friend. He gave me a shot. I came in and I was chomping at the bit, ready to go out into sales day one, but they had me really learn the business for about a year or so. And then I went out into production and had a good three years, 17, 18, 19, and was making good money and was buying single family houses in the Northern Virginia area. I got to about three, I got to three, and I realized that the whole tenant nonsense is just not for me. And that's not, I don't mean that. I don't mean to disparage anybody who's doing that. know guys, we lend money to guys who just love it. They live it, they breathe it. They're just wired for that. And I am not. ⁓ and I just, so I didn't like that. sort of pivoted into, flipping houses. I liked that a lot more because, you know, I wasn't really having to answer to any tenants or, or anything like that. Loren Wernette: You learn quicker than me. Will Harvey: So yeah, beginning of 2020, left, I left the mortgage business and me and a partner, started a house flipping company, a full time. And, you know, I was generating cash, so to speak from flipping. And then I would invest that into these, uh, you know, these a hundred plus unit multifamily syndications ran by somebody else. So it was, it was great because I was, you know, considered an active investor in real estate. So all the year one bonus depreciation I could use against the income that I was from flipping ⁓ it helped my tax situation. ⁓ it a great, most of projects have went well. I've been in one that hasn't paid a distribution in years at this point, but aside from that. I've also done well with those multifamily investments. So it just kind of progressed from there. And I led a couple syndications. We still own, me and some partners own a wedding venue. We own a small boutique, seven room hotel. And I've just done a handful of other projects and have just slowly realized that being an operator is just not. I just don't like running things. like being the lender. like being on the finance side of things. Um, and that was somewhat accidental. I started a, uh, a fund in 2023 and that fund, um, we've been investing in real estate, mainly passively. And that, that fund, I started, uh, just, just doing hard money loans out of it for when guys in my network would. called me, we did a few of them and they went great. We did about 10 in that fund and it was really just money sitting around that we didn't have a home for. in the short term, three to six months, we could deploy it and earn hard money returns and it was great. And over time, I just kind of looked back and I was like, man, we should do this more and we should really do this from a dedicated fund. And so that's what I did. That's what I started last year, is a dedicated fund solely for doing hard money. Loren Wernette: Got it. to me about your decision to invest as a LP in those syndications for the first time. mean, hear syndications a lot, ⁓ and I a lot of flippers, but a lot of times, either they're so focused on just putting the money into doing more of their own projects, or they are so active in their own stuff, they have a hard time of releasing control and giving that control to another. Will Harvey: Yeah, I think that the key is just aligning yourself with someone that you know is going to be an excellent steward of your capital. with the exception of one and they've actually, ⁓ it ⁓ kind a funky situation. There were two groups that led this one deal. The group that I knew brought me into it. The other group I didn't really know. And the other group that I didn't know has sort of, they've not done what they said they were going to do. And the group that brought me into the deal, they've actually rolled up their ⁓ one of them moved to the property to, because it was just really struggling and to oversee renovation. I shouldn't say that, you know, I lined with, they not evil people at all. They were just inexperienced and, but they've learned a through that funky deal. But ⁓ back to your question. The key is just to align yourself with someone who is a phenomenal operator, who knows what they're doing, who has experience, who does they say. That's the key, because you're absolutely right. When you're writing a check and investing as a limited partner into one of these deals, you are giving up complete control. only role in that deal is to write the check and to supply, you know, a piece of the equity. So, it's, certainly not for guys that like to do everything themselves and want to, want to handle every little thing. And luckily for me, that's, ⁓ that's ⁓ I want to do all that stuff. I don't want to deal with managing the property management company and And, ⁓ just, just all the ins and outs that go along with, running a property. I ⁓ want to do any of that. I'd rather find capable operators and put my capital in their hands. And yeah, I'm not going to make, there's to be a, there's trade-offs where, you know, ⁓ I potentially make more money if I did everything myself, but, the freedom of not having to do all that stuff is, is, ⁓ you know, important to me. Loren Wernette: Yeah, I mean, it's the definition of an active versus passive investor, right? You can be an active investor, but then also you're going to expect higher returns. If you're going to be a passive investor, less work, but probably lower returns, but you can do more things, right? And I talk to my investors all the time about this, like, hey, you've got a, you know, six figure, maybe even a seven figure salary, and you're thinking about buying rental properties, you know, for investments, like focus on what you're already doing well. Will Harvey: Bingo. Loren Wernette: and find someone to hand your capital off to that's going to multiply it, delegate that outsource. Will Harvey: Hit the nail on the head. Loren Wernette: So now talk to me, all right, we're now at a phase where you've got your flipping going, you've got some LP dollars out there. In my mind, and I went through it, but there's a bit of a leap between I'm gonna flip some houses and I'm gonna start a fund. In my experience, the people I know, it's usually there's a step in the middle of like, I'm gonna do trust loans or I'm gonna do some other type of joint venture loans and then ⁓ I get to the... get to a fund now funds are more common now than they were a number of years ago. But what was that transition like from flipping to now I've got a fund. Will Harvey: Yeah, great question. lot of mistakes were made along the way. And I think that there's a quote, don't know who, I know who came up with this, but it's the quote goes, action produces information. And I've always tried to live that way where I might not ⁓ be the right decision in doing, you know, I, I, Like when I'm going to, if you're going to hire someone, you've never done it before, you're probably going to make a bunch of mistakes. You might hire the wrong person, but all that action and all that feedback, you know, you learn from it. And then you realize what you should do next time when you go to hire someone. So that's sort of what happened to me with, ⁓ with, like you said, ⁓ going from flipping to starting the fund. There were a bunch of deals in between them. Some of them good, some, you know, one in particular, not so good, that I'm sure we're going to talk about, but you know, go going through that is what, what really gave me, ⁓ confidence to go out and start, start a font making mistakes is crazy as it sounds. Once you get through it and you realize, you know, what you to learn from it. That's what, for me at least gives me the confidence to. ⁓ really be to define what I'm good at, what I'm not good at. ⁓ And the time I started the fund, I knew what I was good at. I knew what I was not good at. knew what I didn't like to do. ⁓ And I had a much more tight, I just had much tighter, you know, framework for what I should be doing and how I should structure this fund and, know, how, how to get from, from A to B as far as like the stated. goals of the fund and you know since then the lord we've we've ⁓ we've it's it's done well ⁓ so yeah i hope that answered your question Loren Wernette: tell me about this deal. This is the 2020 deal, I assume. Tell me about ⁓ the of the deal, what happened to it, and then more specifically, what did you learn about yourself during that deal that pushed you into the fund and also makes you a better fund up? Will Harvey: Yeah, the deal was actually 2022. I made a passive deal in 2020 that was paying distributions for a while, but they haven't paid distributions in a few years. That one pales in comparison to the one in 2022. So in 2022, I don't know if you remember this or the audience remembers this, but... That's right. was very early 2022, sort of the end of the hay day when, when money was super, super cheap. It was right before the fed started, ⁓ raising interest rates myself and a partner, were flipping houses ⁓ we were running to, a lot of our, deals from Google ads. So we got a lead from Google ads and it was, it was more expensive than what we would have. liked to, ⁓ it was just a pricier home than, than, than what we normally like to do. So we looped in a third partner guy we know well, and, we all ended up, ⁓ taking this property down and I was the one leading it. And I basically had this grand vision, ⁓ it into a that was, had all these different rooms and floors and You could compartmentalize it and make more money because you you're, you're renting the basement separate from the top level. And it was just doomed to fail from the beginning. was a really, it was a really, really goofy house. These people had, uh, it was built in the sixties. They did what's called a, people call it a pop top where they just add a level and, uh, instead of a complete tear down and a new, new, new build, they just pop. you know, pop the top and add a floor. And they basically just added rooms to this house. There was no functional. it was just functionally obsolete. was just a bunch of bedrooms. was, there were nine bedrooms in this house. It was insane. And saw an opportunity. I had done Airbnb in the past and I ⁓ dollar signs my eyes. was like, ⁓ man, we can rent out all these bedrooms and Loren Wernette: You Will Harvey: and do Airbnb and this is great. You know, it's in an area that's very transient near ⁓ DC outside. It was in Northern Virginia and, I was like, man, we can, you know, we can rent it out and buy the, buy the room and ⁓ coming for work stuff and ⁓ And this is going to be great. We're going to make a lot of money. And did that and it did start getting bookings, but it just, was not a good house. We, we, We just didn't renovate it as nicely as we should have. And even if we did renovate it and make it super nice, just wouldn't have, it just wasn't, the layout was funky. just was, it was just a weird situation. And at the same time, interest rates started rising. We bought it with a hard money loan. Luckily it was from a family member. So it wasn't, it was kind of. friends and family hard money. three points and 14%, like a lot of hard money, it ⁓ a lot cheaper than that. But still, it was a higher interest loan and we wanted to out of that quickly. We were able to refinance it into a bank loan pretty soon after getting it renovated. you know, just never, we just could never, I tried a million different ways. We started you know, with bedrooms and then I did three different levels at three levels. We tried doing those separately and, and, uh, we, just couldn't, we couldn't get the property to take off. it was just, it all stemmed from me not, it stemmed from me not really thinking it through is, is, is, is as much as I should have on the front end and thinking through all the worst case scenarios and It was, it was just sort of that, you know, I was riding that euphoria of, we're going to, we're going to do so well on this. And I didn't let the, I didn't really let it sink in as much as I should have. And I, and I just realized, you know, when you act on emotion, like I did there, it just, it almost always leads to a bad outcome. And we ended up selling it and just, just, was just in this downward spiral where we kept having to put money into it. Things kept breaking. It was an older house and same time, we weren't making as much money as we thought and had this hefty mortgage due every month and we ended up just dumping it at a, not dumping it, but we sold it at a loss and combined we lost about, I think somewhere between 70 and 80,000 on it. So it was not fun at all. And it was, it was especially not fun because I had two partners in it and I was the quarterback ⁓ know, it was, it was tough to, to, be responsible for, for the outcome there. So, yeah, not, not a, not a good situation, but it really ingrained a ton of lessons and, and, ⁓ know, it was in hindsight, as crazy as it sounds, I am glad that I went through that because ⁓ you know, happened relatively early in my career. made me realize. You know, I will never do anything like that again. I haven't since then, there hasn't been a ton of time since that happened, but, know, I'm pretty confident that ⁓ remember the, the, the, the, ⁓ the scars from that one. And hopefully I don't ever repeat that again. Loren Wernette: you So what were the top two or three lessons that you did take away from that, either from a flipping standpoint or just from a business or personal standpoint? Will Harvey: First was I will never be the operator of a property again. I will never be, you know, I'm fine to go in and I, I, since then, you know, through our, that original fund that I had mentioned, we've invested in deals passively. So we have done things from a passive standpoint. But I am not the operator. I'm certainly not going to operate a short-term rental. And that was, ⁓ that was key. once we sold that, that was a key takeaway. It's just that this is not my bit. I'm not gonna be the operator. I'm not gonna be the one responsible for running the deal day to day. It's just not my skill set. Loren Wernette: Got it. And so as your first one, do you have a couple other, you know, kind of key learnings that you took away from that that you can share? Will Harvey: That's the biggest one. We overpaid for it. in had I a little bit more disciplined in the negotiation with the seller, we would have ⁓ done better. we would have bought it ⁓ 100K less, is probably where we should have bought it, still would have. Loren Wernette: Mm-hmm. Will Harvey: It would have been basically a break even, but that's a whole lot better than losing money. you know, if, if I had been more disciplined there and listened to my partners a little bit on, you know, do you do it? Should we be buying this crazy expensive house? Should we drop it? Should we, know, and, and I was just, I was just so, I call it deal goggles. I've heard that from somebody else. had deal goggles on kind of like, you know, beer goggles. No one can tell you anything. You just see what you want to see I had deal goggles on and I just wanted to do the deal so badly and Thought it was gonna be successful no matter what and just just wasn't wasn't disciplined on on our on our buy price and on a lot of things and you know paid the paid the price for it Loren Wernette: Yeah, I think one of the biggest learnings I've had over the last couple of years after my transition into lending is not to look at projects and get like blinded by the opportunity, but focus more on where the downside risks are. You can if you can understand like what are all the things that could go wrong and mitigate those and look at like where the median is or maybe just below the median, you're going to have a lot better outcome than if you like. Oh my God, look at how much money we're going to make on this, you know, because. Will Harvey: Exactly. Exactly. Loren Wernette: plans very rarely come to fruition. And if they do, and if you ran your numbers on the median or below and they do come to fruition, you've made a killing, right? It's just a cherry on top. Will Harvey: Yep. mean, it goes back to the Mike Tyson quote. Everyone has a plan until they get punched in the mouth. You know, I love, I love that quote and it's, we got punched in the mouth and it, it, it hurt. And, ⁓ yeah, no, that that's exactly right. And now I, you know, going back to like the Warren Buffett, philosophy of, ⁓ of look, down, not up, you know, focus on your downside, focus on what you can lose. And if everything checks out there and, and, you know, it's, it's, it ⁓ there's not a ton of, there's not a ton of material risk. If everything goes, goes bad, then it's like, well, the upside will probably take care of itself if it goes well. So, you know, like, like, like you were saying that that's a huge, huge, ⁓ infinitely focused on, on the downside when I make an investment now than I am on the upside. So. definitely another learning experience from that one. Loren Wernette: Yeah, I agree. I tend to follow the kind of the more money ball philosophy of I want a team full or portfolio full of base hits, not a whole bunch of, you know, one or two home runs. um, so as you, you know, hindsight being 20, 20, looking back at that project, were there like specific points that you look back and like, that's the spot I should have just cut my losses and left there. Or, I mean, obviously we talked about like, should have got it, bought it for a hundred K less, but Will Harvey: Exactly. Bingo. Loren Wernette: I don't know how long you own this property, but were there pieces or steps along the way you're like, I should have cut my losses there. I should have cut my losses there. Or was it just kind of happened so fast that you just got out as soon as you could? Will Harvey: Yeah, it wasn't, no, we, tried to get out multiple times and, uh, you know, it just didn't, it, it, it, we, we, we only owned it for about a year and a half. So it wasn't, it wasn't terribly long. Um, but there were a few instances where I messed up. One of them was, you know, me and my partners talked in the beginning about, um, Once we, once we had it all fixed up, wasn't a good part of Northern Virginia, very sought after expensive area. we were like, Hey, let's, let's try to list it. If we can get the price we want, let's just sell it. And I was super, super, at I don't know, greedy, but I was just so focused on ⁓ wanting to it as the Airbnb that I was. ⁓ I was like, if we're not making, you know, this much, I don't want to do that. I want to hold onto it. And looking back, that was a stupid decision. You know, I should have just, I should have been, and we never really got anywhere where we, had any offers in hand where I passed on and I'm like, ⁓ we should have taken that offer. that really happened probably because we just listed the PR we just listed it too high of a price. And we just never got any action because of that. But yeah, so that was a mistake in hindsight. But no, ⁓ didn't really, we on and the market multiple times. ⁓ And we over the course of, like I said, year and a half, we got to the point where we were just like, all right, now we're. you know, we made up in our mind that we were ready to take a loss. And I think until you get to that point, you're going to try to make stuff work. You're going to ask, you know, a higher price. were just beat. We were just mainly me was beaten down and we were just like, let's just, ⁓ just sell it. Let's dump it. Let's cut our losses. Let's move on. So I'm glad we did at the time that we did. but you know, it was, it was just. after mistake after mistake that led to that. Loren Wernette: Got it. All right, let's I'll take you off the hot seat. We can start talking about something a little less traumatic. So now you've got ⁓ Capital funding. ⁓ got to fund. Tell me about that business. I know you guys do fix and flip loans. Tell me about kind of how that you talking about how it got started. But how is that going? What type of loans do you do? How do you operate your business? Will Harvey: Yeah. Yeah, it's going really, really well. We make loans to estate investors. Most of them are either flipping a house or they're investors where they're buying rentals ⁓ they're buying a property that... that doesn't qualify for bank or any kind of traditional financing, even DSCR needs, you know, work to get to that point. So we kind of bridge that gap and, ⁓ and we provide loans that are, that are, ⁓ 12 months or less. we, we have a, have a very streamlined process for the, for these guys. It's a lot ⁓ It's, it's more expensive money, obviously than, than a long-term financing, ⁓ ⁓ you know, guys are only having it for, for, months at a time. So ⁓ doesn't end up being that expensive in the grand scheme of things. So, so yeah, that that's, ⁓ ⁓ put a heavy emphasis on the, on the borrower. ⁓ asset based lending. Like I'm sure, you know, ⁓ heard that term before. I'm sure a lot of your audience has heard that term it's asset based lending. but I, ⁓ from days as a, as a loan officer and just. my style, I put a heavy, heavy, heavy emphasis on the borrower's ability, their experience, their track record. And think that, you know, from when we started doing this about three years ago, it's really helped us. you know, we've never foreclosed, we haven't foreclosed on anyone yet. ⁓ We've had one... sort of technical default that was cured pretty quickly. And obviously we haven't, the more loans we do, ⁓ will have defaults, we will have foreclosures. It's bound to happen no matter how conservative we are. But I where positioning ourselves. I like our portfolios, loan to value as relates to the ARV. And I think we're in a pretty good. I think we're in a pretty good spot there. Loren Wernette: talk to me about that emphasis on the borrower. So ⁓ a hard money lender, I'm looking at downside risk. And if this thing goes sideways and I have to foreclose, you know, will I be able to exit that? Now, obviously, we look at borrower as well. And, know, what, you know, are they able to pay? Are they communicating things like that? What are all the components you're taking into account when you're considering just the borrower component? And what are some just strict like This thing happened, so this is a no deal. I'm not moving forward with this guy. Will Harvey: Yeah, great question. So credit score is a huge thing for me. think that the fair Isaac, the formula for creating someone's credit score, deriving someone's credit score, it's tried and true. And there's a reason that so many banks and institutions use it. And I hear guys saying, yeah, we'll go to some crazy low, we'll do loans in the 500s and I won't. There's just not, mean, unless there is some crazy mitigating circumstance, like they're putting down 75 % or some crazy thing like that. It's just not a, credit score is a very good indicator of someone's character and their ability to do what they say. and repay their obligations. So when we get someone's loan app in and it's a 600 credit score or 580 credit score, I said, unless ⁓ some mitigating circumstance, like they're putting down a ton of money or cross collateralizing it with a property free and clear or something like that, I'm not going to be interested. Most of our borrowers have, you know, perfect credit scores. Um, almost all of them have credit scores above 700 and that has really helped us. And we, you know, I also stay focused on the markets that I'm local to, and that allows me to, you know, to one being close proximity to these properties in case, you know, anything comes up. Um, and I need to keep an eye on it. Uh, but it also allows me to. being close proximity to the borrowers and everyone that we've loaned money to so far. I've met face to face. I've shook their hand. I've sat down with them. I've had lunch with them. And I really think that it sounds so trite and it sounds so, you know, simple, but when you sit down with someone for an hour or two hour lunch and you know, you to them and you share war stories, you, ⁓ you do that and you get to know them. going to be ⁓ that you pick up on if they're, ⁓ know, if they're inexperienced or if they're, you know, just that we don't want to work with, they might ⁓ say and I'll remember that and I'll, that'll be a red flag that I kind of file away. And I never would have gotten that. None of stuff shows up on a loan application. You know, that's the sort of scuttlebutt boots on the ground research that you just don't get if you, if you're not you know, talking to borrowers and meeting with them and, really having a pulse on everything that's going, going on in your market. So, we're, we're really focused on the Richmond area. It's where I live. It's what I know. we do a little bit outside of that in Virginia to guys that I have a prior relationship with, but that's really where we're focused and it's, ⁓ it's us well, so far. So, you know, I hope that that Does that make sense? Does that answer your question? Loren Wernette: Yeah, no, it makes sense. I'm curious if you think that the continued face to face meetings with borrowers is something that you're going to continue to do on as your business. Will Harvey: Yeah, it obviously were, you know, it may not scale to some crazy level of loan volume, but I don't know if we need to, you know, if we need to get to that point, the, the, the, business model for hard money allows you to, know, we don't have to sell loans. We have to boost our return. We have sold full loans. We've sold 50 % portions and loans and service them. Um, but mostly everything we're holding onto. I, I don't think that we need to be this crazy, crazy big, you know, billion dollar fund, uh, to, do very well for, for our investors and, know, my, management company. So, um, for the, for the time being, this is, this is our focus. This is what we're doing. Um, I, I, I am going to, going to meet with people and, you know, if we get to the point where. that's not feasible anymore, then that's a great problem to have. But right now we are able to do that. And ⁓ feel very comfortable, a lot of my own, the worth of my family and other very close family members is in this fund. And I'm gonna try to steward it to the best of my ability. And I just think for me, meeting with people and doing that whole thing is very important. Loren Wernette: Gotcha. So on the credit score, want to not challenge so much as just question asked. So you and I both know a lot of real estate investors and you the ones that have a lot of projects going on, their credit score can have a lot of variability. You know, we've had loans come in that one day it's a 700 and then it comes in six months later for a new loan. It's in the low 600s, right? What is how do you how do you rectify someone that's got a lot of stuff going on in their debt income ratios kind of all over the place as they enter and exit projects versus somebody that just as bad at managing money and now has a 500 credit score. Will Harvey: Yeah. question. ⁓ I mean, if someone's score goes down into the low 600s, there's, probably going to be a reason for that from when I was in the mortgage business. mean, yeah, you can pull someone's credit and that's going to knock their score down a little bit. and, I would bet that they're delinquent on something if it goes down, you know, that dramatically. And, and we're, we're looking at that. And like I said, there's not, there's it's not a hard and fast rule where we won't go below a certain credit score. So I'm actually looking what's on the credit. And, you know, if it's something that explanation clears up, then that's fine. but, you know, it's, it's, I just think it's a good, I think it's a good indicator of, I mean, you're absolutely right. These, these guys are some of the guys that loan money to own, you know, a hundred, a hundred plus homes. So it's a lot to manage, a lot to keep track of, and they might miss something here and there, and I get that. if there's a letter of explanation that just kind of gives me an understanding of what happened, then that's something I'll take into consideration. But I don't think that if it's somewhere down in the low 600s, it's a there needs to be an explanation for why. Loren Wernette: So it's a bit more of a systemic issue versus just moving in and out, right? Will Harvey: I think so. I mean, I haven't seen it where I've pulled tons of credit and I've seen, you know, from when I was in the mortgage business, I pulled even more credit because I was just, you know, doing it as a loan officer. So I saw tons and tons and tons of files and you know, people that if you're paying stuff on time and you know, you're not getting 30 day lates here and there on different accounts, then your credit's going to be pretty good. Loren Wernette: Yeah. Yeah. I mean, I agree that it's definitely an indicator we look at. I don't weight it as heavily as you do. I personally think that a person, just individual person's credit and like a real estate investor's credit score are totally different animals. You know, I think it's very good, good indicator for personal credit. But when you're actually looking at a business and a business operator with multiple, especially in real estate, it, ⁓ a piece of the story, but not nearly enough for me. So. Will Harvey: Yeah. Yeah, yeah. Yeah, I get that. You know, everybody's got their own flavor and kind of what they put emphasis on. you know, our way is not necessarily the right way. It's just our way. Loren Wernette: Yeah, so do you have any other just like hard nose if something pops up and I'll give you example like for me if I'm communicating with a borrower and they stop communicating with me in the loan application process, that's an immediate no because if I can't get you to communicate with me when I'm trying to give you money, you're sure as heck not going to communicate with me when I'm trying to get you to give me money, right? Will Harvey: Yeah. Yeah. mean, that's a Usually those, those people just kind of, it like they just fall off and ⁓ I've a few guys that, you know, they'll be ⁓ They'll be hot and heavy and they'll be wanting to move forward on stuff and then they'll just fall off I won't hear from them for awhile. And then I'm like, well, this person really serious about their business and real estate and probably not. ⁓ know, I've had guys and this one guy in particular, he's out of the blue. just, you know, we had been talking about real estate. He's running a bunch of deals by me. ⁓ And then ARVs were always inflated and I would always tell him, you know, this project's not going to work. Cause ⁓ know, you think the ARV is X, but I think it's ⁓ minus a of, a bunch of dollars. ⁓ And, ⁓ was ⁓ you know, I really appreciate the feedback, blah, blah. And then. Yeah. I didn't really hear from him that much. And then out of the blue, sends me a thing and he's like, Hey, I created this, ⁓ this new mobile app. Loren Wernette: Right. Will Harvey: Can you try it for me and look at it? And I was like, well, what is going on? Like, is he focused on real estate? Is he focused on other stuff? And so that was kind of a, that was a red flag for sure. And so to your point, you know, if I see stuff like that, it's, it just shows someone that's not very serious and probably not someone that we're going to work with. So yeah, I mean, there's Yeah, I would say the typical stuff of a recent foreclosure is obviously a no-go. Yeah, mean, that's, from experience, the people that you talk to that run this like a business ⁓ and, know, ⁓ they a bunch of properties ⁓ and savvy, gotten bank loans, they've refinanced them into bank loans. Usually that person ⁓ is ⁓ to okay. bank loans or conventional loans or even DSCR loans on properties in your portfolio is a big tell because it shows that you can go through a very rigorous loan process and ⁓ this said yes to you. So that's a good indicator for me that this person's serious. They probably know what they're doing and And it's not the only thing I look at, of course, the main thing, like you said, is the deal, the property and whether, you know, if we take it back, if we're going to end up okay and have a good enough equity cushion. mean, that's, there's a lot of, ⁓ there's lot of data points and ⁓ I've using AI to really be able you know, record calls and conversations and have ⁓ all those points play into our decision-making. Cause I think that You know, it's all very important. Loren Wernette: Got it. Well, you hit one of my soft spots. So tell me about how you're using AI in your business. So you just mentioned recording calls and stuff. Are you using it anywhere else within your lending company? Will Harvey: Yeah, so there's a few places that I'm really trying to incorporate it. And I'm not just talking about going on Claude or ChatGPT or Gemini or whatever. I'm talking about having it embedded into our workflows. yeah, one of the big ways that AI can benefit you is just what I've been doing is taking all of our different sources of truth, which would be our loan management system, my email, my Google Drive, just all the different places where information is stored, but is siloed from everything else getting it in sync and to talk each other. So that's one of the things that ⁓ I have building is this hub to kind of... see everything from a, from a, you know, it's, like the cockpit of the airplane where I'm, I'm in control. I can see everything. can see all of our loans. I can see the status of them. You know, I have an API where it's connected with our loan management system and, and, ⁓ calls that come into our business line are recorded and they're, you know, pushed to the contact that, that makes the call. So ⁓ those conversations are, are going to play into. ⁓ Uh, decisions that, that, that we make. And like I was saying, if I sit down with someone for lunch and, uh, and they say something that is a red or a yellow flag, you know, that, that should be taken into account. And, for me, I'm on the phone a lot and you know, stuff kind of blends together. So having the ability to, to have it all recorded and documented and transcriptions, uh, made and. It's, it's, it's very helpful. And it also helps me just with, you know, talking to someone and, know, if I forget what I talked, talked about with them a week ago, I can just look up their file and get a quick summary, use AI to give me a quick summary and, and be right back where, where we left off when we hung up the original, you know, in the original call. ⁓ so that's, I'm kind of just, just. touching the tip of the iceberg as far as the AI stuff, but I just think that, I that in the low tech service businesses, real estate, like lending, the guys that are using AI effectively, I think that they're going to have a big edge. ⁓ really, I do. so it's, it's something that I'm very interested in and really trying to incorporate into our business. Loren Wernette: Yeah, I think you're a hundred percent right. Um, and I specifically think that from a lending standpoint, that there is just a lot of places that AI is going to be very disruptive. Um, if you think about what lending is, and I got on my soapbox on a previous podcast about this as well, um, lending is essentially risk mitigation and, and taking data points from different places and consolidating them together just to build a picture. And that's exactly what AI does. It takes data points and builds a picture, you know, finds correlations. Will Harvey: Exactly. Loren Wernette: And so everything from marketing all the way to underwriting to even servicing, there's a lot of places that AI can really influence the process and make it better. Will Harvey: Yeah, exactly. And even stuff like reviewing, you know, title commitments and things like that. mean, it is just, it's amazing what it can do. And I'm certainly not here saying that, that it should replace that we do and that AI is just going to run everything. That's absolutely not the case, but it can really streamline things and it can really help us, you know, get to the place where we can make a lot more intelligent decisions. Loren Wernette: Yeah, I heard recently a good analogy was like a using AI is like a sandwich where you are the bread on the front and the back end of it. And AI is the meat in the middle. And yeah, it's so true because you're you're whatever you put into it, the quality of what you put in is what you're going to get out. But you still have to look at the output and review that. And so that's the bread on both sides. But there's so much that it can do in the middle. And the reason we've been able to keep our staff count as low as it is, is because we've implemented AI workflow so heavily. Will Harvey: I love that. Exactly. Loren Wernette: And I know for sure it saved me at least one full LTE on an annual basis right now. Will Harvey: Wow, amazing. What ⁓ some of the, not to get in the weeds, but I want to get in the weeds a little. What are some of the ways that you're incorporating it in your workflow? Loren Wernette: Yeah, and so not nearly as far as I'd want to right now, but from a marketing standpoint, we use it really heavily on ⁓ generation as well as Google ad. We do a lot of Google ads, Google ad. Streamlining, changing keywords, adjusting things there. And then once we get into the actual processing underwriting, ⁓ some of underwriting is done not really with AI, but like pushing it to the right people, but also Will Harvey: Hmm. Loren Wernette: When we get to processing, that's where it becomes more beneficial. The title work review, making sure all the documents are saved in the right place. I mean, you know, as well as I, a lot of what lending is, is just moving documents from one folder to the other. It's so much document moving. And then just reviewing legal documents. And so if I can take a title document, which is 12 pages long, and break it down into what are the three paragraphs of things I need to go read and pay attention to, you know, that streamlines that exponentially. Will Harvey: Hmm. Exactly. Loren Wernette: And then all the way to servicing, know, where are we at on our whole portfolio as far as, you know, what's been missed, what hasn't been collected, follow up. You know, I have a process that runs on a weekly basis that looks back at my entire email and says, these are all the things you haven't responded to, or these are the things that people have sent you that, or you have sent to them and they haven't responded to you to follow up and then a week ahead. so just trying to make better use of my time as much as possible so that I can focus on revenue generating things. instead of process and just operational things. Will Harvey: I love that. mean, ⁓ definitely preaching to the choir and it just, it feels like I barely scratched the surface and I've gone pretty deep on AI as as, you know, other guys I know that own businesses, it doesn't seem like they're ⁓ as with it as I am, but you know, I still feel like, man, there's just so much that can be done and... really is incredible. Yeah, exactly. Yeah. I feel like this year it's really, it started just moving so fast ⁓ early 2026. had, you know, the whole open claw come out and it just, ⁓ moves so fast now. Loren Wernette: and it's changing so fast. And it's changing so fast. I mean, when we... Yeah, I know when we when I started playing with it in 20, I don't know, whatever it was, 20, 22, 20, whatever when first when chat, you first came out, you know, it was really just type of question and answer, right? Real, real user, real basic. And I probably could have gotten further, but I didn't learn as much. And now it's like full workflows where things are basically you start it and then it runs and ask you a few questions and gives you an output and the ability to just, you know, take your style guidelines and put them in and say, here's the loan I want to do. Will Harvey: Mm. Yeah. Yeah, it's amazing. Loren Wernette: Give me a term sheet for this that's like the one I normally do, you some odd, weird thing and have it pump out a beautiful term sheet in 30 seconds, you know, versus formatting that thing in Word for two hours. It's an enhancer of time, not a replacer of time. Will Harvey: Hmm. Yeah. Yeah, exactly. That's how I feel is that, you everybody's talking about this, this AI, you know, ⁓ is going to replace all these jobs. And, and I, it's gonna, there's to be stuff disrupted, but I think it's gonna, I think what it's going to do is allow people to get more productive and ⁓ do level things. I mean, if you look at, if you look at, I'm certainly this, but, I hope it's somewhat accurate from how I remember it. It's something like in the year 1900, about 30 % of the US's workforce was in agriculture, know, doing food stuff. And today that's well under 1 % because we've gotten a lot more technology and just stuff like that that have replaced humans doing all that stuff. And yet we don't have 30 % unemployment. It's not like those people aren't working. They've just found more, you know, higher level things to do. And I think that that's what's going to happen with AI. Loren Wernette: Yeah, I 100 % think it's going to replace jobs, but I think you're right that those jobs are just going to shift, right? Just like, you know, if McDonald's gets rid of most of their cashiers, this doesn't mean that they're going to need, you know, they're still going to need people to watch the AI. You just now have to have a a have a degree in how to manage the mobile kiosks something or repair something in the back. And this will be the same way. Now we won't need somebody that makes Will Harvey: Yeah. Exactly. Loren Wernette: business logos, because AI will do that. But we will need people that are generous. How do you create an AI bot? And how do you implement that on? And now we gotta stop thinking or our thoughts from SEO to now all the answers from Google are AI. now it's AEO. How do I make my website AEO compliant so that my answer comes up at the top and they click on my link versus just skipping past my links? So there's just a lot of things and... Will Harvey: Exactly. Loren Wernette: you know, what the world looks like in two years, three years is gonna be vastly different what it looks like today. And think the people that are ahead of that are gonna get a huge edge and the people that aren't are gonna struggle to keep up just like when computers came out 20 years ago, 30 years ago. Will Harvey: Yeah. Yeah, couldn't agree more. Loren Wernette: All right, last question for you. So we have talked a lot about your fund, about how you got into the fund, how you were an LP, how you were a GP for the LP is out there. You've been on both sides of the fences. If you're an LP looking at a syndication or looking at investing in some fund, what is like the number one risk you see that they they they miss that the GP is thinking about that they maybe don't even have awareness of or that they just need to be aware of that the GP is constantly thinking. Will Harvey: Yeah, you're asking what should they be making sure that the GP is thinking about and what questions to ask the GP. that what you're asking? Loren Wernette: it's more like help understand the mindset of a GP from an LP because as an LP, I'm only thinking about how I can put my money in and get a return, but the GP has got a different perspective. So give me some idea about if I'm an LP, this is what the GP is thinking about and how it should change how I think about my LP investment. Will Harvey: Mmm. Okay, yeah, that's a good question. So are you talking more about in my type of fund or like in a syndication, like an apartment building or just... Loren Wernette: Any of the, yeah, anything. Yeah, you're in a unique position because you have been on both sides, right? Will Harvey: ⁓ Yeah, yeah, yeah, I think from an LP standpoint, if I'm looking ⁓ someone, just want to know, I want to know if they're coming up with assumptions and they're coming up with proformas, which I largely ⁓ are ⁓ know, it ⁓ back to that Mike Tyson quote. I really have realized throughout the years, both being on the LP and the GP side, that performance means absolutely nothing. And I'm more focused on the tasks that are, you know, ⁓ the tasks are at hand and that need to be accomplished in order to get to the outcome. that the GP is talking about. So if they're saying, you know, the market is great and we're going to, know, we're going to rents are low at this property and we're going to, we're going to raise rents, force appreciation, and we're going to do some renovations to these units and blah, blah, blah. Then I want data on that. And I want to make sure that, I'm, I'm going to, I'm going to double check their assumptions and, I'm going to look up. It's as simple as just Googling the area. we're using AI and looking up the area and what a two bed, one bath apartment is going for. If that's a big part of the unit mix and two bed, one baths in the area that the deal is are going for a thousand and they think that it's going to be 1,100 and all that's baked into their assumptions and performance, then it's probably, you know, they're probably being a little bit aggressive. But on the flip side, A lot of the guys that I've invested with have the opposite problem where if it looks like it's a thousand, I say problem, it's a good problem. If it looks like a thousand dollars is the market rent for a specific unit that they have in the property that they're buying, they might say it's 900 or 950. And being conservative like that, I might look at that and be like, they're saying it's 900 or 950. I think it's going to be closer to a thousand. So, you know, if anything, this is probably skewed, skewed to be more conservative. And ⁓ that's, that's a good place to be. That's a deal that I want to be in. And usually those ones end up having good outcomes or at least not having bad outcomes. So I think that just checking, ⁓ the GP's assumptions and what they're basing things on, When I started this fund, I had data from the fund that we did. I sort of picked out all the hard money loans we did. And it wasn't a huge sample size, but it was enough to say, here's what think we can charge and here's what we think we can generate. the reason we think this is because we've done it. ⁓ And it's some some pie in the sky figure, it's real experience that we can point to. So I think that's a huge thing for ⁓ partners when they're evaluating a general partner. Loren Wernette: Awesome. Well, well, any last thoughts ⁓ anything we've covered or anything we haven't covered before we kind of wrap up? Will Harvey: No, I don't think so. think, you great, great questions. You put me through, stirred up some PTSD in me about that one deal in 2022, but that's okay. It's good to, you know, refresh myself and make sure I don't make that mistake again. Loren Wernette: Right. So if anybody wants to reach out to you or learn more about your fund or your or your ⁓ ability to land, where can they get a hold of Will Harvey: Yeah, they can they can go to my website. It's harvey-capitol.com or they can just shoot me an email will harvey-capitol.com ⁓ Loren Wernette: Perfect. And I will make sure I put that in the show notes. So Will, it's been a pleasure. I enjoyed talking to you and everybody else. Thanks for your time and we will talk to you next week. Cool.