CHEAPER IS CHEAPER. CHEAPER IS NOT BETTER.

FROM DEVON'S DESK

I want to tell you this one carefully, because it would be easy to tell it as a brag and that is not what it is.

A repeat borrower of ours brought a deal to another lender who quoted him a better rate. That was a completely rational decision. Rate is the easiest number to compare, it is the number every lender leads with, and he is running a business. He did not owe me an explanation and I did not ask for one.

Then, days before he was supposed to close, that lender came back and told him he would need to bring roughly thirty thousand dollars more to the table than anyone had discussed.

I do not know what happened on their end and I am not going to pretend I do. Committees change their minds. Values come back different. Capital gets reallocated. None of that makes them a bad lender, and I am not going to name them or take a shot at them.

But the reason does not change the position it put him in. An operator who had planned his cash to the dollar found out three days out that his deal now required thirty thousand dollars he had not set aside.

So he called us.

We reviewed the deal and sent a term sheet. We are working with title now, and assuming title clears the way we expect it to, this closes in a matter of days.

Here is what I want you to take from it.

THE MATH NOBODY RUNS

Price what that cheaper rate actually bought.

On a $400K loan, a couple of points of rate difference across a six-month project is somewhere around four to five thousand dollars. That is real money. It is worth shopping for. I would shop for it too.

Now price the surprise. Thirty thousand dollars of additional cash, due immediately, tied up for the

length of the project. That is roughly six times the interest savings. And here is what makes it sneaky: it is not an expense. It is your capital, sitting in this deal, unavailable for the next one. For a lot of operators, thirty thousand dollars is the earnest money and down payment on an entirely separate project.

So the cheaper loan did not cost him four thousand dollars. It cost him a deal he can no longer do.

And that assumes he finds the money at all. If he does not, he loses his earnest deposit, his contract, and every dollar of profit that was in it. That is not a rate difference. That is the whole deal.

THE PART NOBODY PRICES

Same principle on the rehab side, and this one quietly costs operators more than any rate ever has.

Ask every lender you are considering exactly how draws work. Not whether they do draws, everyone does draws. Ask how many days from inspection to money in your account, and ask them to be honest about their slow ones.

If four draws take two weeks apiece instead of about a day, you have added roughly six weeks to your project. You pay carry for all six weeks. Your crew loses rhythm. Your subs take another job while they wait for you. And your payday moves six weeks further out. There is no interest rate low enough to buy those weeks back.

If you flip or build: ask the draw question before you sign, not after. If you are an agent: a buyer with a fragile lender is a closing you might not get paid on. Find out who is funding before you go under contract. If you work in title or escrow: you see this before anyone else does, and you already know the lenders who create fire drills three days out are not usually the expensive ones.

WHAT WE ACTUALLY ARE

Let me be straight about where we sit, because I would rather you hear it from me than guess.

We are not the cheapest money in Arizona. We are also not the most expensive. What we are is the fastest and the most relationship-driven. We lend our own money, so the terms we hand you on day one are the terms at the closing table. We commit in 24 to 48 hours. We close in 7 to 10 days standard, faster when a deal is on fire. Draws turn in about 24 hours. And when an operator we have funded before calls, they go to the front of the line. Every time.

That last part is not a policy. It is the whole business. Four out of every ten operators we fund come back for the next one, and this is exactly why.

ONE THING TO STEAL

When term sheets come in, stop comparing rates. Put four numbers in a row for every lender you are talking to: total cash required at closing, days to close, days per draw, and what happens to your terms if the value comes back different from what they assumed.

Line those up and the rate turns out to be the smallest number on the list.

My question for you: if your current lender called today and asked for another thirty thousand dollars, could you write that check? Reply with the honest answer. That number tells you more about how you should be shopping than any rate sheet will.

P.S. Cheaper is cheaper. It is not automatically better. If you are weighing two term sheets right now and want a second set of eyes on both, send them over. I will tell you straight, even if the honest answer is that the other one is the better deal for you. Know an operator in the middle of shopping? Forward them this.

Newsletter Edition #33