Level Up with Duayne Pearce
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Level Up with Duayne Pearce
How to Fund Your Own Building Developments
#115 - What role does private lending play in the world of real estate development? Join us to uncover the insights shared by Alan Gale, director of Denarau Funds Management and Altren Capital, as he navigates the journey from traditional banking to leading a private debt and equity business. You'll learn how private lending is more than just an alternative—it's often a lifeline for developers who find themselves entangled in the often sluggish processes of conventional bank financing. Alan sheds light on how personalized evaluations and flexible terms empower developers to seize timely opportunities, highlighting the transformative potential of private lending in a competitive market.
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I know a lot of builders and developers now that are doing this stuff and they're using the private lending, but they don't talk about it.
Speaker 2:Communication and the relationship is really important because not every project is going to go squeaky clean.
Speaker 1:Yeah, I can only imagine there'll be some horror stories out there G'day guys, welcome back to another episode of Level Up. We're back in the shed today for another cracking episode. I've been wanting to do this one for a little while because I really feel it's going to help a lot of people maybe get ahead or get a chance to do their own development or, if anything, understand more about how so many people especially in our industry on Instagram, you see doing their own development. So today I've got Alan Gale. So Alan is a director and has two businesses One is Denneroo Funds Management and the other one is L-Trend Capital. How are you, mate? Very well, thanks, mate. I appreciate you coming up.
Speaker 1:So I got introduced to you I think it's probably going on close to six years now and so I got introduced to Alan through a mutual friend, and so Alan does private lending and until I'd been introduced to it I actually knew nothing about it, so it was definitely a big eye-opener for me.
Speaker 1:So Alan helped us out to do a development about five, six years ago. It was a block of townhouses and basically going through the normal lending institutes. It was almost near impossible to do that project, and without private funding, we would have never have got it off the ground and that project turned into an incredibly profitable and rewarding project and we actually still own a couple of them now and obviously the value has gone through the roof. But, mate, tell us a little bit about your background before we get into the private funding. We actually still own a couple of them now and obviously the value has gone through the roof. Oh, that's good, mate, tell us a little bit about your background, I guess before we get into the private funding, because you've worked at Suncorp Macquarie National.
Speaker 2:Yeah, I got into banking straight out of high school and joined the National Australia Bank. I was there for a couple of years and then I went overseas and travelled for a few years and I came back and joined Metway Bank, which became Suncorp Metway. I was there 17 years, went through retail banking and branch management and commercial banking and then into corporate banking and then after that I worked at Macquarie for about nine years or thereabouts so quite a few years in banking and then after that I decided I'd had enough and wanted to go and work for myself. So I started Altren Capital, which is a private debt and equity business which is basically lending money privately through my private clients to builders and developers.
Speaker 1:Yeah, so private lending. So you're using people that have been successful and done well. Is that what it is? You're basically just using their funds rather than bank funds.
Speaker 2:Yeah, that's right. Yeah, so what actually happened was when I left banking, my clients rang me and said well, you were lending money for the bank. Why don't you lend my money?
Speaker 2:So it was sort of it was by. It was really. I had no real particular strategic vision, it was just it, just. Yeah, it was really. I had no real particular strategic vision. It was just it, just it was. The opportunity was probably created through my clients continuing to ring me and engage with me.
Speaker 2:So I started lending their money and initially, you know, I had to self-educate myself and learn the trade.
Speaker 2:I knew how to lend money, but I didn't quite know how to do it in a private space trade. I knew how to lend money, but I didn't quite know how to do it in a private space. So I had to get out there and get to know lawyers and introducers and other finance people to create the business and very quickly I realised that the only real way you could differentiate yourself was not to take your mindset from working in the bank, where you had rules and regulations and criteria and policies. You had to really let go of all of those and and be a little bit more and think outside the square and, uh, look at a transaction on its own merits and, um, you know, make the rules up. I guess is what you have to do and you just got to believe in your own ability and if you think it's a good deal, do it rather than sort of overlay uh rules and policies and so forth so it was definitely a real eye-opener for us.
Speaker 1:The first time we were introduced to it and did it, alan and I were just talking a little bit before we started recording. Like I had no idea of like obviously you pay a little like your high interest rate and those types of things, but I had no idea of what would go into it to get it approved and going and I can't remember what the fee was, but there was a fairly substantial fee that we had to pay for. I can't remember what the name was. It was some sort of report that got done.
Speaker 2:Yeah, it would have been. We would have done a quantity surveyor report, we would have done a valuation. So every deal is different. But we don't because it's people's money. This is someone's money, whether it's their super fund or their savings. There is no margin for error. Yeah. So if you go into a transaction, you've got to have your eyes open and yeah, so there is a fair degree of due diligence that goes into it. But that just comes with experience, and if it seemed onerous it was probably well worthwhile in the end.
Speaker 1:Well, the report. We definitely got those things. But there was another report that basically just told us it was huge. I remember flicking through it and I've actually still got it and I still go back and look at it because it and even though that was five or six years ago um, it told us everything on that area which obviously was really valuable information for the person lending us some money.
Speaker 1:they wanted to make sure we weren't doing a project in an area that was going to fail or not have growth and all those types of things. But yeah, like it told us like roadworks that were going to happen, infrastructure that was going to go in shopping centers that were going to happen, infrastructure that was going to go in shopping centres that were going to get built it was unbelievable and I was like man, these people have access to some pretty good information.
Speaker 2:Yeah Well, because your private lending is to a large extent, sort of taken over where the banks were. So a lot of the activity you see going on in the development space now is actually private money, whether it's being done through mortgage funds or whether it be private lenders. But you'd be quite surprised. So for that reason, lenders need to make sure and they need to do their homework before they go into a transaction, to make sure that they need to do their homework before they go into a transaction.
Speaker 2:Yeah, so yeah, it can be perceived up front that it's a bit of an overkill, but that particular report is relevant to that suburb or that area so it can be used multiple times for other developments. Yeah, you tend to find a lot of private lenders will fall in love with a particular area. Yeah.
Speaker 1:And they'll dive in because they know what's going on in the area and they'll sort of perceive themselves to be a bit of an expert in that area well, mate, that report was exactly that for us, that we used it, did that development with you, but then we did go on to do a few other things in that area and it was only really through the confidence of that report that we were able to do that and we'd made money from some other projects so we didn't have to come back and do private funding on the other ones and they were smaller.
Speaker 1:But the other thing that really um, like I, I assumed that this sort of thing like when you hear about it is is for a lot bigger developments, but it's actually like I see a lot of um people on social media now, builders that are doing their own projects and, yeah, a lot of residential work is being funded by by private funds yeah, yeah, it's very much a relationship business as well.
Speaker 2:So, um, if you, uh, if you can build a relationship with a, with a private lender or an intermediary of a private lender most most private it's it's not easy to get direct access to a private lender. So you typically, typically, would you build as a typically build a relationship with a private lender broker or a private lender that has access to those private individuals and they'll then match that particular transaction and if it's a you know it's a small duplex, two townies or just a house and land and a refurb or otherwise, they'll match that transaction to that particular lender, because not every lender, private lender, is going to do 10 townhouses. Yeah, some of them have a limited capacity to fund. They might only have a couple of million bucks to lend. Yeah.
Speaker 2:Whereas other private lenders could have tens of millions.
Speaker 1:So that's why it's important for your builders to to build a relationship with a, with a good broker yeah, that has access to those private individuals, but also a broker that understands property development yeah, I think I talk a lot on the podcast, um about relationships, like, I think relationships are ultimately what gives people success, making sure you're interacting with quality people and people that are experts in what they do, and I think it's no different with someone like yourself. We're definitely keen to talk to you about another development that we've got coming up in the near future and I think once you've built that relationship and you you have a great experience, um, it's a no-brainer to sort of keep working with the same people and, as you said, like, you build those relationships and obviously it's relationships. People get trust and correct um. Every project gets easier and easier um over time. But um like what? What um like can but is private lending for anybody? Can anybody get involved with it?
Speaker 2:No, anyone can get involved in it, but you'll typically find, well, it's no different to the banks. Banks will expect if they're going to lend money or any lender will expect if they're going to lend money to you for development, that you've got some experience or that you've done it before or you've taken the time and energy to educate yourself. So if you're a little bit green, you may struggle, because typically a private lender prefers someone that's got some runs on the board and has done one or two and that can demonstrate a bit of a bio of what they've developed over time. It's not easy for a first-time builder to get money privately because private lenders don't typically want you practicing on them.
Speaker 1:They prefer you practice on someone else They've had their practice.
Speaker 2:Yeah, so it's preferred that you've got a bit of experience and you've got a bit of a bio on different sites and you've been able to demonstrate a history of performance, that type of thing. Yeah, so in that sense, it's not for everyone, it's not you know's not, it's not. You know, if you haven't done it before, you might find it difficult to uh. But it's not to say that you can't, but it's just.
Speaker 1:It just means that it'll be a little bit more challenging than if you had already performed elsewhere yeah, because I want to like, even though you, um, like you're getting the quantity surveying done and you're getting things checked, like you you'd want to see that they've priced the work accurately. Um, I know with ours, like we had to provide a full schedule of like program for the work and all those types of things. Yeah, um, because, like I bang on about that sort of stuff all the time like there's so many people in our industry that literally have their diary or their journal and they they just write in each day what's going on and they run around just flat out with their phone on their ear just trying to keep things organised. So I guess, back to that relationship thing, you want to see that the person asking for the private funding has a bit of a clue and is a bit organised. It would play a big part.
Speaker 2:Yeah, I guess any private lender is going to manage the program efficiently because they want to make sure that the project, there's enough money in the loan to finish the project so that you're going to fund it on a cost-complete basis and get progress inspections and QS and so forth. But that's really there. That's designed to just make sure you come through the other end and everyone gets a job done and it's a good outcome. Yeah.
Speaker 2:And that money doesn't go sideways or that you have significant cost overruns, or if you do, then they're recognised up front so you can work together and overcome them, because costs are obviously an issue for everyone. Yeah, but to come back to your relationship point, things do go wrong and you can have all the best planning. But circumstances change. The market can soften, costs can blow out, weather can chew up time. So if you have a good relationship and an honest relationship and you're communicating regularly with your private lender, the objective, or the key objectives for both the builder and the lender is the same they want the project to be finished and they want you to sell it for a good price and pay them back. Yeah.
Speaker 2:So everyone's aligned. But communication and the relationship is really important because not every project is going to go squeaky clean.
Speaker 1:Yeah, I can only imagine there'd be some horror stories out there. The other thing that was a bit of an eye-opener for me when we did it the first time was, um, like I'd until I obviously did that I'd only had normal bank finance and uh. But when we did the first one with you, like you have funds in there to cover interest repayments and then you have a period at the end of the project to cover, um, like just outgoings until the property's sold. There was just a lot of little things in there that made sense, but I just had never seen that done before.
Speaker 2:Yeah, a lot of it's by design, because it's about what's right for you as opposed to a bank will have a product and they'll squeeze you into that product and it's up to you to try and modify your behavior. A private lender will be able to generally design a loan structure that suits what you're trying to achieve. So, yeah, but yeah, most, you can either pay your interest or you can capitalize it, or you can. It's basically by design. You sit down and you negotiate with your private lender what you want and they say they say yes, no or otherwise yeah, and if it makes sense, it it works.
Speaker 2:Um uh, you know, in common sense prevails always, but it's about just tailoring a solution to the needs of your client.
Speaker 1:No, no, private loan is the same they're all different yeah everyone's circumstances are different yeah, so, and yeah, I'm sure you've seen a lot over the years of different situations. I think so, like what, what are like to give us a little bit of uh behind the scenes? Like what are the type of people that are that are lending money like? Are they other developers? Are they people that are just maybe sold up, business retired, like?
Speaker 2:um, all of the above, yeah yeah um, dentists, retired dentists, doctors, um, and you've got some, uh, some of property developers themselves, yeah, that know the property market, um, uh, yeah, there's, you'd be surprised. It's a real cross-section, and some clients, uh, some of my private lenders, will rely on me 100% as far as whether the transaction's a good transaction and how much money they should put into it, and so there's a fairly big responsibility there because they trust me and I make the decision basically.
Speaker 2:But I've got other lenders that they make 100% of the decision and I make no decision. I just basically put the proposal to them and they tell me how it's going to roll. So, but amongst your client and your finance professional there is a very good, solid understanding of property lending and that's why we do it. But a lot of the majority of private lenders have developed property themselves.
Speaker 1:Yeah, majority yeah, I'd imagine you occasionally get lenders that want to get involved in the deal, do they Like? They see an opportunity and they want to more than just lend the money? They might come up with an agreement that they actually have invested interest in it. Yes, yeah, yeah.
Speaker 2:Yeah, Yep, and in some cases a good example is 100% funding.
Speaker 2:On occasions I have done fully funded transactions for the right people with the right skill set and the right experience and they've got a good track record and they've got a particularly good proposal and they might be committed elsewhere with their capital and that's a project that they want to do and rather than wait for that capital, that other money, to be realised, they want to get on with that. So private lenders will lend 100% sometimes on transactions, but of course it's priced. They'll expect to participate in the transaction and get a little bit of the upside or some of the upside as well as an interest rate. But that's an example of where, for the right person with the right experience, there's opportunities to think right outside the square and do profit share transactions or, if you've got plenty of equity there or you've got the backing behind you, just a straight loan and you just pay interest.
Speaker 1:Yeah, so it's just completely deal by deal. You can adjust it and manage it to suit whatever requirements are put in front of you. Yes, so it's the biggest difference with private funding. It's really just a short-term thing to get the development built. It's not like a normal bank loan where it's for 20, 25, 30 years. That's right, it's just a bridge.
Speaker 2:Yeah, just a band-aid Get there, get the job done and get out. Yeah, because the pricing is more expensive than banks. Yeah, and that's partly because you've got to motivate a private lender to give you the money. Yeah, so you know, if you offer them 4%, they're not motivated, they'll leave their money in a term deposit or they'll put it in shares or something. So you've got to motivate a private investor to lend you that money and pricing is a way to do that. Your traditional bank borrowers, if they're used to bank pricing, they do struggle to make that transition into the private debt space because it costs more. But the real benefit of the private debt space is the agility. You can get in quick and get out quick. So, even though the pricing and you've got speed to market, you're dealing with decision makers you're not going up to credit and then, three weeks later, you find out straight away and you get an answer and you can settle quickly.
Speaker 2:Some transactions settle within days. But the ability to get in and out of a transaction, even though the pricing might be higher, you can sometimes be financially better off paying a higher rate and get on with it. Get in and get it done quickly and get out.
Speaker 1:I've realised now how beneficial that is, because up until that we did that first one with you, we'd done everything through the bank and it was always hard to get finance, especially being the builder myself, because they were treating us as owner builders and, thanks to that, as a massive risk. And yeah, just, and look, it did definitely take me a little while to get over that interest rate difference, but, like now that I've done it a couple of times, it's a no-brainer, like because what you say, like it's in and out, yeah, and you get it done, you sell the development, you make your profits, you pay everybody out and you move straight on to the next one yeah, what?
Speaker 2:um? What's interesting is if you, um, if you let's just hypothetically if you said, oh, banks are seven percent and private debt space is 12, for example, and that just a, I've just made that up, it's not the rate. So instantly you'd say, well, shit, that's expensive. But what I encourage all of my borrowers to do is cash flow it and look at it and quantify it in a dollar sense. So what does it actually mean in dollars? And, surprisingly, because of how it's funded and it's funded quickly, sometimes it's only on a project. It can be like $30,000 or $40,000. Yeah, sure, that's a lot of money, but if you're making $500,000 or $600,000, it's well worth it, and you're on to the next one.
Speaker 1:Exactly You're in you're dusted, you sell it, you move on.
Speaker 2:Private debt is an enabler. It just enables stuff to get done.
Speaker 1:Yeah, and you can do multiple at the same time, whereas if a lot of bank financing, they won't allow you any more finance until you've either sold 50% or 60% or 80% of the first development, or whatever the case may be. They want to make sure they're going to get some more money back before they give you more.
Speaker 2:That's right. Yeah, and they'll also get to a point where they say, look, we can't lend you any more money because, you've borrowed you know, $4 million. That's it. Yeah, you know we're not comfortable going beyond that. So yeah, there's that as well.
Speaker 1:Yeah, I think it's just a incredible tool and I wish I had known about it earlier in my uh in my career. But, um, and like I said, we're definitely going to be doing it um in the future as well. But it's like, the reason I was excited to get you on here is because, if people don't talk about this stuff, so like I see a lot of um and I know a lot of um builders and developers now that are doing this stuff and they're using the private lending but they don't talk about it and they're like a lot of people have this perception that it's it's either all funded from profits they made off past projects or it's family money or they have all these perceptions of where it's coming from. But, like I, I'd be pretty confident that, like 90 percent of builders you see doing one-off projects and um speccies and um even multi-rise units and stuff, like it's all privately funded.
Speaker 1:A lot of it is yeah, yeah um, yeah, and I just, I just think it's so exciting like to open, like hopefully I'm hoping a lot of listeners today listening to this or or reach out to you and um thank you get your expertise, like I know our experience with you, like you come very highly recommended, um, from a good mate of ours.
Speaker 1:But it was just such a smooth process and I think the other thing that was really like I had the mate of mine, craig, in my ear as well, explaining things to me. Yes, and that was another reason I wanted to get you on here today, like so that people can hear what you're talking about, because there was some things when we were going through our first time with you that I'd ring craig up and go, oh, mate, like is this right? Like, um, should I be signing this? Yeah, and like he'd taught me through, yeah, um, the process because great craig also does, yeah, he lends as well as develops that's right.
Speaker 2:Well, that's a very good example of and that's why he's a very good lender, because he he's he knows the mistakes. Yeah, he's a very good lender because he knows the mistakes.
Speaker 1:Yeah, he's very, very good at everything he does, but yeah, so I just think it's very exciting and it'll open up. I think there'll be a lot of people that listen to this podcast. It'll really open up a lot of a new pathway for them. Because I know I was just going through life Like my wife and I and we'd had a couple of partners on the way.
Speaker 1:We'd done a few of our own developments, but it was always like we could never keep going because of what we're just talking about, like we'd have to sell stuff and then like, depending on what was going on in the economy, like I remember for a long time there, like I had a just a normal a broker. I could ring about normal finance and he'd be like, oh yeah, no worries, that's that a no-brainer, just go and make the deal, and then you'd have something going in the economy and like a month later you could only borrow half of what you could a couple of months before, and so everything was everything. Like our financial success and future was really dependent on how the bank saw the market going, so it sort of restricted what we could do.
Speaker 2:And.
Speaker 1:I see private funding as it skips all that.
Speaker 2:Yeah, I think probably the best way to describe it a lot more common sense in private lending you can have a common sense conversation. You can pick the phone up, ask the question and usually get an answer within 15 minutes.
Speaker 2:Yeah, and if it makes sense and it's common sense, you're probably going to get a good answer, Whereas when you're dealing with a bank or a traditional lender, they've got policies they've got a procedure and they've got to follow the rules because they're regulated and they've got regulators overseeing how they lend money, and that everyone and if you don't follow the rules, well, you lose your job.
Speaker 1:Yeah, and a lot of checkpoints and backwards and forwards.
Speaker 2:Whereas a private debt space. You make the rules up as you go along, to suit the circumstances. Yeah, so it's yeah, in that sense it's just really common sense.
Speaker 1:Yeah, yeah. And so do you like, do you specialise in any particular sort of size project, or you do everything?
Speaker 2:Loan sizes vary from 100,000 to 30 million and typically land subdivisions, townhouse developments, speckies. You can do house and lands land banking.
Speaker 1:So you'd gain a lot of knowledge about certain suburbs and what's what's happening and that type of stuff yeah, yeah, well, you'd hope so, yeah.
Speaker 2:Yeah, it's important, um, it's very important. If you're lending money on a, you know you can be in one suburb and then 10 minutes down the road it's a very different dynamic, um. So it's really important that you know the dynamic of that area that you're lending money in and you just know what's going on in that area and what the councils are doing and how hard it is to get approvals and some of the challenges, the flooding, there's all sorts of issues that everyone goes through, that everyone knows about with property. So you really do need to understand the area that you're lending money in and where the services are.
Speaker 2:But obviously the hot topic at the moment is councils and funding. A big track of land that someone wants to develop if you know they can't get an approval.
Speaker 1:Yeah, I understand with our building jobs have put the last 12 18 months approvals are taking so long. Yes, um, so does all private funding, like the ones that we've done. We've had the land and we've we've only funded the development. Yes, um, is that standard. Like, or do you sometimes fund? Like, if someone puts an offer on a block of land, you'll fund all the approvals, the planning, the and the build, or?
Speaker 2:yep, it can. Can be that way. Yeah, most as I say, there's no, no transactions the same, but typically, um, a typical transaction is uh, a client will you'll fund the, the acquisition of the, the site greenfield. They'll then go away and pay for their approval. Uh, once they've got their approvals, they roll into the construction or the civil program and stuff. But that can-.
Speaker 1:Is that more common for a subdivision or a bigger project, or can that be done for a block of land with a speccy on it?
Speaker 2:Yeah, it can be done with a block of land. Yeah, if we're just talking about a resi block of land. Yeah, you could borrow 70% of a block of land and then roll into the construction. Depending on the end value, you could probably get 100% on the construction. Yeah.
Speaker 2:It depends where the market sits, but if there's an uplift there in value, most private lenders prefer to see 30% equity in a transaction and that'll be reflected in the pricing. You'll get a reasonable rate If you start to push the leverage above 70 and you're wanting 80, 85,. That's when you're going to get resistance and or, if it's a really good project, it's going to be priced accordingly.
Speaker 1:Yeah, so your interest would go up accordingly.
Speaker 2:Yeah, yeah, the cost of delivery because the risk is higher. So, but if you want to get a reasonable pricing outcome, the more equity you have in it or the more cash you can tip in, the cheaper the rate.
Speaker 1:Yeah. So what's some of the basic like, if someone is listening to this and they're like, right, I want to get involved with this, what's just the basics they need to have to be able to come to you and say, hey, I've got this deal, can it work?
Speaker 2:Yeah, well, if we just used a land subdivision?
Speaker 1:Well, probably most of our lessons would probably be speccies, speccy. A couple of like four townies or two, yeah, possibly a couple of townies, or maybe even a sort of higher end home.
Speaker 2:Yep, okay, so typically the information that I'd need to make a decision and normally you can make a decision within 24 hours your feasibility, so just your standard FISO can just be profit and loss format, or it can be as extensive as you want to be in Excel, so that just demonstrates your cost inputs and then what sort of profit you're likely to get, taking into consideration your cost of debt and so forth A little bit of research around the product you're going to build or you're going to sell.
Speaker 2:What are the comparables? Have you got some? Are you able to demonstrate a comparable product for that price point? Because if you're saying you're going to sell it for X dollars, helping me do my job makes my life easier. So if you can tell me which properties have sold for that price, I can go out and have a look around, because I do go out, we do go out and have a look around, because we do go out, we do look around, we do talk to agents and we do kick the dirt and so forth.
Speaker 2:So the more homework, the more work you can do or the borrower can do for us, the quicker the answer. And also it just demonstrates to the lender that the person borrowing the money has given it some pretty solid thought, a bio on the experience that they've had in the development industry, what they've built, how did they go? Did they make money? What was the profit of the project?
Speaker 1:Yeah, Does it help knowing a bit about their background as well, like what their experience in the industry or where they're coming?
Speaker 2:from Absolutely yeah. So they're not a resume but a bio sort of you know your background and so forth, but probably the most important thing is actually the face-to-face interaction, you know, just having a conversation and being able to communicate. Yeah, You're far better to have a good relationship and a good borrower than to have a bad relationship and a good property. I think. Yeah, that makes sense, yeah work through challenges, if you've got a good relationship or if you're going to get on.
Speaker 1:So you're like the gatekeeper. I guess they need to put stuff in front of you before you even consider. I'm sure you don't put every deal that comes across your table in front of your lenders.
Speaker 2:No, no, by the time it. No, it's my job to make sure it's a deal. And if I think it's a deal, then I'll take it to my clients, because if I didn't do that, I wouldn't have any credibility with my clients.
Speaker 1:Yeah, they wouldn't pick the phone up. Yeah, yeah, you're just wasting their time. So you want to make sure whatever you put in front of them is all possibly going to have a good outcome?
Speaker 2:Well you want to make sure it's going to be an enjoyable transaction and that you're not going to have problems. Yeah, because you don't want any problems. You do have challenges, but you don't want to go into a transaction doubting whether it's a good deal up front, because you can spend a lot of time. It's very time-consuming to manage challenging loans.
Speaker 1:So what's some of the issues? I would imagine, through COVID, you would have seen some challenges. You mentioned before that there's a lot of things that are out of your control. Issues like I would imagine, through covid, you would have, uh, seen some challenges like, if you mentioned before that there's a lot of things that are out of your control and markets and those types of things like if problems come up during the lending period, um, is it a matter of like picking up the phone, having a conversation, talking about what's going on and and sort of seeing if you can come up with a resolution to what's before the problem happens?
Speaker 2:Yeah, yeah, just open communication, Like a lot of like. I talk to my clients every day. My phone rings 100 times a day, but that's actually good because we're just talking about the project and what's going on and that's been delayed, or you know, just basically just checking in with each other and updating each other. It's not to say that it's not an overly. You don't want to talk every day, but it's just basically just open communication. So if something does happen, it's not a surprise. Yeah.
Speaker 2:We go. Yeah, we talked about that that makes sense and okay, well, now we're going to go down this path as opposed to stress about it.
Speaker 1:It is what it is. I imagine private lending is no different to banks. If something doesn't pan out or something goes right, people aren't going to want to lend that person or deal with that person again. You want to make sure you're doing the right thing by everybody.
Speaker 2:Yeah, things go wrong. In my experience, things will go wrong. The only time a relationship in private debt space deteriorates is where, if people aren't honest or or yeah, there's just the communications, just not there. Yeah, you know, you ask for something and that doesn't come. Yeah yeah, or I don't know. It's just, it's like any, it's like any relationship really. Yeah yeah, mate, don't know. It's like any relationship really, yeah, yeah.
Speaker 1:Mate, can we talk a little bit about the funds management? Yes, I personally would like to know more about that. It's something I'm interested in getting into Yep Like where? Because? Is that just recent that you've set that up?
Speaker 2:Yeah, it is only recent, Probably kicked off about six months ago. That's within the Denneroo Fund asset management. So it's a vehicle for sophisticated investors to invest in first or second mortgage loans.
Speaker 1:Yeah, so you were mentioning before we started recording there was a lot of hoops to jump through to be able to get a license to do that yes. So obviously you've got a great reputation, a great business behind you to be able to set that business up and move forward. So what's the benefits of that and how do you get involved with funds management?
Speaker 2:Well, the benefits of, I guess, as a borrower Are you talking about as a borrower.
Speaker 1:Well, I benefits of. I guess as a borrower are you talking about as a borrower?
Speaker 2:Well, I guess both. That's a good question. So typically, let's say, for example, if you had someone that wanted to borrow three or four million bucks or $3 million to do some townhouses, the Dinaroo Funds Management structure allows for you to bring together a pool, say six or seven or eight investors to fund that project, as opposed to finding one person with three million dollars yeah that's.
Speaker 2:that's that's probably the answer. So we can bring together our investors to to pool their money to invest in your project and we manage the financial side of that and pay everyone their interest and fees and so forth and progress payments and so forth. So basically, through our trust account, we're managing that program and reporting to our investors and there's a lot of rigor behind that and compliance that goes with it. But that's probably the principal difference is that we're not just going to Joe Bloggs and asking him for three or four or five million bucks and hoping he has it.
Speaker 2:We're able to go and spread the risk amongst a number of clients and get a quantum of money that we might not otherwise been able to get, because it's not easy to go and find one bloke with four million bucks, whereas it is easier to find someone that's uh, you know, that person is happy to put 800 in and that person is happy to put 500 in yeah, because it's all um, like it's it's cash, isn't it like that it's real money.
Speaker 1:It's not just someone saying, hey, I've got four million dollars worth of assets. Like it's it's actual cash yeah, that's right, yeah, it's.
Speaker 2:Uh, it's money, money. And the benefit of that structure as well is that we're mortgage managers, so we are managing the whole transaction on behalf of the investors, whereas if you're going direct to Joe Bloggs, it's his 4 million bucks. He calls the shots and we're just delivering the message. We might try and influence him, but at the end of the day, he tells us what to do. Yeah. Whereas in that mortgage management structure we are managing the transaction and taking responsibility for it.
Speaker 1:And so how do you get involved with that If someone's out there that's got a bit of cash? Is there a different criteria to how you can actually be an investor?
Speaker 2:Well, within our fund, every fund's different. There are retail funds. Ours is not a retail fund, it's a wholesale fund. So you've got to qualify as a sophisticated investor and there is criteria around that and that's typically income-based. You've got to earn above a certain level of income and you've got to have assets of, you know, disposable net, invest net assets of a certain amount and that's generally certified by your accountant, yeah and so forth.
Speaker 1:But yeah, so you, our investors, are sophisticated people yeah, and do you see more and more people wanting to get in that space? Because, like, there's a lot of sort of ways that money's not really working for people now?
Speaker 2:Yeah, yes, there is a tendency for people to want to invest in a higher interest rate environment. Our business is very much relationship-based, so we don't put an advertisement in the paper or anything like that, trying to raise capital. We're very much relationship-based, so our investors are our relationships. Yeah. And our borrowers are our relationships. Yeah.
Speaker 2:So it's, and we're probably fortunate in that because of our experience in the industry, we've built up a network of investors and a network of borrowers. We've built up a network of investors and a network of borrowers, but there's a lot of funds out there that they just put a, they advertise in the paper and people Get every mum and dad. Yeah well, there's different types of funds, but that's not our model. Our model is very much a relationship-based model.
Speaker 1:Yeah, well, that's how we got introduced to you from Craig, and generally that's the best way to have business, isn't it? I think so yeah. You want to have people that are getting recommended, and I don't know, someone can sort of vouch for you a bit and talk about experience and that sort of stuff.
Speaker 2:Yeah yeah, it makes life easier. Yeah, if someone sort of knows you or if someone's had a good experience with you, it sort of saves a bit of time.
Speaker 1:Yeah, not having to get to know each other, yeah, so like we'll start to wrap it up, mate, but like how do you see the market at the moment? So and I guess something we probably should have touched on before like this is just all Alan and I having a conversation, it's our own opinions, so you need to go and get legal and financial advice and all that type of stuff but absolutely, um, like how do you see the? The market currently sort of panning out, and so do you only fund in southeast queensland or do you? No, I do stuff in perth, do it.
Speaker 2:There's fun around australia. Actually I've done stuff in tasmania, perth, uh, north queensland, adelaide so you've got to be across a lot of different markets.
Speaker 1:Yeah, yeah, but like overall, like how do you see, see everything, sort of sitting at the moment.
Speaker 2:I'd say that at the moment it's no secret that there's some challenges out there with costs, and that's dissipating now. But for a variety of reasons it's been very difficult, challenging for builders or developers to make projects work and your margins of development, profit margin, has been under pressure and squeezed. So that's been a challenge. I think we're starting to see some improvement in that there's a big demand there. I mean, there's a housing shortage. Yeah, you know, land is expensive, so it makes it hard for projects to stack up sometimes. So look, there's some pressure points there, I think, for builders in the context of getting labour.
Speaker 1:Yeah, labour is definitely a tricky one. Well, not only getting it, just the price we have to pay for it is just, it's insane. Some of it.
Speaker 2:Yeah, but that's a symptom of the market and that'll come and go. Yeah, but I think it's like everything, it doesn't matter what you do these days, you've got to be good at it to succeed. You can't just go and buy a block of land and build a house and make money. You've got to be good at it to make money. Now, um, and it's our responsibility to make sure that, uh, you know, our clients come out the other end and make money, because, no, there's nothing worse than lending someone some money and they don't make money. It's unpleasant for everyone. Yeah, so it's really important that that our client's going to make money so we can go on and do another project together. Yeah, and we all make money. Yeah.
Speaker 2:There's no point, sort of. So yeah, we are the gatekeeper, because if it's not going to work, you might not want to hear it, but we don't think it's going to work, yeah, yeah, and we're not saying that for our benefit, we're saying it for yours as well, it's so.
Speaker 1:So Craig, who is a mutual friend of ours, who introduced me to Alan. I won't say too much about Craig. He's a private person. He's a very successful developer, but he was the first client, so we actually met him. He came to us. We built a house for him and his wife as a development and it grew to more than what they initially thought they would be spending and he's the first client I'd ever had that gave me a big pat on the back.
Speaker 1:He's like Duane profit's not a dirty word Just because we've upspecced this house and it's costing more than what we want to spend. Don't you think that your business shouldn't make money? And it was a good because I'd never. A client's generally not like that. Craig and I get on really well now we, like I definitely attribute a lot of my success to the conversations we've had, but I get a lot out of hanging around, like even just this conversation this morning, like talking to people that are doing something that you don't know much about and sitting down having a conversation and learning, and then I don't know.
Speaker 1:I'm the type of person needs to sit on things for a little bit, let it sink in before I have a true understanding of it. But I really appreciate your time this morning, mate, having a chat and just talking, giving us a little bit of the behind the scenes of how private funding works my pleasure. It's been enjoyable. Can people reach out to you if? They're interested. Certainly yeah. Where's best for them to contact.
Speaker 2:They can reach out to me via email. Alan A-L-A-N at altren A-L-T-R-E-N dot capital. Sorry, altrencapitalcomau.
Speaker 1:We'll, shay, can put some links and stuff in there. We'll cut your number out, mate, we don't want everyone bombarding you with phone calls. Shay can put some you got websites and stuff.
Speaker 2:Yeah, we do generally has a website. I don't. I actually don't have a website for altran, because I I'm one of those weirdos, I don't, I don't like to be too busy. You have a website. The mum and dads will ring you all day, but uh, yeah, I've tried to keep it uniquely boutique. Yeah, but the, but the, uh, the fund, our fund, has a website. Yeah, I'm on linkedin, as you, as you know, but um, but yeah, I've probably just been dragged. I need to get dragged into the the next millennium and yeah, you do have a website with dinner.
Speaker 1:Yeah, well, look, everyone that's listening. If you uh look, if you've got genuine questions and you're generally interested, um yeah, get in contact with alan please. Um yeah, don't, don't waste his time. But if you want to know more about it, um, we'll put up some links and that you can uh reach out and uh, before we wrap it up, mate, is there anything else you wanted to touch?
Speaker 2:on in your space. Thanks very much, I've enjoyed the conversation no, mate, I really appreciate your time.
Speaker 1:I know how busy you are and, um, look, I I definitely think there'll be some listeners today that'll probably reach out and probably realize from what we've discussed that it's maybe doing their own development isn't that far out of reach. So hopefully we've inspired some people to kick some goals and, yeah, I look forward to doing more work with you in the future, mate. Oh yeah, thanks for you thanks for your time.
Speaker 1:No worries. Well, guys, hope you've enjoyed this episode. Please make sure you subscribe, go to the new website, get on board with some merchandise and, if there's anything that you want to the new website, get on board with some merchandise and if there's anything that you want us to talk about on the podcast, and let us know, because we are on a mission to create a new building industry and we can't continue to do that without you guys supporting us and continuing to make us Australia's number one construction industry podcast. Cheers, guys. We'll see you on the next one. Are you ready to build smarter, live better?
Speaker 2:and enjoy life, then head over to live like buildcom forward slash, elevate to get started.
Speaker 1:Everything discussed during the level up podcast with me, duane pierce, is based solely on my own personal experiences and those experiences of my guests. The information, opinions and recommendations presented in this podcast are for general information only, and any reliance on the information provided in this podcast is done at your own risk. We recommend that you obtain your own professional advice in respect to the topics discussed during this podcast.