Unique Lending Platform for Due Diligence Deposits Launched by Startup
- Aug 09, 2016
After years in the real estate industry, in various roles, Columbia University graduate Randy Modell and British realtor Ben Cohn have seized a one-of-a-kind opportunity for a new business: loans for due diligence deposits. That is how they created BCRM Group, a startup looking to fund earnest money deposits for real estate purchases within the United States. The company aims to help buyers sign contracts and close on properties by offering immediate financing for soft deposits at a reasonable price.
After they had already borrowed money to friends for this exact purpose, it was Cohn who realized there is room for more. “The idea really came from Ben, who said: ‘Randy, I think there’s a market for these types of people who are very talented, they’re trustworthy, they’re great real estate operators, but until you don’t lock up a deal, you can’t go up to banks or equity partner. I think there’s a market out there for people who would want to borrow our money to lock up deals,’” Randy Modell told Commercial Property Executive.
How Does the Whole Process Unfold?
Well, a lot faster and easier than you might think. “We’re not a large corporation with a lot of red tape. We move very, very fast, very easily. We have the money in an account, just ready to be wired to you,” Modell said. The role of BCRM Group comes in as a buyer negotiates the contract for purchasing a property. “This can take 30 to 45 days and maybe half-way through they contact us, they show us a copy of the contract, we review it to confirm that it is 100 percent a due diligence contract and then we lend them the money so that they can proceed to their 90 days or 60 days due diligence period,” Modell added. That is the beauty of the lending platform. The fact it doesn’t “go hard on you”, as its founders put it. The formalities of obtaining a loan resume to checking the authenticity of the contract and making sure the 10 percent deposit is safely put in an attorney’s account or in an escrow account.
How Much Does a Loan Cost?
When it comes to the risks of this unique business, Modell and Cohn only fear fraud. The clear clauses in the contract should prevent any losses, though. The day the due diligence period is over, the buyer returns the loan. So, how much does it cost to loan money for a deposit from this startup? “We’re lending you the money and we’re earning a return. One percent a month. If we lend you $100,000, it’s $1,000 a month to borrow our money, plus the success fee at the end. And it’s good for people who are borrowing our money, because it allows them to lock up deals without having to use their own money,” Modell explained. Together with Cohn, they describe the loans as “cheap”.
So, why would investors work with BCRM Group for fast, simple, cheap loans? “They would choose us because there is nobody else in the arena doing what we’re doing,” Randy Modell told CPE. The target group for the company are entrepreneurs who are at the beginning of their career, experienced investors who don’t have immediate funds available to tie up every deal being considered, financial investors with a preference for delaying the internal rate of return clock by funding deposits off the balance sheet and exchange buyers who do not have the required funds to secure an exchange property.
Four Loans per Week
Currently, BCRM Group has a $5 million lending capital and can easily add $5 million more from their investment partners, if needed. Randy Modell and Ben Cohn have already set their goals for the next six months. “We’re hoping that we’re going to continue to grow and make three to four loans a week. That is a little bit aggressive, but six months from now, we would like to be in a place where we would be making three to four loans a month.”
In the end, the strong point of what seems an idealistic opportunity for investors looking for liquidity is not the fast and simple lending process, but rather its uniqueness in the world of real estate finance where finding something that hasn’t already been done is challenging, to say the least. “What’s really special about this is that we tell people about this and they say… ‘What a great idea.’ Nobody’s doing this. There’s going to be demand for this,” Ben Cohn concludes. BCRM Group officially launched in mid-July and comes to meet the wave of new real estate investors who are young, talented and looking to increase their portfolios.