Blockchain Technology Archives

The REI Diamonds Show - Daniel Breslin | Kirill Bensonoff | Hard Money Loans

Guest: Kirill Bensonoff, CEO of New Silver, a groundbreaking fintech lending organization, is at the forefront of revolutionizing real estate investment. With a focus on fix-and-flip, ground-up construction, and buy-to-rent projects, New Silver provides investors with innovative financing solutions backed by cutting-edge technology. Combining his expertise in technology and a deep understanding of real estate, Kirill brings a unique perspective to the table, unraveling the intersection of blockchain and trust within the industry.

Big Idea: New Silver combines financial expertise with advanced technology to streamline the lending process for real estate investors. By leveraging blockchain technology and smart contracts, New Silver offers faster loan approvals and closings, reducing the time and complexity traditionally associated with hard money lending. The discussion revolves around the pivotal role of trust in real estate transactions amidst the rise of blockchain technology. While blockchain promises seamless transactions and tokenization, Kirill and Dan delve into the fundamental necessity of trust in every aspect of real estate, from lending to investment.

This episode of The REI Diamonds Show is sponsored by the Deal Machine. This software enables real estate investors to develop a reliable & low-cost source of off-market deals. For a limited time, you get free access here.

This episode is also sponsored by Lending Home. Lending Home offers reliable & low-cost fix & flip loans with interest rates as low as 9.25%. Buy & hold loans offered even lower. Get a FREE iPad when you close your first deal by registering here now.

Resources mentioned in this episode:

New Silver

View the episode description & transcript here:

New Silver Fintech CEO Kirill Bensonoff on Blockchain Hard Money Loans – REI Diamonds

Kirill Bensonoff & I Discuss Blockchain Hard Money Loans:

Exploring the Role of Hard Money Lending in Real Estate Investments (02:12): Unpacking the significance of hard money lending as a crucial financing option for real estate investors, offering flexibility and speed in transactions.
Demystifying Loan Requirements, Down Payments, and Interest Rates for Profitable Ventures (05:34): Breaking down the essential components of real estate loans, including requirements, down payments, and interest rates, while discussing profitability calculations to empower investors.
Effective Strategies for Strengthening Offers and Accelerating the Closing Process (17:01): Offering tactical approaches to enhance offers to sellers and expedite the closing process, ensuring a competitive edge in real estate transactions.
New Silver’s Dedication to Tailored Solutions and Building Strong Borrower Relationships (20:10): Highlighting New Silver’s commitment to providing customized solutions and nurturing robust borrower relationships to foster trust and long-term success.
Blockchain Applications in Real Estate Transactions (25:05): Discussing the potential of blockchain to streamline real estate processes such as property title transfers and asset settlement, enhancing efficiency and reducing transaction costs.

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New Silver Fintech CEO Kirill Bensonoff On Blockchain Hard Money Loans

Kirill, welcome to the REI Diamond Show. How are you doing?

Good, Dan. Thanks for having me.

Location stamp, I’m in Chicago recording. We have our office here. I’m at my home office. Where are you tuning in from?

I’m right outside of Boston.

For people who don’t know who you are, do you want to give a brief introduction about New Silver, what the business model is, and why that might make sense for fix and flip, rehab and rent type of investors?

I’m a technologist by background. We started New Silver in 2019. We’re essentially a Fintech lender. We think of ourselves as a Fintech, meaning that we have the financial part and the technology part. The financial part is, at the end of the day, we’re a lender for real estate investors. Our typical client would be somebody who’s doing single-family residential, fix and flip, ground-up, or buy-to-rent type of project.

We’re now in 39 states. On the technology side, what we’ve done is build a pricing engine that helps us value and underwrite deals, meaning you can go to our website, start the application, and finish the application in under five minutes. You get your term sheet, you get your loan pricing, and everything else. It’s a quick-to-market type of process. We’re working towards everything but right now, the majority of things are web-enabled. We try to make things convenient. That kind of convenience is our North Star if you will, and that’s what we’re trying to drive towards.

Let’s stay on the hard money topic for people. We don’t have a lot of hard money lenders on the show, and we’ve had some in the past, and we still do business with some of them. Thirty-nine states, you and I talked about the main markets that Diamond Equity, my company, invests in, which are the Illinois area, the New Jersey, Pennsylvania, Delaware, Maryland tri-state, quad-state area, and Georgia.

You told me that you’re in all of those markets. Some of the lenders we had on the show in the past, and I’m hesitant to say that because you might take this back to your lending partners and pull the plug, but we’ve had lenders who would start in Illinois and maybe then they like Georgia. I have one I still do business with.

He moved from Illinois to Georgia and stopped lending in Illinois. We had another nationwide lender as well who we still do close a lot of business with in the other markets, also pull out of Illinois. They did not like the foreclosure process timeline. Hopefully, that won’t be the case by the time our show goes live in 3 or 4 weeks. I did want to highlight that to point out as we’re talking now. You guys are lending in the markets where we have our offices for those who know who we are.

To your point, things do change. We pulled out of Alabama. As we talked before the show, I’m not an expert on underwriting and things like that. I know enough to be dangerous, but I’m not an expert in that. I’m not exactly sure why our underwriting guys decided to pull out of Alabama for whatever reasons. Certainly, the economy is rocky and the judicial foreclosure states, for some of them or maybe many of them, it’s a challenging process.

The Chicago, Illinois market is a fantastic real estate market to be a part of. We have expensive real estate here. The property taxes are high. The rents are high. Even on the low end, the price of the house is high. They come with a nice high-quality $80,000 or $90,000 renovation. I say it on the show often, business is abundant in the South Side of Chicago. Even in some of the highest-ranked crime areas, the houses will still sell if you do them right. I think it’s an overall positive for the real estate and the city of Chicago that investors are incentivized to go in.

They can flip a house and make $80,000 or $90,000 on deals I’m sending out. You’re going to be hard-pressed on the low end to make that profit in the city of Philadelphia. It’s probably $40,000 to $50,000 with a little less renovation but a little less profit at the end of the day. All markets offer the opportunity, but Chicago offers very large, it’s almost the size of a country, the size of the market here, we’re talking about 8 or 9 million people. It’s going to sustain, and there will be new lenders, and you guys are in the market.

Understanding Hard Money Loan Requirements

There are a lot of lenders who do stick around and love to do business here because the profits are here to be had. Enough of that for now. I’ll get off my soapbox here about Chicago and the underwriting. I’m sure for anyone who is considering a hard money loan, the first question they’re going to ask is, what is my down payment requirement, and what is the interest and points on the average loan?

The one thing that we do is we’re very data-driven. We tend to have a pretty wide range in what we charge folks, based on this pricing engine that I mentioned earlier and other things. In general, I believe the typical requirements are down payments maybe around 15% to 20% on the average of the total loan amount. Points are high 1 to 2.5 on the range, and our interest rate is from 10 on the lower side up to 12-something on the high end.

Do you guys have minimum loan terms, minimum payoffs, or anything that people should be aware of?

It’s typically a twelve-month term. I believe $100,000 would be the minimum for the loan amount. Our average loan size is a little bit higher. If we go back even a few months, it was probably around $300,000 or $350,000. In the last 2 or 3 months, it has gone up to maybe around $500,000. With the market and the way that it is, there are different project types to be had.

I want to add one thing on the lending side. Where we’re good is on the ground-up construction. We’ve built a nice product there, and we have a lot of folks coming back to us. I believe we’re differentiating what we can do there, and we have more abilities to do things on that end. Obviously, fix and flip as well, but that’s where we shine.

Profit Expectations For New Construction

It’s funny. I find that to be something I’m interested in, going back 8 or 10 years. I’m a passive investor in quite a bit of new construction industrial products around the country, and I’m bullish on that. Personally, it’s always been existing houses that we’ve done our renovation on. It’s not a limiting belief because we have such a vibrant business in that space, and it always made sense to me. I’m lacking when it comes to ground-up new construction, and I hear numbers like $350,000, $300,000, $500,000.

These investors who are doing this must be making good money. I imagine they’re not going to borrow $400,000. Do you have any insight on their profit expectations on a $500,000 loan or more if it’s new construction? What should an investor expect to make on new construction for completing a project if they’re going to bring a loan to you and it’s going to be safe enough for you to fund?

We do have a profitability calculation that we look to. In our experience, and to be on the safe side with the market the way it is now, we like to advise people. We could do a loan for somebody that’s doing a lower profitability than this, especially if they’re experienced and we’ve worked with them before, but we like to advise people to plan for at least a 30% profit off of all their expenses, and everything else, and holding costs, and all of that. That’s just our advice. We would do a loan with somebody that’s experienced, and they have a solid project, and maybe it’s a quick turnaround. It also varies a lot.

Some markets like where I live right outside of Boston, it’s a fairly expensive market. I’m sure some of the markets outside of Chicago and many other areas are. What I’m seeing anecdotally on my own is there’s a lot of ground-up construction going on where the older stock is being taken down and rebuilt with a massive mansion that’s five-plus bedrooms and 5,000 or 7,000 square feet, and they’re selling for millions. The profit margin there is very healthy, but it also takes some expertise to acquire one of these.

You have to find the right stock to work with, and be able to build something. This is a high-end build, so I presume there’s a lot of capital that goes into it, and then being able to hold onto it, because maybe there’s not a buyer that’s willing to put down $4 or $5 million that’s sitting on the sidelines and waiting for you to finish this house. Maybe you get lucky, there is. I know some builders locally, and all of them have gone through where they built something, it’s a beautiful piece of work, and they’re very proud of it, but it’s been on the market for twelve months. There are no buyers even in this tight market.

I vacation in New Jersey on the coast, Avalon and Stone Harbor, it’s a 7-mile island. We’ve had our eye on the properties out there, being in the real estate business since we started going there. We were looking at oceanfront property. It was out of my price range personally, but I think $6.9 million was the asking price, and it was a year on the market, and they sold it. I forget what it sold for, it was right around $6.9 million, and I’m wondering what is that builder’s meditation practice to deal with the patience of being on the market for a year without a price drop?

I was able to take a lesson from that. We were spoiled during COVID, 2020 or 2021, it sells in four days, a week, and two weeks, and then the market changed in 2022 and 2023, and all of a sudden we’re all panicking a little bit if we’re getting up to 21 days or 30 days on market. Having some patience, this is what a more normal market operates a little bit like it does now since I’ve been in the business since 2006, where it’s 30 or 45 days on the market, you’re going to sell it. That’s not the year that the $7 million property took to sell, and maybe that’s how the expensive price points work. They have to have that patience. It’s not a discount product, you’re looking for a very unique buyer to fall in love with that location, the build, the design, and everything else.

You’re right. If we’re going back to COVID or even pre-COVID times, right before COVID, where things were flying off the shelf, it’s different now. I also keep getting blown away by how profitable the real estate business could be for the people who are doing it right, and have a process around it, and they’re thoughtful about the whole thing and have the patience. Prices are continuing to go up in most places even after the rates are what they are. It’s been two years of rocky roads, but we’re still seeing healthy profits, and things are happening.

Where Most Hard Money Loans Are Happening

On one hand, I’m watching the inflation figures and I’m like, “We need the prices to go down,” but then, on the other hand, I don’t want the prices to go down when I’m holding the bag on a dozen properties or more. I want the lower interest rates to stimulate things, so I’m finding myself fighting both sides of that. I want the prices to go down, but not the real estate prices, but the real estate prices are exactly what’s keeping the inflation high at the moment, and I’m okay with that because we’re still all making money, the music continues to play. Kirill, do you have any insight, in the last 6 to 12 months, around the country, by the state, where are you seeing the predominance of your business grow? These $500,000 average loans, where are they taking place?

Our biggest state for originations was Florida for quite a while. It was Florida, followed by Connecticut, and then, this is going back to maybe 5 or 6 months ago, things have changed since. It’s still the Southeastern. We’re good along the Eastern Seaboard, that’s where the majority of our business overall is. It’s the Southeastern states, but now, as winter turns to spring, we’re seeing some pickup in the Northeast a little bit as well. We’ve had quite a few deals come up in California. At one point, California is still a very expensive state. We’re a little bit better in inland California versus the very coastal, the most expensive areas.

I don’t know that there are a ton of opportunities in the coastal areas at those prices, maybe there are, I’m not too familiar, but a little bit inland, where regular people live, that’s where we operate. We’ve seen stuff there. The Eastern, sort of the Northeast, as well as the Southeast, continues to perform fairly well. Midwest, we’ve done a lot in Tennessee, and certainly it’s not a secret. A lot of places in Tennessee saw a lot of growth over the last couple of years, but we haven’t traditionally done a lot there. In the last six months or so, we’ve seen an uptick in that state.

Tennessee and Florida are both interesting states with no state income tax, so they are going to continue to have that as a main draw to go to that market. You start at a certain size, and the growth can be more impactful to the bottom line for an investor who buys 1, 2, or 3 houses and holds them. Maybe Florida had more inflation along the way, and it feels like a little bit more of a risky market if I were going to buy, and I did buy 1 or 2 a year or so back for myself, a riskier market to hold the property long-term, especially if I factor in the cost of insurance in Florida. It’s a big problem, it’s expensive, and it’s killing a lot of deals.

Tennessee, I don’t know what the insurance is, but it does not have that reputation amongst my national commercial real estate investor friends, as being a major problem to get property insurance. Tennessee also had lower prices per square foot in a lot of neighborhoods, a lot of areas, a lot of the cities, where your ability to get in and cashflow and hold that property might have that long-term potential. I’m bullish on Tennessee. I think Tennessee is a great market to do business, and we’ve done well there on several deals that we did in the last year or so out there.

How Fast A Hard Money Loan Can Close

Let me switch gears again back, for the underwriting process. If anybody was going to use New Silver, what is the timeline to get to closing? A lot of times with the hard money lender, if I’m on the selling side of a deal, I have some hesitation anytime there’s a hard money loan funding that buyer. I’m going to ask them first, “Do you have the cash and you could go refinance, get the hard money?” Sometimes they can, and that makes their offer more desirable in my eyes if I were going to accept it.

I would take a cash offer, oftentimes $5,000, $10,000, or $15,000 less than a competing hard money loan offer because it’s not a guaranteed sure thing. They need 7 days, they need 14 days before they can give you the green light. The hard money lender can and will step in and say, “We’re not going to do this deal, you need to renegotiate the price.” I’m now back at the same price I should have taken the other one.

A lot of time, I don’t know if discount is the right word, but we’re looking at the cash offer with a lot more confidence. Going into a hard money loan, knowing how fast they can close, and knowing how fast there’s a solid loan commitment on the line is important for me as a seller when I’m evaluating a buyer. I think it’s important for anyone who is a buyer using hard money. How do we strengthen the offer in some way when we’re communicating that to the seller? You could package the answer directly as, how quickly can you close and how quickly can you give the commitment?

On the commitment side, we say we provide a term sheet in five minutes, and we close in five days. On the term sheet side, that is 100% of the time. If you’re conditionally approved by our software, this is what I’m good at, this is what I was involved in originally and continue to be involved in, the software side of things, the technology side of things. We built a pricing engine that tries to evaluate the borrower and the asset, tries to figure out what’s the value, which is much easier, and also what’s the value after the repairs are done, and provides a number.

If the potential borrower is happy with the number that they see on their screen, they can go on and essentially go to a full-term sheet that’s a conditional approval term sheet. That takes five minutes or less. We have closed in five business days. We don’t do that every single time. That usually is, from what I understand, from our team, usually because of other parties involved. We could be ready to close quickly. We do require an appraisal, but not in every case.

We’re able to waive the appraisal requirement upfront, and we could do the appraisal post-close. We have that ability if we need to close quickly and if the property’s right. To answer your question, we can close as quickly as five business days. I don’t honestly know what our average is. We never extend an offer, a final commitment, unless we know for 100% that we’re ready to close this, we’re ready to fund it. Not every single person, not every single project gets approved. I don’t think I’ve ever heard of us telling our borrowers to go back out and renegotiate the price.

If we decline somebody for some reason, whether it’s a project or their personal background or something like that, then we would typically keep it at that, and they could look for another partner too. We help people too. We have relationships, and if it’s something we can’t do. Maybe the project itself is outside of our wheelhouse, where we focus on single-family, 1 through 4 families. We’ve done a few smaller multifamily, but that’s not our wheelhouse. We’ll go out and help people find it. We try to keep the relationship, we try to do the best we can to accommodate folks. They come back to us or spread the good word about New Silver.

Blockchain And Real Estate Investment Model

We covered it from the borrower’s perspective. Maybe we could talk about the business model a little bit because I think that part of the reason I was excited to do this episode is that you guys have this unique model, and the model is there’s blockchain packaged into the business, which was interesting. You and I were talking beforehand, it may not necessarily be completely necessary for the way the model is set up, but we were also talking about people coming to the table with cash who want a return on their money too. That would be part of where blockchain would be interesting.

I saw the website, I read up on the blockchain. In my mind, I envisioned buying crypto or something, or something. I go in, I load $25,000, and I get these tokens, and then they’re going to pay out interest to me, a passive investment, was how I envisioned it. That wasn’t exactly how it’s set up, but maybe you could touch on what would be the opportunity and they’re more interested in New Silver because maybe they can passively participate in some of these deals.

I can touch on the broader blockchain and why blockchain, whether it’s today or five years from now, and then talk about our opportunities to invest with New Silver. Part of our capital source does come from the blockchain. What that means is this is not technology that we built ourselves. To give maybe a broader overview of the blockchain, most folks are probably familiar with Bitcoin and Ethereum and things like that. Blockchain is essentially a collection of nodes or computers, that talk to each other over the internet, and value can pass from one wallet to another.

This is all done in a digital, cryptographic format, meaning that your wallet is a public key, and you have a private key that allows you to execute transactions, but the other people on the network are not supposed to know what your private key is. Your wallet is your address. If I want to send you value in Ethereum, if I want to send you Ether, knowing your wallet address, I could send you whatever amounts that I want. Other things can be done. That’s one part of blockchain.

The other part is a smarter way of doing business. There are things called smart contracts, which are essentially programmed resources that have certain rules. Think of it as a business rule. If A happens, do B. That kind of thing. Those contracts are immutable, typically, so that once they’re deployed, first of all, everybody can see exactly what they should do. There are security audits, code audits, and things like that. They shouldn’t be able to not do what they say that they do. In reality, there are hackers, malicious actors, bugs and flaws in code, and all that. What they’re supposed to do and what they do, sometimes there is a variance there.

Nevertheless, it’s come a long way. Bitcoin, was in 2011, I believe, when it was born if I’m not mistaken. It’s been over a decade at this point, and things have come a long way. There are many different blockchains. There’s first generation, second, and third layer, they call them to layer one, layer two, etc. Blockchains built on top of other blockchains. There’s a lot you could do with it. I think blockchain holds a huge promise, in my view, specifically for assets, and real estate is the biggest asset. There are huge opportunities.

Is it today that all of these things are available? Probably not because real estate, as your audience probably knows, is a legacy industry. It’s been operating since we learned how to build houses, and our modern way of title and all that has been invented. Every county and every town has its own little something. Even to this day, we don’t have digitization of records across the board. Blockchain is the next step. We’re not even at the internet age everywhere. We’re taking the next step. Where I think blockchain could help is the settlement of value, for example.

This could be true for any asset. It could be stock, it could be debt, it could be real estate. One use case that some folks try to do, and it may be in some pilots or some small use cases somewhere, it’s not mainstream yet, for example, closing on a real estate purchase is an expensive, time-consuming process that takes multiple parties and multiple days to settle for the title, for the deed to be recorded, and all that. With blockchain, theoretically, you could do it much faster, with the help of smart contracts and the ability to send value. For example, if I’m the owner of a house, that could be a token sitting in my wallet, an NFT token, which could describe, This is the property located at this address and whatever the deed would describe.

Closing on a real estate purchase is an expensive, time-consuming process. Blockchain could theoretically make it much faster.

That would be my legal contract to this piece of land, a piece of property. If I’m selling it, I would receive value, or there would be an escrow that’s a smart contract. Most likely, value would be sent into that. I would send my deed into that. That takes minutes. Once the smart contract knows that everything that needs to happen has happened, it’s going to be released, the value will go to me, and the deed will go to the buyer. That could take minutes or a very short amount of time. Again, the laws and the facts on the ground do not necessitate this to happen in the way that I described, and in a couple of minutes here.

This will take tons of technical, legal, and other work. I do think, at some point, that could happen. People talk about, for example, another interesting use case with stock trading. I don’t know if folks know, but when you’re buying and selling stock using any platform, like Schwab or Robinhood or any other platform when you buy equities, they’re not like, this is something that’s done on an electronic exchange. It takes three days, at this point, for them to settle. For your broker to get the actual equities in their account, I’m not even sure. I don’t think that they deliver them in paper format. It’s all electronic, but they still deliver them. It takes three days to settle.

Some of them, they’re going to T+1 now. It may take one day to settle, but with blockchain, it could take minutes to settle once this is exchanged. The other big thing is you get rid of a lot of the intermediaries too. There may not be a need for title insurance in a real estate transaction, for example. If you have an automated way that people trust and believe that this works the way it’s intended, and everybody uses it and it’s programmatic, it’s code that was written once, and companies support it, developers are involved, whatever, but there’s not necessarily a need for title insurance because, if I have the token in my wallet, nobody else can physically have that token. That’s impossible because only one of the tokens is allowed on this blockchain.

Whereas, with a traditional title, I don’t know the intricate details, but from what I understand, there is that, again, the time before the recording, and if it’s recorded, but then somebody else comes in and says, “This is my property.” You now need title insurance so that everybody can be made whole, and the transaction can be reversed, or people can get their money back. Some of the intermediaries can be removed. That removes a lot of the costs that you and I, and everybody else reading, probably pay when they do transactions, and that could potentially save everybody money and lower the cost of doing business. There are thousands of use cases, probably, from big to small. These are probably some of the bigger ones, maybe some of the most challenging ones to implement. There are smaller things.

People are already using blockchains. For example, a company called Ripple, they’ve been doing this for quite some time and they’ve partnered with Western Union and other money transfer agents. Blockchains are being used now to send money to these companies across countries. There are a bunch of other use cases that are live now as well. We may not even know about some of them because they’re in the background. It’s the same thing with us.

We’ve partnered with a company called Centrifuge, and they built their platform to essentially tap into blockchains and do many different things. The core of it is that the blockchain enables investment into a securitized pool of loans. Private securitization is the closest example that I could put on this. If you think of an MBS securitization that happens in the public or private markets, they’re similar. We have a trustee who oversees the whole thing. We have different roles.

There are senior investors and junior investors, two tranches. Folks, organizations, and institutions can invest money into this pool of loans that New Silver originates and earn the return. Senior earns a fixed return. Junior earns a variable return. We also have a fund we call the New Silver Income Fund, for folks who don’t want to deal with blockchain, which is the majority of folks these days. We take care of all of the technical details.

If you want to invest in that pool of loans, we’ll take US dollars, convert them, and do all of the stuff, hold your tokens for you. When you want to pull out, we’ll sell them and return your funds. It’s an income fund. It’s a quarterly income payment. Your principal doesn’t change. You get an income return. The fund has done well. It returned a little bit over 17%, net of fees, in 2024. We’ve been doing this fund for about two years.

How New Silver Achieves 17% Returns

I’m curious, how do you get 17% if I’m only paying 10% to 12% interest and a couple of points? There’s not much money left over for New Silver if I hit 17%. Are you guys bringing in alternative financing? I think before, you had mentioned, maybe it was before the show started, $25 million in loans. Is that like $5 million from the income fund and $20 million from a lower-interest source to get some of the arbitrage?

It is a leveraged fund. We do use that, which comes from our partner that’s a crypto DAO, a decentralized autonomous organization. It’s a decentralized organization managed by its members. They vote on things, etc. It’s a different process from going to a bank or an asset manager or someone like that. This is what’s left over between the cost of capital on the senior side and what we sell the loan into the pool at. The percentage that I mentioned, that’s what’s left over for the junior. The fund invests in the junior piece, and that’s where the majority of the yield is.

Is that the junior piece coming with another level of risk than the senior?

When we lend capital at New Silver, the borrower puts in an average of 15% or 20% or so of the loan amount. That’s their equity. The junior, and then the senior. Junior is essentially the second loss. The borrower equity would be the first loss. Junior would be the second, and senior would be the last. Risk comes with reward, and that’s why the returns have been nice.

Risk comes with reward.

Do you expect similar returns through this year?

We closed Q1. We had a 4% net return, exactly 4%. At this rate, it’s 16% annualized. We’re hoping to be around the same. I think it’s reasonable to expect around a 17% return, like we did in 2024.

Do you happen to remember the exact amounts for each quarter in 2023 to give us context on whether Q1 2024 was up or down?

I do not remember, unfortunately. We did have one quarter that had a little bit of a lower return, I remember. That was because the junior wasn’t leveraged enough. We had a lot of junior capital come in, and there wasn’t enough usage on that in the quarter. The return was a little bit lower, and I don’t remember if it was the first or the second quarter, but I can get you that information.

It’s interesting. We talked about buyers coming to New Silver for hard money loans because it’s quick to apply, and we can get to settlement quickly. We talked about investors coming in on the other end of the transaction, in a sense, which is interesting because, a lot of times, like, I pay my lenders two points and 10% interest. It’s safe, it’s a first-position mortgage. There’s no other leverage coming behind it. I don’t care if I make $100,000 on a deal or lose $100,000, which I’ve done on deals.

Trust And Tokenization In Real Estate

The lender’s getting his 10% interest, no matter what. We’re coming out of pocket, and I can’t say it’s a guarantee, but it comes with my implicit personal guarantee, and I come out of my own pocket to pay them off with the interest if I have to. If you throw in the leverage factor there to get you to that 16% or 17%, I’m sure we’ve piqued some people’s interest on the call. Regarding blockchain use in real estate, I want to touch on that for a few minutes if we can.

Here’s one of the things, for me, that everything boils down to, tokenization, meaning it’s akin to shares in a company. I’m buying shares in a company. We’ve already had this, we’ve had it forever. It’s nothing new. We attached a new name to it, getting around currency creation laws. Normally, you have to have a very strong military, some land, and a government to put together a currency, and Bitcoin came and shattered that. There’s now a list of, I don’t know how many currencies that are out there.

For the sake of real estate, there’s another company that we did a case study on a few months back, like a crowdfunding platform, and they’re using blockchain. You’re buying into this $400,000 property. Somebody is managing it. There are going to be some payments coming out according to the number of tokens that you own. It’s no different than if there are 1,000 shares in a company.

I bought 200 of them, I own 20%. It’s no different than that, other than the clearing and record-keeping of the payments is going to be a lot more seamless. I can probably scale up from 1,000 to 2,000 to 20,000 to 10 million and sell them off in smaller pieces and then do investor relations among all of these 10,000 or 20,000 or million investors that are in my token. What I noticed, that I didn’t hear anybody talking about, is this all still boils down to trust, Kirill.

You put your money in PNC Bank. Why do you do that? You may not consciously be aware, but you’ve chosen to trust them with your money. You don’t have to trust them if it’s a quarter million dollars or less, you have to trust the U.S. government in that instance to cover your loss under FDIC insurance at 250. If you have 300 in there, that other 50 is an implied trust of PNC Bank. If I go into a Charles Schwab investing account and I want to buy shares of Google, I’ve made two choices, two investments of trust, if you will, one in Charles Schwab, being a platform that my money will be there and they’ll hold my share of Google that I bought.

A second implication of trust is going to come in where I trust that Google is going to continue running a company. They have the money in the bank, they say they do on their reports to the SEC, and so on. That’s the same thing you’re going to run into in crypto in a real estate context. It can sound like, from the outside, I know it has sounded that way for me, like, we’ll have tokenization, you’ll click a button, and you’ll get money for the settlement like no.

You’re going to go through a process, and the person who’s going to give you the money is going to see if they can trust you enough to make the loan, which is exactly what you’re doing in your underwriting process. This all still boils down, it’s like REITs in the ’50s, ’60s, and ’70s, they were nascent, they were like blockchain and real estate now. The trust grew, and through the ’90s and 2000s, REITs were a fantastic place to have money.

When the rates went all kinds of ways in the last little run, the REITs, maybe a lot of them, didn’t pan out so much, but you still had to have the same trust in that specific REIT, you would in the share of Google or New Silver is going to have in Dan Breslin if Dan’s borrowing $600,000. It all boils down to trust. You have to run a company, and you have to be a trustworthy component of the economic machine for this to work. It’s not free money falling from the sky, which, during this Bitcoin rise over the last decade, there has been what seemed a lot of free money falling from the sky.

I agree with you completely. I think the promise of Bitcoin and other cryptos, and now, to take a step back, we’re not a crypto company. We’re a fintech. We think of ourselves as a technology-enabled lender. We certainly go through the fairly regular process of underwriting, though tech-enabled. I believe we do things faster, more efficiently, and more conveniently for our borrowers. At the end of the day, we still have humans, we still have a company, and all of that stuff. On our capital market side, the blockchain is a technology enablement. When people invest, these tokens are not like Bitcoin, they can’t be moved or sold or any of that stuff.

On the capital market side, blockchain is really just a technology enablement, not a business in itself.

They’re there to represent your share, your investment into the pool of loans. That’s all it is. I think, to clarify, but on a theoretical point, I agree. Crypto, as we all know, has gone through its own challenges over the years. There’s been bear markets, there’s certainly been fraud. We all know the FTX case that was in the news, with the founder getting sentenced and all kinds of stuff going on. I don’t think that we’re in that day anymore, at least in the US, where you could throw something on the blockchain and call it, “This is a crypto, this is a blockchain company.” I think that you have to have something behind it. You have to have a business, you have to have trust.

Though the premise of blockchain, and I think there’s still plenty of people that believe it, and I believe it to a degree, I’m a bit more of a skeptic now, after all the different things that have happened through the years. I still believe the tech is solid. Down the road, we’re going to see more and more of it. People are going to use blockchain as their backend operations, business-to-business type of stuff that we, as consumers, will never know is even out there. We’re going to use the app or whatever, and it’s going to be a blockchain backend to it.

Going back to the premise, which was trustless value movement, the idea is that you have two wallet addresses. We don’t know who we are. I want to send you value, and I’m confident that if I type in your wallet address correctly, you’re going to get it, and then you’re confident of the reverse of that. That simple process is perhaps workable, but to integrate that into the real world, where you have all of the regulation, all of the complexities of thinking about real estate, certainly other sectors, having the trustless, anonymous relationship does not work. You have to know who the people are.

Aside from technology, there are humans. I think the blockchain industry, also has woken up to that. I was reading about this company, I don’t know much about it, but they’ve created a newer way of, I’m not going to say the name because I don’t want to promote something I don’t know. It’s essentially a hedge fund on the blockchain. You buy their token, and they essentially use some arbitrage. They buy perpetual swaps on the blockchain against another currency. They say they return something like 30%, per yearly yield, some 30%, or something like that.

I don’t know how long they’ve been around, again. This is something that works, but that immediately made me think of the issues that other blockchain companies have had, where it’s almost like it sounds great, you buy a token, but you don’t know what’s going on behind the scenes. Is it a pyramid scheme?

Are they giving 30% to the next guy while you’re the last one out like there’s nothing left? We don’t know. This new company I was reading about seems to be more transparent than the last ones that went under. As to your point, everybody should do their own diligence. If you see an investment that doesn’t show, there are people behind it, you can’t call anyone, I would not advise doing that investment. Who knows what that is?

If an investment doesn’t show that there are people behind it, doing that investment is not advisable.

Blockchain is like a technology grill. A lot of perception or judgment was suspended by a lot of people because this technology came with money attached to it we could see the price of Bitcoin going to astronomical numbers, just like it’s doing now. I honestly don’t follow the price. It came with more controversy and more pop culture appeal than we might’ve seen when other new technologies were introduced. If we go back to the mid-’90s, we had the dot-com bubble, and the technology was, “We can get on the internet, and it’s going to change the world. It’s going to do all these wonderful things.”

We had the bubble, and the bubble exploded. That doesn’t change the fact now, I’m sitting here 25 or 30 years later, and I’ve spent an inordinate amount of time designing my website and having a dot-com for multiple avenues of our business. I still use that technology to make a lot of money from that. It’s almost like DocuSign, blockchain in a sense. DocuSign may not have had this same cultural appeal and allure that Bitcoin had, but how much better is the world now that we have DocuSign?

We are, in a sense, executing contracts, six-figure contracts or more, 100% on DocuSign. The laws have had to change, in certain instances, for them to be considered enforceable contracts. It’s along those same lines. It’s dot-com technology. We have DocuSign technology, and here’s the blockchain technology. I think there’s a place for it inside of viable, operating business models like we’ve had all the way along. It’s like Pets.com, however many other dot-coms that went bankrupt immediately. There was no viable business model.

There were no high-caliber decisions being made by a group of talented people like there were at Amazon.com through the ’90s, which still exists to this day. They had durability because there was a business model and smart people at the rudder. Maybe as a conclusion here, before we shift gears to the end of our episode, I would say that if we’re going to invest money in something or someone, we better be cognizant of the caliber of decisions that are being made, ideally, in my opinion, by people whose faces and names I know, and I can make a call and get in touch with them if I’m going to invest money before I send that money off.

I know I can’t do that with Google or Amazon or a litany of stocks, but I don’t put my money there. That’s my latest observation on blockchain technology, it’s effective, and it’s going to be useful in a variety of things. I don’t know if it deserved the amount of fanfare that we gave it over the last four years, but I think that’s come with the fact that Bitcoin had a price, and we could see that appreciate, and it became a bit of a gamble in real time versus simply a business model.

It was driven by the speculative markets and people making money, and it seemed people were making money all around on this stuff. There was definitely more than one bubble in this, but if we look back to dot-com, we had the 2001 bubble, with Pets.com or others. I’m pretty sure a lot of companies haven’t come back from that.

The same thing here, but at the end of the day, DocuSign and other great businesses, tons of great businesses, Zoom that we’re talking on were born, and they use the infrastructure. I believe the same will happen with blockchain. The one potential detriment that’s making it more difficult is the financial component of it because there’s value in money being moved, and there’s a lot of regulation, and there’s a lot of danger in that. It will find its place. It was too soon. I do think that in the near to medium term, we’re going to see more and more of it.

Best Real Estate Books And Podcasts

Nice. Kirill, you’re an interesting guest, coming from more of a technology background than a real estate background. I’m curious if you have 1 or 2 books, or maybe a podcast or some other source of information you might recommend to me and the real estate community here.

Good question. I wasn’t ready for that one. As far as podcasts, because that’s what I’ve been in, I’m a news junkie, I think, in the last six months, I’ve spent a lot of time listening to various news analyses of macroeconomic and global political things that are unfortunately going on these days all around the world. I listen a lot to The Economist magazine. They have both podcasts and an app, or a paper version if you like.

That’s what I’ve been in. I haven’t read a book in the past six months, to be perfectly honest with you. I’ve been thinking about what is it that I should read, and I’ve picked up a copy of a business book called Built to Last. That one I read many years ago, and I picked it up and looked through it to remind myself, that it’s all great stuff. I think that’s one of the books I remember from a decade or more ago that I read it. I think it’s so relevant now. It’s crazy how you pick something up years down the road, and it’s still very relevant.

I like looking through. I thinned out my personal library significantly, probably 50% of the books are going to the donation bin, but it was amazing to have that experience. I’m looking off-camera at some of them now, as you described, where I pick up some of the books I read, and the thing that came to mind for me was, that these were the things that helped me build the life that I have today.

Kirill’s Advice For His Younger Self

I could see some of the things I underlined, that it’s how I think. It’s normal operation now, but it’s like, this is where it came from. I can’t believe it, because if I think way back, there was a time when I didn’t know any of that, and I didn’t have the results that were in my life. Crown jewel of wisdom, Kirill, if you could go back to when you were eighteen years old, you were getting started back out in the world again, with everything you know now, what would you share with yourself then?

When I was eighteen, I got to think back to that.

20 or 21.

First of all, invest in real estate. I’d probably be a lot wealthier now if I knew this back then. Buy Bitcoin the day it comes out.

That’d be a good one.

I’m only kidding. I think investing in real estate is certainly great. It’s proven itself over the ups and downs of this country and the world in general, most likely, but specifically in the US. This is a great country. I’m an immigrant, I love where I live, and I love the country. I think that people want to come to the U.S. It’s not a place that is ceasing to amaze, and there’s a lot of land, there’s a lot of opportunity for people to come here, and build a life for themselves. With that, real estate is needed. I think real estate is an awesome space to be in. I think investing in yourself, reading great books, listening to podcasts, learning as much as possible. If I was spending less time going out to bars if I was 21.

Investing in real estate is certainly a great investment. It has proven itself over ups and downs.

You’d be both.

I do think that investing in yourself is super important.

Where can readers go to get more information about the things we talked about?

NewSilver.com is our website. If you’re interested in speaking with me personally, we can perhaps put up my socials or my email, happy to share. We have the lending side that you can find very quickly. The New Silver Income Fund is for accredited investors. That’s on there as well.

The Kindest Thing Ever Done For Kirill

My final question, Kirill, what is the kindest thing that anyone has ever done for you?

That’s an interesting question too. I don’t know about ever because I think I’ve been fortunate to have many kind people around me. I want to thank my mom for giving birth to me.

Perfect. Thank mom. I enjoyed the show here. I appreciate you coming on and sharing with us.

Awesome, Dan. It was my pleasure. It was nice to be here with you.