Private lending is reshaping real estate investing—and few people understand that landscape better than Chris Lemons of Creative Financing Solutions (CFS), a division born from the powerhouse leadership team at Alcova. In this episode, Chris breaks down how today’s investors are navigating fix-and-flip opportunities, why wholesalers are disrupting inventory, and what smart lenders are doing to responsibly scale private lending while revitalizing communities. From risk assessment and borrower vetting to the explosion of DSCR and rental-focused products, this conversation gives mortgage professionals and investors a front-row look into the new era of creative financing.
[David] Listeners, I’m excited to have a guest on who is affiliated with one of my other clients, Alcova Mortgage. You guys have heard me, we’ve had them on before, but they have launched a private lending platform, and it’s something that we’re going to be talking about today. And joining us today is Chris Lemons of Creative Financing Solutions, shortened up to CFS. Chris, good to have you joining me here today.
[Chris] Thanks for having me, David. I very much appreciate it.
[David] Well, I know the guys at Alcova, we refer to them as 3M affectionately. They are very pleased with what you’re doing. And did I characterize this this as more of a private lending platform?
[Chris] Yeah, that’s a definite adequate response on that. That’s what we would describe it as is private money. Yeah, sure. Yeah.
[David] And at this point, I mean they have some investors to put in, but they’re able to do quite some really, as the name the name of the company suggests, creative financing. Really looking forward to getting into it. But first of all, I want our listeners to get to know you a little bit. You’ve worked with Alcova for a number of years. Tell us a little bit about your journey to where you’re at today.
[Chris] Sure. I’ve been with Alcova for 14 years, myself and 3am. We all come from the same small town, so it’s definitely, it will always be a family to me. And this was an exciting move. You know, I spent my early career in the FDIC world, never had thoughts of being in the TPO world or any of this jargon, and then this unfolded, and it’s just a great next chapter.
[David] Well, I love the fact that you guys all played. I mean, for those that know the Alcova story, and we need to put a link in the show notes here so you can go learn about Alcova because it is a great story. There’s three guys, and we go to all y’all just to play sports together, and then three of them together formed the company, and then you joined in later, and now you’re running their hard money or their private lending division. So kudos to you for what you’re doing and all of that. You know, let’s start talking about some of the strong points of the current real estate investors that you’re working with. Most people associate this type of lending with the fix and flip market. Is that accurate?
[Chris] That is, and that seems to be where we found out I guess we put our running shoes on with that. You know, w e when we started this thing, it was going to be a different model where we were thinking about brokering out different items, and because there’s so many pieces over here. Once you get into this world, you can jump into fix and flip and DSCR and weird funky commercial lending spaces, all kinds of fun stuff. But we realized the wider we cast the net, the more we weren’t getting in tune with what our real borrowers needed. So you’re exactly right. That space is designed for fix and flip, and that’s where the prime, you know, group of our borrowers come from. You know, I’ll I’ll work with folks that do 30, 40 flips a year, and then have some that do two and three a year. Scalability is the key. That’s what they’re looking for, is the ability to grow their business in the right manner, and we’re looking for borrowers that have the same, I guess, conservative mindset as us that want to grow their portfolio, make the money, but do it in a proper fashion, not outgrow themselves or oversaturate things.
[David] You mentioned DSR. I believe that stands for direct service credit.
[Chris] Debt service coverage ratio.
[David] Coverage ratio, that’s right. And how do the two different?
[Chris] So DSCR would be for obtaining short-term and long-term rentals, things of that nature, something that doesn’t need rehab, people that want to get into the VRBO, Airbnb market, anything like that, or long-term rental. It’s just a nice way to finance those kind of purchases, you know, to be able to tie them up in a business entity name, LLC, S-Corp, what have you and on the fix and flip side, it’s a way to modernize and regrow communities. You know, we always love the word gentrification, but you know, there’s sometimes there’s a negative connotation there. I don’t feel that way. I, you know, I appreciate gentrification when it comes to revitalizing communities and providing inventory. You know, there’s something special and something awesome to be said about turning properties that are unusable, uninhabitable, you know, things that on the conventional side we say we’re like, well, this isn’t FHA eligible or USDA eligible. Well, that’s fine for now. Let’s make it that way. Let’s create this as true viable inventory.
[David] Yeah, we’re all familiar with uh the the Chip and Joanna Gaines is when the fixer upper and now such a popular program, so that’s brought so many people into the market. How big is the market? How many investors are out there looking to enter the fix and flip? It would seem because of the success of that program that that market is getting crowded.
[Chris] It it is, but the great part about that, and it’s weird to say this, the fall-off from that was very rapid. And if you work with a company kind of like what we did, and we’re not reinventing the wheel here, you know, we do find ourselves still practicing the Alcova messages of showing you a better way home. We want to show folks a better way to invest. What we try to stay away from is exactly what you’re mentioning. You know, I love the thought of watching HGTV and feeling like I can do this, but the reality is I can’t, you know. And I’m not sure of your capabilities, David, but I don’t know if you’re gonna, you know, do a full teardown on the inside of a house. But we can help folks do that, you know? And it’s amazing there are a lot of folks that were really turned on by that process because of the major programming that had this giant push. But then there were the investors who are like, wait, I am fiscally sound, I am credit worthy, and I can assemble a team around me so I can do this in a real fashion. But then you saw the folks who got in over their heads based on the fact they’re like, hey, I have 300,000 lying around. I’m gonna find a house in Texas because that’s what Chip and Joanna do. Well, it’s not quite that easy.
[David] Well, not quite that easy. And I think that starts as a lender, then, lending that it starts presenting some of the risk. How do you sort through the people that you should be the investors that you’re lending money to that are doing the fix and flips?
[Chris] Sure. It’s it’s actually a much easier equation than, and it’s crazy to say this, than your typical conventional mortgage process. You know, this it’s…
[David] From the lending standpoint it is, certainly.
[Chris] Yeah, this can be an exception-based business. But you have to look at your portfolio as a whole. How do you want those exceptions to look? Are those exceptions made as one-offs that are super high risk, or are they exceptions made for folks that you’ve done 15 to 20 flips for? And this property is just a little unique in that capacity. That’s different. But over here, the qualifications are very simple. It’s three things: cash, credit, and experience. All of these deals are structured under a business form entity, as we discussed, you know, LLC, S Corp, C Corp, we don’t really care what it is. But the members of those have to be personal guarantors. You want people that are credit worthy. You know, you want to look for things that are common sense items. Have you had a default on a conventional mortgage? If so, you’re not the right fit for us. You know, that’s the credit piece, the cash. You know, if myself and you we formed an LLC, we’re gonna have X amount of money individually. But if we pull it together, you know, in the form of personal accounts and business accounts, we can make that capacity go further. That liquidity all of a sudden grows. So instead of let’s say we find a great deal and we have one house, well, what if this person’s selling three houses at the same time? It’d be great if we could get those and have the crews with boots on the ground right then. We can do that amongst a shared partnership. And the experience piece is the other.
[David] You know, we’re I would assume that’s where the biggest risk is, is that people that are getting into this who can I’ve got a I own a skill saw and I think I can pound a decent nail and they get in, and it’s I mean Chip and Joanna, like the true professional, makes it seem it’s so easy. Oh, but yeah. A lot of people think they have the skill set and then they get in way over their head. I’m assuming that’s where you have run the risk, is it not?
[Chris]: It is, and our experience piece is revolving around the fact that if you come to me and you’ve done, let’s say, three flips on your own with your own money, you’ve already put skin in the game, uh, you’re showing me the HUDs. I’m seeing what you bought this for, I’m seeing what your hard to soft costs were on these projects and what your actual return was or your exit strategy, then let’s talk. Let’s grow this thing. But if you’re coming to us for deal number one, we’re not gonna be the ideal fit there because we don’t want to start splitting hairs and finding a way to structure a non, I guess, performing loan-to-cost kind of deal for you just to say, hey, we’re helping you out on your first deal. The assumption of risk needs to be on the investor themselves, they need to really cut their teeth elsewhere, and most likely that means on their own money. Because you know, a lot of folks aren’t going to touch these kind of things for a first-time flipper. You know, I don’t care if you have a great community bank relationship. We all do, you know, we love our community banks.
[David] Yeah.
[Chris] But even the community banks, when they were getting really hungry for this kind of work, it was COVID era because that was a great time for the flip market to just boom. Well, all of a sudden the board of directors gets together and say, you know, hold on, how many fix and flips have we financed in the last six months, or how many storage units do we have on our books? It’s time to pull back the reins here. So we can mitigate that risk by just vetting everyone appropriately. And it’s a quick process, but it’s also a thorough process.
[David] Yeah. So in that process, describe what you go through.
[Chris] So once you know folks apply through CFSgo.com, they’re going to be asked the basic questions that we just covered. Number one, tell us about your business entity. Let’s find out about that number one. What’s its name? How many members are there? And then you’re gonna give us your basic stuff, your articles of organization or incorporation, what have you, your EIN letter, anything that we need to see to verify this is a real viable entity in the state that you’re working in. Secondly, is that liquidity piece. I always tell folks, number one, show me what you want to show me. And people are always thrown back by that. They’re like, well, you don’t want to see my tax returns? No, this is all about money on hand. I want to see checking, savings, money market, real funds. You know, we need to see that because we want to know that if this project derails, you know, you and I have spoken before about this. Let’s say you’re doing a great flip and a septic caves in. Well, unfortunately, that wasn’t in your initial scope of work. You need to have that buffer and that discipline to know I’ve got to put a septic in before I can sell this house, and then the experience piece, I just want a track record, REO schedule, because I want to know, you know, David, have you done five flips? Have you done 10? Well, hold on a second, you’ve only done one, but you also own 30 rental properties down here. There’s a way to find comparable, I guess, experience. You know, that the word creative was intentional. You’ve got to find ways to make this work for good borrowers.
[David] Yeah. Let’s talk about the market buying this the larger market here. You were talking as we were getting ready for this podcast about wholesalers coming in and really messing up what was opportunities for the average investor. Talk about that.
[Chris] Yeah, it’s one xof those things where I understand the need for and I get it. You know, we’re all, if we weren’t into capitalistic endeavors, we wouldn’t be having these conversations. But there is an ethical way to do things and a non-ethical way to do things. Not saying that all wholesalers are running and I don’t know the best word here, but an inopportune book of business, that there are folks that are doing this. And, you know, I always think of people that are non-geographically linked players in this industry. You know, I don’t have business in Colorado, but let’s say I found a little pocket of Colorado and I wanted to run there and scoop up all these houses that are decrepit and deplorable, knowing fully well that I’m looking at industry trends saying, hey, this is gonna be a hotbed market here soon. Well, I’m gonna buy all of these up and I’m not gonna touch them. All I’m gonna do is tack a fee on top, and it’s gonna be a heinous fee. You know, I could have maybe have gotten a house for $25,000, but I’m gonna turn around and sell it to you for $70,000, and then you’re gonna start the flip process. So, what that does is while it does churn income amongst people in your community, they’re really not doing that. You know, it’s expanding the process and muddying the waters to where you’re not having folks put as much quality into their work because they’ve already $50,000 in the hole before they’ve started their flip. That’s the kind of thing we’re seeing the most of. We’re seeing people ruin comp values, you know, things that used to be easy to get off market, now all of a sudden have these swollen and inflated values, and it’s because wholesalers are coming in and just pumping, pumping, pumping, and just grabbing these properties up. You know, in Virginia we saw this happen recently. You know, over the last five years, Virginia now has casinos. And that was something that when we were, you know, I was a kid, we never thought was going to be feasible. Well, then you look at a community like Danville, Virginia, which, you know, was ripe for the picking in the 70s and 80s when all the textile mills were there. Well, the textile mills go away, the city falls into a state of, you know, trying to resurge but constantly having battles. Well, you had people coming in from the Northeast, and as far as California, once they found out Caesars were coming there and they were buying entire city blocks. That’s great if you’re going to do these on your own and sell them for viable homes, but if you’re not going to do anything and just let them sit on the open market and fall further into disrepair, it doesn’t seem like an even playing field. You know, you want people to take pride in what they’re doing in markets they know.
[David] Yeah, let’s talk about the inventory that you see out there. Are there a lot of them?
[Chris] Well, it depends on the market, you know, and I’m sure that you’ve seen this as well, and I’m not sure what you what you know reports you’re looking at, but obviously my career has changed. I spend my entire life now in the investor world. So markets that used to be ripe or actually were lacking in inventory, let’s say two years ago, now are so flush, but you oddly enough, you’ll see an up tech uptick of quote unquote flippers in that market. They’re not true flippers. These are still wholesalers coming from out of state and not just out of state. We’re talking international money as well. There’s so many REITs that are forming internationally, specifically out of Asian countries that are filtering their way through California money and then coming in and buying up all of these parcels of land and all of these buildings. So inventory itself is stagnant and sitting there because flippers are coming in, they’re doing what we would consider maybe middle of the road, a lot of times subpar flips, and it’s making it where the Zillow listings, the realtor.com listings, you know, it’s churning all this crud inventory to the top while viable inventory is kind of flushing down to the middle. That’s what we’re seeing as far as an inventory shift. There still is a true need for inventory. There are communities that desperately need things that fall into the first-time home buyer market, the working class home buyer market. You know, we’ve seen, you know, you’ve been in the industry as long as a lot of us have. We’ve watched the first-time home buyer buyer price go to this ridiculous amount. You know, who would have ever thought we’d be talking about 250 to 300 as a first-time home buyer home? But that’s where we’re lacking. You know, the communities are hurting for those kind of homes. We want to find a way to offset the rental market. You know, it’s okay to have a strong rental market, but you also want to have a strong homeowner market there. And that’s where inventory seems to be just really shaken up at this point. And we seem to still have a number of folks, a multitude of folks that are like, we need inventory. That’s why this business expanded the way it did. We introduced it to realtors and we’re like, hey, you’re telling us you need inventory, and you’re telling me you have all these class A and general contractors that need work. Let’s talk about it. Yeah. And it’s creating inventory that matters, I guess.
[David]: Yeah. And I mean, it it’s a real opportunity to literally fix up and improve communities by and large. Are there is there much in the way of money incentives from the cities or the local municipalities?
[Chris] We’re seeing some of that. You know, it depends on the market. Like for us, because our focus is mainly in the southeast, we’ve seen small pockets in North Carolina, small pockets in like Birmingham, Alabama area, where it’s like, well, hold on, we’ll give you tax incentives. You know, we’ll give you that buffer to ride through. Because when it comes to flipping, you know, you want to enhance and make the best product possible, but you also want to pay the least amount possible out of pocket. You don’t want to pay back taxes, you don’t want to pay all these costs that you didn’t consider on the front side unless it was a project you knew you were getting into. So a lot of these communities we are seeing incentives, whether it be tax breaks or, you know, I don’t know, anything like that, and then mortgage companies that are like, you know, Alcova, we put we love to partner up there and say, hey, if this thing ends up getting financed through Alcova, you know, you might be you get a lender credit on the backside. You know, we can work on this. You know, if the coming soon listing is showing up on alcova side with our network of realtors, let’s incentivize this. Let’s go back to the glory days of that, kind of like ground up construction where, you know, if you finance through XYZ mortgage company, you get $2,500 off. You can still make those things happen.
[David] When you look at the regulatory aspects of this type of lending, how much easier or complicated is it from the regular a-paper world that we normally deal in?
[Chris] This is where it gives me anxiety when we started this company. The easiest way to say it, it’s the absolute Wild West. But that’s where companies like ourselves, and there are others like us, you have to self-regulate. You have to still act like you’re in the conventional mortgage world. You still have to pay attention to things like you don’t want to red line, you do want to make sure that you’re serving the underserved communities. You want to help people regrow their hometown. You know, that’s where the HGTV reference comes back into play, you know, like the hometown shows and all this stuff. There are people in the background that really care about this kind of thing. So if you’re balancing out a solid book of business, attracting quality flippers, and not, you know, you can check your conscience very easily over here. You can say, this just doesn’t feel right. And that is the positive side of the lack of regulation over here. If you just get a bad feeling based on things you’re seeing on paper, you don’t have to do the deal. You know, it’s just it can be it can happen or it can not happen. It’s very black and white over here.
[David] So the regulatory environment, I’m getting the feeling, is not near as stringent as uh but it having Al COVID being a paper lender, they are already very sensitive, as most lenders are, to the regulatory environment. So they’re applying some of that there, which is smart.
[Chris] We’re applying that as well. You know, what folks don’t seem to understand about this side of the space, you know, when you hear hard money or private money, what you think of is, you know, a group of folks getting together in town and hey, we pulled together $2 million. Let’s just run the gambit on folks. Let’s get this going, let’s pound them with fees, let’s have inflated interest rates, you know, let’s make this happen, which is great for a small book of business if it’s just you and some friends together forming a pool of funds. But on this side of the industry, there’s so many organizations like you know, the National Private Lending Association, the American Association of Private Lenders, that we all believe in this side of the business and we want to treat this more like the mortgage space where it, you know, if you self-regulate, you don’t invite regulators in. It’s just like when you’re a kid. If you don’t do something bad, you’re not going to get in trouble. You know, it’s just about policing yourself and really monitoring your book of business.
[David] What do you see as far as the growth of this market? Are we and we were talking about saturation before? Are you really seeing saturation? Or are we, do you still see a lot of growth opportunity for other companies to get into this space?
[Chris] There’s still a lot of opportunity in this space. You know, for you know, we’re coming up on year four now, and I still can’t count the number of folks that I’ve seen emerge since we started. And we’ve even seen companies fold since we started because you have to really you have to do what we did early on. You have to learn quickly from your mistakes, find out what works for your works for your book of business, and refine that process. So there is still a tremendous amount of opportunity, though. I mean, loan requests come in multiple times an hour. You know, it’s not like that’s the one thing I do enjoy about this. I mean, amongst a lot of things, but the one thing I really enjoy is the deals are always there for the picking. And that’s where, you know, and 3 a.m. will agree with me on this. We’ve had this discussion, we’ll always cherry pick. And it’s because we want a clean book of business. Because, you know, worst case scenario, we have to foreclose on someone. And we’ve had this happen, you know, very little. We have one of the lowest default rates in the industry, but we keep it that way by constantly policing our book. Let’s see what we have going on here, checking in with our borrowers. That’s the other thing that’s fascinating about this world. You know, we’ve had folks come to us that are like, you know, and I’ll ask them, why didn’t you come to us? You know, we’re at the time we’re a very small fish in a giant pond. You came from us from companies that have $1.9 billion in lending capability. Why us? And the simple answer was because you answered the phone. We can still talk to you. We didn’t become a number. And I remember when we were forming CFS, you know, talking with the guys, that was the big thing is service has to be king. And I was like, I don’t know, guys. I’m the one attending these conferences. I’m hearing this is just churn and burn. Stamp it, send it out, let’s get rolling. But there has been a methodology that’s really helped. Service-based, you know, you know, servant-based culture yields huge results. And we’ve seen that work tenfold, just being present in our loans, being present with our bars. You know, if I wake up in the middle of the night and I’m like, I have a weird feeling about that property, I’m gonna check in with those folks tomorrow morning. Without fail, it’s either a hey, yeah, I want to share these pictures with you of the progress, or yeah, we ran into a little bit of a snag. That’s how we stay proactive, is just maintaining the lines of communication.
[David] Are you finding a lot of the leads coming to you are realtor-based, or is it word of mouth?
[Chris] It’s a healthy mix. You know, we’re very blessed in the fact that Alcova has worked so hard over the years to grow to such an employee population. You know, when I started with Alcova, there were less than 45 employees, and now over 500 in all of these states and all these amazing people that believe in their communities, that’s where the lion’s share of my business comes from. And then realtor referrals come right after because if there’s an REI group, I can go just hand out some hats and talk with people and listen about what they have going on in their local communities. Sure, let’s do it. That’s where we’re seeing it the most. And then the word of mouth thing really helps because what you’ll find, and this goes back to what you’re asking, is there’s still opportunity in the space. Absolutely, because I have flippers in the same town. I mean, we’re talking towns that maybe only have a population of 200,000 people that are churning and burning with me and cranking out flips, and without fail, I’ll get a phone call from someone that is their you know, pseudo-competitor, but everyone’s friendly in this space, it’s very cordial. Everyone wants to share why they’re successful or why they’re failing at what they’re doing because there’s so much of this business.
[David] Yeah. It’s a fascinating business. It’s done real well for the Alcova guys at 3AM. And you’re enjoying the journey. Is it something that are you seeing more and more loan officers that are traditional sense want to come over to your area, or is this unique enough where that transition from regular mortgage lending to what you are doing at CFS, even a good idea?
[Chris] Well, I do get a lot of folks, you know, because obviously I I’ve been very lucky to get to meet a lot of great LOs and VPs over the year. A lot of production folks that are awesome at this. And what usually about once a week, someone’s like, I would love to come over and do what you’re doing. And I’m like, you know, obviously it makes sense. This is a very adventurous side of the business. But when you have someone like myself and the rest of my team that works with me, we all came from the conventional world. None of us were private equity, none of us were hard money. So it is almost um, there are times that you’ll feel that tension in your chest and your head hurt when you’re like, oh my goodness, from a compliance perspective, this is crazy. Or from a regulatory perspective, this is nuts. But if you can get rid of that hat for a few minutes and see that on paper this all makes sense because it’s all really about analyzing just the character of a person based on their paper. And once you get to know them well and then grow, that’s when the personal relationship really fosters. So, yes, we’re seeing a lot of people still wanting to come over here. And I don’t think that’ll slow down. Well, we’ll see what the refi market starts to turn into here over the next couple of months. And you know, Chris. Yeah.
[David] So I and as we wrap this up, are there any unique skills that you possess that you think you’d want to share with others that are saying, if you’re going to get into this business, you really need to have these kind of disciplines, these skill sets. What would you say?
[Chris] Number one, talk to everyone. I know that seems like such a basic thing to say, but every single time I talk to someone new in this space, and it happens multiple times today. Like this morning, I had a call with an AMC that is one we use, and they only do the hard money side of things. I will learn something new every day. It’s such a fascinating world. And if you look around at everything around you, you realize that there are so many types of lenders and so many companies that build up this giant infrastructure. You know, when you’re like, wow, that doctor’s office over there, that’s new, that looks big. You don’t know what it takes to get there. That is a whole world of lending, or something like a funeral home, or and but then you find out just flipping a house is so much different than anything in the space. So, number one, talk to people at all times. Secondly, pay attention to your book of business, see what your community is doing, see what the need is. You know, there’s always some uh niche fit that needs to be filled, and I think that’s why I applaud 3 a.m. so much for even having the audacity, best word I can think of, to try this. You know, what people in the conditional mortgage world were like, let’s give this a shot. You know, we I remember when we started, I was just like, guys, in six months, once if this fails, I need to make sure I still have a job at Alcova. They knew early on this was going to be huge. This was going to work, it was going to make sense to do this kind of financing. Because truthfully, as long as you’re positive to people and good to people throughout this process, in a perfect world, these end up becoming Alcova mortgages on the back end. The new buyer is already pre-qualified at Alcova because it is a lead generation opportunity.
[David] It really does generate leads for the company. Thank you so much for taking time to be with me today and sharing this. I think it’s more and more lenders need to get open up a division of this nature in their companies. I think it it’ll serve their communities, and it also opens up opportunities for so many other uh regular loans that they can do as a result of this.
[Chris] Yeah.
[David] Great to have it with you. Thank you so much.
[Chris] Thanks, David. Anytime I appreciate it.
[David] Have a great rest of your day.
[Chris] You too.
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For more than two decades, Chris Lemons has helped clients navigate the financial landscape through expertise in conventional, investment, and commercial lending. A 14-year employee at ALCOVA Mortgage, he also heads Creative Financing Solutions, the company’s private-money division dedicated to innovative funding strategies.