The World of Private Lending with Jeff Ball
I had the pleasure to interview Jeff Ball, an expert in the lending world with an impressive background in law, mergers and acquisitions work and financing work with some top Wall Street brands. Today, Jeff is the head of Vizio Lending, a company based in Austin, Texas, that specializes in financing single-family rental properties.
Jeff’s Journey in the Financing Industry
Jeff’s journey began as a corporate securities attorney in Silicon Valley. He later transitioned to investment banking in the tech industry, heading JP Morgan’s semiconductor investment device business. In 2006, with the foresight of an entrepreneur, he founded Ekona Homes, a company that bought and sold about 12,000 bank foreclosures during the financial crisis. This experience opened his eyes to a gap in the market – the need for a private alternative for permanent financing on single-family rental properties. This insight led him to establish Vizio Lending.
Vizio Lending’s Unique Role in the Marketplace
The majority of Vizio Lending’s clients are small-scale investors (owning between 2 to 50 properties) who have exceeded their personal guarantees. In such cases, this unique type of lending provides a highly-needed, flexible alternative in the private market. Vizio Lending specializes in Debt Service Coverage Ratio (DSCR) loans, enabling investors to qualify based on property-level cash flow rather than their personal income. Furthermore, properties can be held in an entity, protecting assets and sometimes even the borrower’s identity, a feature that is not feasible with Fannie Mae or Freddie Mac financing.
From Lending to Securitizing
Over time, Vizio Lending has financed more than three billion dollars of this product. Most of these loans are later securitized in the bond market or held by insurance companies. In basic terms, Vizio borrows money to lend money making money based on the spread between the borrowing and lending rates. This is commonly similar to how a bank operates.
Strategising for Risk Retention
In the securitization market, risk retention is a critical aspect to ensure that the lending companies aligning their interest proportionately with the loans made. In Vizio Lending, they typically hold the junior (first loss piece) bonds thereby ensuring thoughtful lending. This risk retention ensures that Vizio Lending cannot merely offload all the risks to other investors.
Capacity to Perform
Understanding how a lender scales their business is critical. Especially in a volatile market, it is essential to choose a lender that has access to permanent capital solutions. Vizio Lending is structured as a private mortgage rate owned by a large credit fund with several hundred million dollars in warehouse lines, further evidencing the company’s ability to operate on a large scale.
Debt Service Coverage Ratio (DSCR)
For Vizio Lending, the average DSCR across their portfolios is typically at 1.2. Any loans below this ratio are dependent on the borrower’s credit, Loan-to-Value (LTV) ratio, and the location and quality of the property.
Final Thoughts
Vizio Lending has paved its way by focusing solely on DSCR lending, offering a consistent product to the market aiding investors in purchasing buy-and-hold properties with utmost confidence. Jeff Ball and his team at Vizio Lending reaffirm the company’s commitment to helping investors grow their rental portfolios and achieve their financial goals.
