EPISODES
Episode 26.
Lucas Whaley, Sr. Director of Technology at Lima One Capital
If smart contracts are the future, does that mean we’re currently using dumb contracts? That make sense to me. This week we stay on the blockchain topic. Imagine if we had a bona fide Carfax type system for home purchases. What a drastic shift towards transparency that would be. Stay tuned as we wrap up this two part series with Lucas Walley of lemo on capital. Thanks for listening. You’re listening to the real estate of things podcast. Welcome to the real estate of things podcast. I’m your host, Dalton Elliott. Back again this week for a second episode Mr Lucas Walley. Lucas is the senior director of technology at lemo one capital, the nation’s premier lender for real estate investors and also the place that Lucas and I show up to five days of the week. Every day of the week. Really, every day is game day. All right for the day job. I love it. So I want to we have so much to get through. This is our kind of blockchain. We need a series like five day week series on this. But I want to start with one quick catch up from episode one. Your new business venture, Carfax for houses, Lucas Whaley’s new as adventure. I think you need need to lock down the name. That could be a you may have another Carfax company coming after you. But talk to me about like this concept of Carfax for houses. Right. So I think everybody’s familiar with Carfax for a car. Right. It’s which is like a database that collects information around damage to vehicles. Right. Knowing that, like when I look at a car, I’m not a mechanic. I don’t know if this thing had has been flooded, I don’t know if it’s been hit. I didn’t I have no clue and a good, you know body shop could take most damaged cars and put them in at least close to like new condition and I would be none the wiser. Similar thing with a house. They’re right, like you,…
…you just don’t know, and that’s why you have an inspector. You have a home inspection. Whenever you go to get a house, someone who can really lays eyes onto it, kicks the tires, looks around, sees what’s going on. So what would that corollary be over to the house side of the fence through the Lens of blockchain? Yeah, so, I mean, I know we were talking last time about, you know, some of the benefits to actual research, real estate transaction purchase. And you know, one thing is assuming you could verify a lot of this information. You know, you wouldn’t be at just taking someone’s sellers, I guess, gracious word, that they outomize out all of the the property history or repair that they’ve made. Nor would you be entrusting everything to and Spector. You know, you would actually have a property history that was verifile, I guess, as much as possible that you could take. You take a look at and know that the issue that property, which again kind of parallels to the title of case we were discussing, but you know, maybe even a little more and easier, lower berrier application of that has to do around has to do with property management and new diligence required there. So you know, especially these larger property management companies, verifying Renners, credit background, PAT and Manian schedules. That’s quite a lot to manage, you know. So that the fact that that verification happens over ever and over between property management companies could really reduce some of the complexity there as well. So, yeah, just a couple of cases to tack on to our last discussion. Yeah, that rental piece is big one. A very recent episode was with Dan Mission of June homes and one of the Dan is a Ukrainian immigrant, started as first real estate business when he was eleven years old. We had I was doing very different things when I was eleven years old. I was not starting this is playing the legos. Yeah, yeah, I was riding my bike. So Super Impressive…
Human June Holmes is the name of their company. But one of the big one of the most exciting things that they have worked on is that rental application process. Like when I graduated college, getting an apartment and got one apartment before I got a house. A thankfully only went through that process once, but it is incredibly manual. It is a pain in the tail. It is, you know, go here, get this document, go to the bank, get a cashier’s check for your to pose it. Like wet signed this at that time, like the authorization for credit to be pulled, and then I got to get a letter from my employer that says, you know, he’s employed and he’s making this much money. All you have to run around. It’s like all right, you finally find an apartment and it takes like a week or two weeks to get everything squared away. That is you talk about kind of blockchain and the potential applications. They are around you. Do you just have Dalton’s rental profile right readily available and help streamline that? So that’s and throughout this podcast, one of the things I’ve gotten most excited about, I think, has been that concept because of how disjointed, manual, time consuming inefficient it is. It just seems like an area that’s really ripe for disruption. Yeah, and there’s obviously some really weird ethical questions you’re talking about. They’re having some open network. We’re all that information is on it. So there’s some scale bag version of that that probably makes sense. But yeah, I mean it’s maybe and you’re reducing the role of an intermediary to verifyle that makes the market more efficient. Like it. So moving on to kind of big Pandora’s box here, where do you see blockchain and distributed ledger tech really applying most easily to our world of real estate? Yeah, so this is to me, this is the media Tays of the discussion. Like all the other stuff is cool, but I think this is far more…
…actionable for a couple of basic assumptions. So when we talk about, at least in our area, like coming from the perspective of an originator and service, or all of the capital markets use cases, and especially with business purpose us, you know, the is complex. Is All of these transactions and all these concepts sound still they’re thinking about implementing, you know, some of these technologies into these capital markets. It’s still less complex, I think, than all of the legal verification, all the different parties, all the very intrigued involved in something’s complicated. It’s like loan scurization. So you know, I mean there’s just so much and it’s only, I guess, increases two thousand and eight because of all the counterparty checks. There’s a lot to unrautel there. But I mean the the amount of firms that have to align politically to solve some of this is much, much less. And so when we started looking at private permission blockchain technologies, which there’s a there’s a few out there right now, and so that’s basically where a firm or firms used to decide who’s a part of this network, what the consensus around transactions in this network is. So basically what is and what is in a valid transaction and really all of the permissions and definitions. Those are cult there’s are closely held in private. I think that is a far, far more comfortable position to iterate into a lot of this and you can really start to solve some real world these cases and people are you know, there was a securitization recently where distributed ledger technologies being used to handle load limit its payments, and that has a lot of benefits where you’re not just waiting around once a month to find out, you know, what performance is like. So yeah, I mean there’s definitely some real world examples that I think we’re a lot closer to being able to solve this technology attacking from this direction first. So talking about can…
…you can you walk through a little more some of the kind of real world examples that you reference, like what what are the mechanics and what’s like? What’s the future? What is the what are the next steps of progression for those instances? Yeah, I mean it really goes back to kind of again the order of operations here, and so the first thing is just tokenizing these assets, so creating that digital representation of these physical access that can be transactive a much lower cost than otherwise. So from there you really start to set up these networks and these private ledgers between all these parties. So maybe it’s the whole cell loan purchaser as the actual security scrutizing party. I will quickly show my level of understanding of capital markets, which somebody could definitely grew me on, but that’s not my I area as much. But yeah, so again you you kind of ease into this where you have securitization structures that are set up, you know, where you have traditional assets alongside token out assets, and so you can really start to it ate into this because, you know, I think there’s a lot of things that distributed ledger technology could change about the entire framework and structure of a process like that. But you can really start to introduce efficiency without completely uprooting what’s already there. And so, you know, at that point was you ad rate passed. Their assets are token eyes you’re containing in private ledgers. There’s that mixing of assets, both visual and traditional. I think. I think you really start processing more on the bletching. Yeah, and that’s that seems to be based on our conversation. Maybe the biggest hurdle in front of us as the tokenization piece right,…
…like we talked about in the last episode, title and how, you know, like a county records, the sophistication of those records, whether it’s flitter pull up in a file cabinet versus fully digitized and everything in between, is just massive. And so one fact that are one kind of statistic that you’ve referenced is what they like. Thirty percent of title searches have some defect that needs to be kind of manually cured. Right. Yeah, I can remember where this that came from, but yes, somewhere about thirty percent of title search they’re looking at issue of the title insurance policies. There’s a defect discovered, it is to be cured. So then it’s like, okay, if we token eye everything, we’re just taking the physical and making it digital. But that is just one small, but one massive step in the process. Then you’re only transferring that problem from the physical, tangible world to the digital intangible world, and so then you still have those issues and data kind of dad it maybe not that integrity, but just accuracy and quality issues. We’re just transferring those from one world to another. Is, you know, just taking that title piece and I know you know you your thought is that the title piece is the big, hot, flashy one that everybody talks about, but, just because of these issues and obstacles, one that’s probably further down the line compared to, you know, the rental side of the rental agreement and smart contract side of the fence we were talking about, but nonetheless like one of the biggest parts of a real estate transaction. And do you think, like how does that, how is that going to work out? Is it going to be like we have to tidy up everything here physically and then like a transfer, or is it you know, stuff gets transferred and then the kinks get worked out whenever everything’s digitize, like what? How do the how of it? Has that even get attacked? Yeah, so, I…
…mean you’re going in a central party or more centralized parties to agree to that, so that way you know what you’re signing on to, the to the ledger in this case, is is valid. So again that kind of goes back to let’s look at more centralized permissioned technology, you’re rather than full open. So you start budying it that way and then, like I said, you move forward because again, you know, you kind of talk about you you always go back to all of the parties involved in this and so, from originator all the way to investor, legal verification required. You know right now. You know like it will take a loan scurization process, which not a new deep dive into or anything, but all of the costs, the legal costs associated with that and all of the duplicative infrastructure required, you know, technically for one, and the duplicative work just to verify data between all those parties. I think it’s a lot more reasonable to say, like hey, if we had a distributed let ledger that all of these parties reviewing and transacting in, that is still less complex and what’s going on right now. Yeah, that’s fair. It’s so crazy. It’s this is definitely the most tough to tackle topic that I’ve had on the podcast and every topic we jump into, every subtop within blockchain that we jump into, there’s like a million branches on every single topic that you can run through. Just really crazy. So what are there any states or countries that like at the tip of the spear with regards to really utilizing blockchain around real estate, or is it really disparate? Is there any any real leader in this movement? I guess you would call it. As far as I mean, I think there is a…
US based lender during this right now. What risks are there? What risks are alleviated? Risk? Risk, risk, Rish risk. Right, we’re on the landing side of the fence. Mitigating risk. That’s our chief job, right. It’s you know, yes, we’re lender, will lend money out, but we’re always conscious of a risk. So talk to me about that through the Lens of kind of capital market side of the fence. Yeah, so you know a lot of the I guess the whole securitization process really is to is set to redistribute risk, breaking up, you know, your different roles efer parties involved in transaction. So there’s a lot of you know, in some of these transactions there’s a lot of lag between the movement of collateral and, I guess, in some cases, settlement of that really, which can lag days behind risk control. So you know all that is to say, if you’re monitoring something on a daily basis, you know a lot can happen in two three days over the weekend. Exposure, for example. If you’re monitoring look at exposure daily and you’re looking at this daily and it takes two or three days for the collateral to actually change hands. There’s a lot of risk associated. There could be, you know, almost like a jump there really, and so if we talked about speeding and easing that transaction time, that just in instructure reduces a lot of risk. And then you know again there’s always the risk that you know through this they’re going to be errors associated either with data, with loans or errors between parties such as, you know, the different legal check and processes that go on during an effort like that. As soon as you start to clean that up and again you know you don’t have all this disparit data. It’s more central, centrally viewed, it would clean up in a lot risk hard to quantify, I guess from where I from, where I’m, you know, sitting, obviously not necessarily my area, but certainly something probably easier to tag her tackle than everything…
…we talked about the consumer set. Lucas, you hung in there with me for two episodes. This really like you and I talked in between episodes. No crazier, more down the rabbit hole topic I can think of than blockchain right now. And it’s just this beautiful mass of progression and transparency that we are. You know, you see bit by bit changes an improvements, but we’ve just barely scratched the surface and it’s tough to really theorize ten, twenty, fifty years down the road how this is going to impact. It’s just it just is going to be a completely different world. Yeah, I mean it’s at it. We call like it our the horizon. But yeah, I mean it’s hard to think about what some of this may look like, given the progression of these technologies, but certainly, you know, it’s something that we should be thinking about because it is coming and, you know, at least is interesting. Like I said, you know, I think we could do a couple of hours on some of these topics and dig into some areas. But but yeah, it’s it does present a an opportunity for disruption and it’s hard to prescribe degrees of certainty to any of that as well, and so I take a very cautious view a to allot of this and hopefully to make too many crazy statements here. No, your Tam you’re good. You’re good, Lucas, and learned a ton chatting with you over these two episodes. Can’t thank you enough for carving out time. Appreciate you having me, doll anytime. Thanks so much. Do you, Lucas. Thanks everybody for listen and take care. Are you a realistic investor looking for the right lender that can find of all your deals and help you scale? Lima one…
…capital has the best suite of loan products in the industry, Barnet, whether that’s fix and flips, fix and holds, built a new construction or buying rental properties. They have incredible financing solutions for it all. A reliable common since Linder is one of the most important parts of your investment team, and that’s exactly what you get with Lema one. Let Lima one capital show you how they’ve helped thousands of real estate investor scale and increase their wealth. Check out Lima onecom or call eight hundred two five, nine zero five ninety five to speak with the consultant and preparation for your next project. Thank you for joining us today. On the real estate of things podcast. Subscribe and tune in weekly for new content from the industry’s best. While we continue to unpack the nuances of this dynamic market, follow US across social media for additional insights and analysis on the topics covered in each episode and remember to rate, review and share the show.
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