The Wild West of Arizona Lending – Insights from Tadd Jones

Bryce

We’ve got a special guest today, Mr. Tadd Jones. Tadd, thanks for being here! First and foremost, I think I say this at the beginning of every podcast, but I just love this community. It’s amazing because, Tadd, we’ve never met in person, but we connected over Reddit, which I think is so cool. The hard money and private lending community is just awesome because everyone’s so willing to jump on a call, share deals, or offer help with loan docs. It’s such a collaborative space, and I think that’s rare. So, I always like to mention that. Anyway, thanks again for being here—I’m excited to chat and network with someone like you. To kick things off, give our readers a bit of background on where you’re calling in from, and maybe recap your journey.

Tadd

Yeah, absolutely! So, I live in Gilbert, Arizona, right outside Phoenix. I’ve moved around a bit, but this has always felt like home. Before I got into hard money, I spent nearly 10 years in banking and traditional lending, working with a couple of big banks like Wells Fargo and Bank of America. I worked my way up in that space, and during that time, I was dealing with investors every day but couldn’t help them. I was essentially sending them out the door because we didn’t have the right products for their needs. Banking has a very different risk appetite compared to what we deal with in investment lending. I’d pass off deals left and right, and I wasn’t making any money doing it. Worse, I was damaging relationships because I couldn’t service these clients.

Then, while I was living in Salt Lake, a couple of acquaintances back here in Phoenix, who were doing hard money lending, reached out and said, “We see you’re frustrated with banking—come help us build our lending business.” So, I made the switch, joined them, and helped build up a couple of small funds. And here we are!

Bryce

That’s amazing. So, roughly how long were you in mortgage banking, and how long have you been in private lending now?

Tadd

On the traditional side, I spent about four or five years in mortgage banking. But over the course of those 10 years, I also ran branches, so I had my hands in a lot of traditional lending operations. On the hard money side, though, I’ve been doing this for almost five years now.

Bryce

Got it. And help explain this to me, because I’m with you, obviously, we’re both in the hard money space, so I see the opportunity in these properties. But for whatever reason, I’ve tried to look at it through the lens of a traditional lender, and I just can’t wrap my head around it. Maybe it’s just ignorance or lack of knowledge, but it seems like every lender nationwide has the same issue. I’ve sat down with commercial lenders and I’m like, “Look, this is 50% LTV. This is a no-brainer. You’re going to walk in with $100k in equity in collateral.” So, what do you think traditional banks are afraid of? Is it ignorance or something else?

Tadd

Yeah, I think there are a couple of things at play. First of all, you can’t ignore 2008. Every bank hangs their hat on that and says, “We’re not going to make that mistake again. We’re not going to over-leverage or look at deals in a certain way.” The risk appetite for banks has shrunk a lot. They’ve become very conservative, saying, “We’ll do this, but we don’t want to put ourselves in a position where we could lose money.”
The other part is that traditional lending is pretty straightforward—you look at a property, you assess its current value, and that’s your collateral. It’s pretty black and white. In our world, though, we see a property as a “diamond in the rough,” something with potential, but with a lot more risk. Not just with the property, but with the investor too. You have to do a lot more due diligence to make sure both the property and the borrower will perform, and that’s a lot of risk for traditional lenders who just aren’t set up for that.

Bryce

That’s a great point, too, because we’ve had borrowers come to us with properties that literally don’t have a roof. A traditional bank would never touch that with a ten-foot pole. They’d ask, “Why on earth would I give a loan for a house without a roof?” But you and I look at that and think, “This is a huge opportunity. There’s so much potential here, we’ll do this all day long.” That’s what we specialize in.

Another great part about being in this space is that it’s not cookie-cutter; it’s not black and white. Every day is a little different. You can get creative, and I personally love that. You can cross-collateralize or come up with different ways to make the deal work. To me, that’s one of the big pros of this industry—it’s like putting together a puzzle and figuring out how to make it fit, rather than just saying yes or no.

Another great part about being in this space is that it’s not cookie-cutter; it’s not black and white. Every day is a little different.

Tadd

Absolutely. In banking, I would get deals and pass them around to 10 different people, and the answer would just be yes or no. There was never any explanation of why a deal didn’t work. It just didn’t fit the banking “box,” so they’d say no. In our world, though, I’m with you—I very rarely just say “no” on a deal. My mind immediately starts thinking, “What if we did it this way? What if we brought in another partner?” There’s always a way to configure a deal to make it work. And that’s what I love about this industry—deals get done. It’s just a matter of how you want to structure them.

Bryce

Yeah, exactly. Do you feel like your experience in traditional lending opened up any new opportunities for you in private lending, especially with people you originally turned down? Has it led to new avenues or clients?

Tadd

Absolutely. When I made the switch, the first thing I did was call a lot of the people I’d previously worked with. I said, “Hey, you guys are doing what you do best, but I have a product now that’s made specifically for you. Let’s figure out how to make it work.” A lot of them were already using their home equity lines of credit or other funding, but some were open to the hard money space, so I’d walk them through it.

Those were some of my first calls, and they’ve become long-term relationships. Even if a deal didn’t always pan out, staying in touch with them—just checking in with, “Hey, how’s the family doing?”—has led to a lot of referrals over time. It’s not about constantly pushing for business. It’s about maintaining the relationship. And out of the blue, you get a referral: “Oh, my buddy or brother is doing this, you should give him a call.”

Bryce

It’s so interesting because people often think you’re being salesy or have an ulterior motive, but it’s not about that. It’s about being genuine. We’ve had people we’ve checked in with five years down the road, and only then did we end up doing business together. People’s lives change over time, and you never know when an opportunity will come up. It’s just about offering solutions and helping when people need it.

It’s so interesting because people often think you’re being salesy or have an ulterior motive, but it’s not about that. It’s about being genuine.

Tadd

Exactly. And not to go off on too much of a tangent—I can talk about this forever, so feel free to reel me in anytime, Bryce—but I had a situation where I met a guy through one of my meetups. We hit it off as friends, talked from time to time, and I got to know his background. I hadn’t done any deals with him, but we’d become good buddies.

Then one day, at a meetup, I found out he was using a lender I knew. I jokingly said, “Let me introduce you to this guy. He’s done your last 10 deals, but you don’t even know him.” Afterward, he pulled me aside and said, “You’re right. You’ve taken the time to get to know me, my family, and my background, and you’ve never asked me for anything. Meanwhile, this other guy’s made thousands off me and doesn’t even know me.” That moment stuck with him, and that’s the difference—it’s about building genuine relationships, not just seeing someone as a dollar sign. By doing that, my business expands organically. I’m not chasing it.

Bryce

Absolutely. I’ve got a realtor friend who’s been in the business for 10 to 15 years, and he doesn’t really do any outbound marketing anymore. He’s built relationships over time to the point where he could literally do nothing and still make around half a million dollars a year just from referral business. It’s amazing! So, switching gears a bit here—this is a little selfish, but my wife and I love Arizona. We have a vacation home in Queen Creek, and we just love it. What are some of the challenges unique to Arizona that lenders should be aware of? Maybe from a legal, compliance, or property perspective? For example, are there termite issues or other things that people might not have to deal with in other areas?

Tadd

Yeah, I call this market the “Wild West.” Every lender wants to be here, and they all try to undercut each other to be the cheapest and fastest. It’s just the nature of the space. Arizona, like many other markets, went through a boom about three years ago, but then it hit a plateau. That’s when things got trickier with certain products.

For instance, vacation homes and Airbnbs in places like Scottsdale were huge. Everyone thought, “I’ll buy this place and make killer cash flow by Airbnb-ing it,” especially in areas like Sedona and Flagstaff. But then, Scottsdale residents started complaining. You know, the folks with a lot of cash, who weren’t happy about the party houses next door. They went to city meetings and pushed for changes. Eventually, Scottsdale said, “No more Airbnbs.” The same thing happened in Sedona. It got overrun by short-term rentals, and the city cracked down.

Now, for anyone looking at fix-and-flip properties or doing a BURR or Airbnb in these areas, you really need to be careful where you’re buying. Do your due diligence. I bought a property in Gilbert a couple of years ago, thinking it would be great, right near downtown. But when I went through the bylaws, I found out there was a 30-day minimum for rentals. So I couldn’t do Airbnb. I had to switch to long-term rentals, which wasn’t the plan. That’s a huge thing to watch for in Arizona—always do your research before buying.

Bryce

And another thing—just to give some context, we’re based in Idaho, and it’s rare there to find an area with as many HOAs as there are in Arizona. It seems like every property has an HOA, and it’s something to consider, especially if you’re looking at Airbnbs.

Tadd

Absolutely. I’ve had deals fall apart because of HOAs, not just because of pricing but because dealing with them was such a headache. By the time my investors worked through all the hearings and board meetings, they’d just give up. Sometimes it’s just not worth it.

Bryce

Yeah, that can definitely be a deal killer. Very good insight. Alright, let’s switch gears and talk a bit more about Rainy City Capital and what you guys are doing. Are you comfortable sharing some numbers, or do you prefer to keep that vague? Some people like to keep things a little more general, while others are open about it.

Tadd

Yeah, I’m comfortable sharing some details. I’ll keep it general, though. We’ve talked a bit off-air about where we’re at, but the big thing with Rainy City Capital is that it’s a step up from the smaller mom-and-pop hard money lenders I came from. Those were great for what they did, but there were limits. At Rainy City, we still focus on fix-and-flips because that’s where we started, but we’ve expanded to offer more products. We do 30-year DSCR loans for rental properties, and we’re diving into ground-up construction, which is really growing in our markets.

As for numbers, with my previous funds, we were aiming for about $40-$50 million in lending per year. But at Rainy City, we’re aiming for $500 million this year. It’s a big jump, but when you can offer a wider range of products, people don’t have to go to different lenders for different types of loans. We want to be a one-stop shop for everything—fix-and-flips, DSCRs, construction loans. That’s really where we see ourselves making a big impact.

Bryce

Okay, so let’s play devil’s advocate here. Let’s say I’m a residential home builder, and I come to you for ground-up construction financing. Why should I come to Rainy City Capital instead of going to a credit union or a bank for a construction loan?

Tadd

It really comes down to the headache and the red tape, just like we talked about earlier. I’ll be honest: if someone’s willing to deal with all the paperwork and red tape, a bank or credit union might offer a better rate. But it’s a massive headache. You’ll be providing tax returns and paperwork from the last 50 years just to get approved.

The big issue we’ve seen lately is that banks and credit unions are really limiting the number of projects they’ll take on. They might tell you, “You can’t do more than X number of builds at once,” or “We won’t lend you any more until we see some progress on the ones you already have.” For a builder, that can be a huge problem—it stops you from scaling your business. That’s where alternative lending, like Rainy City Capital, comes in. We can help you keep your business moving forward by saying, “Let’s go—let’s get these projects done.” We don’t have the same restrictions, so you can keep building and growing.

Bryce

Exactly. If they keep saying no, you can’t scale or grow your business. That’s a big reason why builders come to us—they need a partner who can push the projects forward without all the barriers.

Tad

Exactly. And that’s where we’re seeing a lot of demand. Builders are tired of being held back by their traditional lenders and are looking for a partner who will help them scale without the constant pushback.

Bryce

I think it’s important to note that it’s not always just about rates or points. Typically, if you go to a private or hard money lender, you might pay a point or two more than you would with a traditional bank. But it’s not as simple as just saying one is cheaper and the other is more expensive. Lenders see things differently. For example, we had a project where, before we were lending ourselves, we went to a lender. He pointed out a requirement we didn’t know about—a fee of $8,000 that could have killed the deal. The credit union didn’t care; they’d have just approved the loan and I’d have been stuck with the bill. So, I think there’s more to it than just rates and fees. Having someone with the right expertise, who’s in the trenches and understands the business, can make all the difference.

Tadd

This is a conversation I have every day. Naturally, people want to know who has the cheapest rates and points right away. My response is always, “What are you looking for in a lender?” I can show you cheaper options, sure, but what you’re getting with me is someone who will always answer their calls, stay ahead of the game, and has more market knowledge than anyone else. That matters when you’re building relationships. If you ask me for rates first, all you’re doing is creating a client who will jump to the next cheapest lender next time. If I tell you I can’t beat the price, you’ll be gone. You’ve got to build a relationship beyond just pricing.

Bryce

Exactly. I have two thoughts on this. One is a sales tactic that really helps me: when someone asks about pricing or fees, you can sidestep that by asking a follow-up question. “What are you looking for in a lender?” They can’t object to that, and it lets you steer the conversation. If you just lay out rates and fees, they’ll likely move on to the next lender.

Tadd

And even when I ask what they’re looking for, the typical response is, “I just want the cheapest.” But I don’t let that stop me. I dig deeper and ask, “Outside of rates and points, what are you looking for?” More often than not, it comes down to finding someone they can build a relationship with. After a 10-15 minute conversation, I rarely hear about rates or points again. They’re just happy with whatever I offer because we’ve built a relationship and understand how to make each other successful.

Bryce

Yeah, if you really think about it, if the only thing a borrower cares about is a one-point difference, on a big deal—say half a million dollars—that’s only about five grand. If five grand is going to make or break the deal, I’m not sure I want to be involved. If your margins are that tight, this isn’t going to work for either of us. The point is to create a win-win situation where both of us come out ahead. If we’re fighting over five grand, then it’s probably not a deal worth doing.

Tadd

Here’s a real example from this weekend: one of my previous borrowers contacted me about a $3.5 million home project in Denver. He had a lender lined up offering one point. I told him, “This is bigger than our usual projects, and I’m going to charge two points.” On a deal this size, that meant an extra $35,000, but because of our relationship, he said, “You’ll get it done. I’m not questioning you.” And that’s the value. Some people might balk at paying more, but if it means avoiding headaches and a smooth process, it’s worth it.

Bryce

Absolutely. I’ve had people call me after they’ve been stuck with a bigger lender for weeks. They’re 46 days into a deal, extended the closing date multiple times, and they don’t know if it will close at all. I tell them, “No problem, we can fund it tomorrow.” It blows my mind how many people lose sleep working with big institutional lenders when all they need to do is build a relationship with someone local. This is what we do. It’s our bread-and-butter. If everything is in order, I’ll fund it tomorrow morning, no problem.

Tadd

Exactly. And the funny thing is, when I transitioned from smaller shops to bigger funds, the process didn’t really change. Whether you’re managing a $2 million or $200 million fund, you still want to work with the right people and make sure everything fits within your credit box. When you’re small, you feel every mistake, and it can sink you. But even with a larger fund, you still want to do business the right way and only work with the right partners. That’s why I love where you guys are now—still local, still in the grind, but focused on doing it the right way. As you grow, it’s important not to veer outside what you’ve already done. There’s no point in taking a risk when it’s not worth it.

As you grow, it’s important not to veer outside what you’ve already done. There’s no point in taking a risk when it’s not worth it.

Bryce

Exactly, and like you said, when it’s your family’s money on the line, like Nana’s, it’s a whole different ballgame. It’s scary knowing you have to explain to her at Thanksgiving that you lost her quarter-million-dollar investment. I’m definitely more comfortable losing my own funds than someone else’s. There are times when we might stretch a little or take on a slightly higher risk, but we’re still cautious. When you’re dealing with other people’s money, you can’t take that lightly. You don’t mess around.

Tadd

See, that’s the difference. As you build up and strengthen the fund, you start working with warehouse financing and bigger bank money. It’s a different conversation, but at the core, it’s the same thing: if you don’t perform, you’re going to get a call. And trust me, it’s not a nice call from Nana—it’s a bunch of headhunters coming your way.

Bryce

That’s a good follow-up question. I mean, obviously you guys are considerably larger than we are. What’s your main source of capital? Do you use institutional lines of credit, private investors, or all of the above?

Tadd

All of the above. As you scale up, you start working with insurance money, warehouse lines, and a lot of shaking hands and kissing babies to get in with the right partners. But no matter where you are in the process, it all comes down to performance. If you’re not performing, no one wants to give you money. Every conversation starts and ends with that. As you grow and tap into institutional funds, it’s about showing them your track record—how long you’ve been doing it and how well you’ve done it. You can’t speed up experience; it’s about proving you perform. If your default rate goes up or you have non-performing notes, it’ll hurt you. If you’re asking for a large line of credit, they’ll look at your books, and if they see bad performance, they’ll call you out on it.

We’ve gone through the “show me” part. My owner started the business in 2009 as a fix-and-flipper in Seattle and built it the right way. Now, 15 years later, we’re here. Success doesn’t happen overnight; it’s about building it right. When you do, you create something that can’t be stopped.

Bryce

Absolutely. Yeah, once you’re moving fast down the track, nothing can stop you. Wow. Okay, so, selfishly, for me, these tips are gold. But if you were in my shoes—sitting right around two and a half million for our overall fund—what would be the biggest advice you could give me as someone trying to push toward that ten-million-dollar mark?

Tadd

Yeah, I should ask—are you still in the process of raising private money? Or are you guys good with where you’re at? Where do you stand right now?

Bryce

Our biggest constraint right now is capital. We have more loan volume than we can handle, but all of our capital comes from my own personal funds, liquidated from our rentals, and a dozen private investors. We don’t have any institutional lines or bank lines; it’s just all private money.

Tadd

Yeah, that’s the catch-22 with private money. I came from that space, and I loved it. We didn’t have anyone to answer to except our investors, making sure they got their promised returns. But the downside is it’s easy to run out of cash. One day you’re doing great, and the next, you’re turning people away because you’ve run out of money. And when you tell someone no, they’ll just call the next guy.

My advice to you is, as you grow, don’t lose who you are. You’ve got your own way of doing things, and it’s important to stick to that—whether you’re at two million or 20 million. You want to stay true to your company’s vision and reputation. For us at Rain City, our motto is to build lasting relationships with clients. I’ll do anything for my investors, but I want to do it the right way, from the start.

As you build, be strategic about who you do business with. You wouldn’t let just anyone into your fund right now as a private investor if you’re not 100% comfortable with them, right? The same applies when you start dealing with institutional money. As you grow, make sure you’re working with people who align with your goals and values. More money and more lines are great, but you don’t want to lose your voice in the transaction. You need to be selective about who you take money from because, at the end of the day, there’s always someone with money, but not all money is worth it.

Bryce

That’s such a good point because that can really dictate how your business runs. For example, if you have investors who are a pain in the ass—calling you every day asking, ‘Where’s this at? What’s going on?’—I’ll let those people go. If they don’t trust me, it’s not going to work. This relationship is built on trust, 100%, and if you’re constantly creating headaches for me, it’s not worth it.

There’s a fine line, though—you want to keep investors informed and in the loop, but it’s a give-and-take. I’m not going to update you every day, every half hour. I’ve got other things to do. But, you know, your funds are my responsibility. We’re focused on not losing them, and we’re actively working on your behalf. It’s easier said than done, but we’ve had investors who, after some time, I’ve had to say, ‘Let me send your funds back. This just doesn’t seem to be working.’ It’s okay—sometimes it’s just not a good fit, and that’s fine.

Tadd

Exactly. It’s the same mentality I have with borrowers. If, on the first call, it’s already too tedious to get through the conversation, and I haven’t even let you borrow hundreds of thousands yet, that’s a red flag. I’ve told people, right then and there, ‘You seem like a good person, but we’re just not a good fit right now. Go do a few deals, figure out what you want, and maybe we can talk down the road.’ If I take on that headache now, it’s on my team, it’s on my processing team, and it’s on the fund. You’ve got to think about the entire process.

With investors, we’ve done the same thing. We’ve said, ‘It’s just not worth it. I appreciate you giving us a shot, but I can’t babysit you.’ And it’s the same with borrowers and investors—it’s all about making sure you’re working with the right people.

Bryce

Yeah, well, what would you say? Obviously, investor relations is a huge part of lending. You’re borrowing people’s money, and they want to be kept informed—they want to know what’s going on. When you get to your size, how do you handle that? How do you juggle it so that it’s not a pain to deal with all day long, but also so people don’t feel like they’re just cast into the shadows and have no idea what’s going on? How do you balance that?

Tadd

Luckily, at a fund this size, I don’t have to be the one taking those calls. I let my owner and the principals handle that. But ultimately, I think it comes down to transparency. You have to be fully transparent with people, especially when they’re putting in their life savings or retirement money. There’s a lot of trust involved in that first conversation.

No matter the size of your fund, it’s the same: you need to make it clear that you’re in it together. Like you mentioned earlier, we’ve put a lot of our own money into this, so if it doesn’t work out, I’m screwed. I’ll be the first to take that hit. I lost my money before anyone else loses theirs. Those conversations are key. It’s important to show that you’re not just looking out for your own self-interest. My money is at the forefront of the conversation, and if things start going south, you can bet I’m going to call you and let you know exactly what’s happening.

Bryce

Absolutely. Oh, that’s gold, Tadd. Thank you. I want to be respectful of your time because I know you’re busy, but this has been awesome. One of the reasons I love these podcasts is that I can selfishly ask all the questions that I’m dealing with every day as I’m in the weeds. It’s great to network and pick the brains of veterans who know what they’re doing.

Tadd

No, I appreciate your time. I’d say one last thing you mentioned earlier—build relationships with other lenders. It might sound counterproductive, but I’ll tell you, when I first got started, I thought, “It’s going to be super territorial. I’m going to draw a line in the sand, and here’s why you should come to me and not that guy.” I quickly realized that’s not how it works. For example, I don’t lend in Idaho. So, if I have a borrower who wants to do business there, I know Bryce, right? I’ve talked to Bryce face-to-face for an hour. Same goes for any of our markets.

We’re in a ton of different states, but if you come to me and say, “Who does business in that market?” I can point you to someone. It makes a big difference. I would tell any lender, and any borrower, build relationships with others. Have people you can call if something doesn’t fit your buy box or credit box. There’s someone out there who does, and having those relationships means your clients aren’t getting left out in the cold.

Bryce

Yeah, such good advice. I love it, Tadd. Let’s say someone wants to get a hold of you after listening to this. What’s the best way to reach you? Cell phone, email, social media—whatever you prefer.

Tadd

I’m on my cell phone way too much. You can ask my wife—she says I’m never off it. But that’s honestly the easiest way. Feel free to call or text me anytime. My number is 480-244-4698. If you’ve got a specific question or you’re not comfortable talking on the phone, I totally get that. You can shoot me an email at my first name, Tadd (T-A-D-D), and then the letter J for Jones, @RainCityCapital.com.

Bryce

I don’t know why anyone would be afraid to call you. You’ve got such a calm, approachable vibe, you know? You’re very easy to talk to. And like I said, if anyone wants to get a hold of Tadd, he’s a wealth of information. I’ll be sure to reach out to you as well. You might have to block me after a while because I’ve got questions, haha. For everyone else listening, thanks for sticking around.

 

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