In this episode, I’m talking with Federico Pomi, Co-Founder and CEO of Fabrica. The idea behind Fabrica is to make it significantly easier to close real estate deals. This is particularly useful to people who self-close (if you’re a land investor, you know how slow and time-consuming this process can be).
With Fabrica, you can close a transaction in minutes. This is possible because each property on Fabrica is transferred into a trust (one Trust per property) and the trust is like a “container” for the title of the property. When a buyer comes along, they can buy the trust that holds the title. This means you no longer have to transfer the deed to them the old fashioned way (finding a notary, waiting for a cashier’s check in the mail, etc). You simply sell the trust to them, and they become the owner of the property through the trust.
Changing the ownership of the trust is something that can be done digitally, enabling safe, instant, online transactions… which is much easier than handling closings the way we’re all accustomed to doing it. Fabrica also facilitates the transfer of funds and can assist sellers who are selling their properties with owner financing.
We’re going to talk with Federico about how this all works. And to make it even more interesting, we’re also talking with Travis King, who is an actual user of Fabrica. He has closed several deals this way and he’s going to help us understand what it’s like to use the software and how much easier it has made the selling process for him (and if there are any unexpected hiccups to be aware of).
Links and Resources
- Land Contract or Deed of Trust? Which is Better for Seller Financing?
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Episode 94 Transcription
Seth: Hey everybody, how’s it going? This is Seth Williams with the REtipster podcast. Today we got an interesting conversation lined up with Federico Pomi, co-founder and CEO of fabrica.land. And this is a company I just learned about a few weeks ago. The idea behind this website is to make it significantly easier to close real estate deals. This is particularly helpful and useful to people who are doing self-closings. If you’re a land investor, you know exactly what I’m talking about, how slow and time-consuming this process can be.
It can also be used to assist greatly with seller financing, collecting payments, just handling a lot of the stuff that normally slows up the process and makes it confusing and cumbersome for everybody.
So, with this software, the idea is to literally allow somebody to close on a transaction from their phone if they so choose in a matter of minutes. And this is possible because each property on this website is transferred into a trust. That’s one trust per property. And the trust kind of acts like a container for the title of the property. And when a buyer comes along, they can buy the trust that holds the title, which kind of negates the need for transferring indeed the old-fashioned way and finding a notary and waiting for cashier’s checks to go through in the mail and all this hassle. When you just sell the trust to them, they become the owner of that property through the trust.
And changing the ownership of a trust is something that can be done digitally. It allows for safe, instant online transactions, which is much easier than handling closings the way we’re all accustomed to doing it.
This is something that’s pretty new to me, honestly. I haven’t done a whole lot of this stuff and it seemed like a pretty smart way to do this. And also, I just want to be clear, the idea with this conversation here is not to be an advertisement for the company. They’re not paying REtipster or anything like that. I just thought it was a super interesting method and kind of an innovative way to do this. And if it does make the process easier, then I want you all to know about it.
We’re going to talk with the CEO and co-founder about how this all works. And to make it even more interesting, we’re also talking with Travis King, who is an actual user of the website, and he’s done a bit of work in advising for the company and he’s going to give us his input on how the website works and how it’s actually been able to implement things in his business.
How are you guys doing? Welcome to the show.
Federico Pomi: Great. Thank you so much for having us.
Seth: So, Fidel, let’s start with you. If I’m understanding correctly, you were an Italian immigrant. Is that correct?
Federico Pomi: Yes. That’s also pretty easy to spot, I guess, but yes, I’m Italian. I moved here seven years ago to California.
Seth: Maybe you can just tell us your quick story. How and why did you end up in California? What was the path that led you here to start dealing with this kind of random problem in the real estate industry?
Federico Pomi: Absolutely. I moved here for work. I was always in the tech space and then I moved to San Francisco. And when I moved there, I bought a house and I went through the process of finding your house, which is pretty exciting. It’s beautiful. And then closing the transaction, which is awful. It was like a terrible experience. And it was like, “Whoa, how is that even possible?” I mean, the place where technology is everything and the way the transaction happens is like how it used to happen like 50 years ago, notaries, fingerprints, deeds, title insurance. It was all very complex.
So that was the first moment. And then a friend of mine told me about the land investing space. And I had discovered these super active communities of people buying and selling thousands of plots of land. I thought they’re going through the very same issue that I felt. Every single time we do a transaction, it needs to be done better.
Seth: That’s kind of an interesting thing because at first glance, it seems like a really niche problem, like this really small land investing community, but it’s actually a huge problem. It’s like every real estate transaction is hard like this. This is the reason title companies and a lot of attorneys exist is just because we’ve all accepted them. This process is horrible and we have to hire people to deal with it.
I can see it being a huge deal if this can somehow translate to other types of real estate, this is probably an issue in other parts of the world too, right. It’s probably not just the U.S. that it’s a huge hassle like this.
Federico Pomi: Absolutely, Seth. Yeah, totally right. So, we keep one entry point, which are land transactions because they are super active and many of the transactions happen online, but it’s a whole industry problem for real estate in the U.S. and across the world.
Seth: Maybe we sort of start this by addressing what this software is and what it isn’t. I was able to do a little demo, a transaction that you guys were kind enough to set up for me just to experience what it looks like on behalf of a buyer who is buying a property this way. And it is very quick. It’s like literally a five-minute process. It felt super seamless.
But it made me wonder a few things like in terms of title search, due diligence, other things that are correlated to this closing process. Is that what this software aims to help with as well? Or is that just something totally different? That’s not really what this gets into.
Federico Pomi: Seth, that’s a good question. We are making it that transactions can be performed fully online. So, we save a ton of time for the land seller and for the buyer. We incorporate more and more of a transaction. We started from the very core of it, which is how you transfer the money and the title, and we’re adding pieces to it. So, we’re adding title search. We have the seller financing. We will add property taxes so that the whole buying and selling and financing experience can be done fully online in a matter of minutes. And you don’t have to take care of that complex stage of the process because we take care of it.
Seth: And I know especially when you’re doing in-house closing on vacant land, which in a lot of other types of real estate, this doesn’t even enter their minds. Like they just use title companies, end of the story. But I know one of the inherent challenges with doing this with land is kind of this trust issue. You and this other party have to, “You send the deed and I’ll send the money” or vice versa. And that’s one of the problems that a title company solves because they’re this third party that makes sure everybody’s doing what they’re supposed to do. And this software can kind of do a lot of that, right? Because it handles the payments and it shows all the documentation and it lays it all out on the table. It doesn’t have this sort of like, “Okay, you go first and then I’ll go.” It’s not really an issue you have to deal with. Am I right with that?
Federico Pomi: That’s right. In a sense, we are a substitute for a title company. We address the problem with software in a way that it’s more modern. So, for the buyer, it’s a very easy way to see the property, make sure that it’s really the property that he or she wants, and then buy it, just by providing the payment and become the owner in a matter of a few minutes. And it doesn’t matter who is on the other side, really. The buyer can trust a third party in the deal and the seller can do the same because we are in the middle, making sure that everything is done the correct way, both from a contract perspective and money perspective.
Seth: I noticed in the payment process, the buyer makes payment for the property. I had to hook up an ACH connection to a bank account. I know one little thing that people have been trying to get into and figure out is how to allow payments from credit cards and that kind of thing. Is that something that this software gets into or not really?
Federico Pomi: Yes, we do have it on our roadmap. So eventually we will also provide a credit card. But the reality is that we have seen that most of our buyers and sellers prefer ACH payments because it’s cheaper. We cover the cost for ACH payments. So, you’d get a hundred percent of the money. While with credit cards, of course you have always some fees embedded in the price.
Seth: And I know in the test transaction I went through… And by the way, assuming everything comes out okay, I’m going to edit that video. I actually shot a video as I was going through this transaction аnd I’m going to put it in the show notes for this episode, which you can find at retipster.com/94, because this is episode 94. So, go check that out if you want to see what this looks like.
So in the transaction that I went through, I was doing a cash sale, but I did notice you can just as well set up seller finance transactions this way. And I’m actually really curious about that. And maybe Travis, this is something you can answer. What aspects of the seller financing process can this handle? I assume it can set up automated payments. Do you sign land contract documentation and can you see an amortization schedule? Like how does that work?
Travis King: Absolutely, Seth. I can speak to that. The seller financing disposition side of things, there’s obviously a lot of parts and pieces when you’re doing it on your own, right? Mine prior to implementing Fabrica, I would have a buy now button, essentially a link to a job forum that Stripe integrated. Right? So, I now have to have a Stripe merchant account. I have a JotForm for my web form. The buyer inputs all their information that’s going to end up going to the land contract. They hit submit. We process their dock fee. That comes to me via email. And now I can merge it and create the documents, but generally, sometimes the term length of the loan varies depending if the buyer can afford more or less per month.
So, I manually then have to go back and forth, figure out the term length and then create documents, send it out for DocuSign and get those back. And then I set up within my QuickBooks and auto-draft. As you know there’s a lot of, even with Zapier and web hooks, and some of the things I had that kind of taped together, that I thought were more automated than a lot of people.
What Fabrica does is you’re loading your property in your portal or the dashboard. And then they provide you with the checkout link. So, the buyer can click that link and fill out the information. And the cool thing about Fabrica is the buyer’s going to have essentially a client portal, like you would have to loan on your auto loan or something, right? You have a client portal with an amortization table. The client has the ability to log in, change account information if they need to. Make extra payments, which prior to Fabrica, that was a text or an email I’m filling for people wanting to make an extra payment. “Hey, what’s my balance?” Or a request for anything. “What’s my balance? I might want to pay it off. What’s the payoff?” So, there’s all this back and forth. It isn’t really a problem when you have 5, 10, 15, 20 loans.
But my wife and I, in our company, at one point, we had 90 loans in our portfolio. So, when you’re dealing with that, on that volume, having a client portal that they can log into completely eliminates those emails, which I call death by a thousand paper cuts. When your loan service unit takes away from doing the other parts of your business. So, having that client portal with the amortization table, the ability to make extra payments, check a balance at any time without my involvement, that’s really what it is.
And then removes it in the checkout. I kind of went over my checkout process prior. Fabrica essentially removes me. I do some work on the front-end loading the property, get the link. And then I no longer have to generate those documents because Fabrica generates the land contract documents, collects the signature, and then services the loan. And even now they’re similar to a title company. They’re paying property taxes on my behalf, which is another thing when you have a large portfolio, right? Just one less thing that you have to do.
Seth: So, how does it pay property taxes on your behalf. How does that work?
Federico Pomi: What we do is that we take care of paying the property taxes with the local county tax assessor. Since we have the relationship with the customer, we simply charge them directly on their bank accounts. So, when the taxes are due, if the customer wants that service, we have it in beta at the moment. Essentially, we take care of everything. And you will have a report that says, okay, you have 15 properties on Fabrica. It means in these counties, we have paid the property taxes, and this is the amount that it’s going to be charged from your bank account. And you have nothing to do.
Seth: The loan instrument, like the loan documents that you’re using for this. I know those vary from state to state, it’s not like a static thing you can just use everywhere. Are those loan documents preloaded into Fabrica or does the user have to provide those and use whatever they want to do, or how does that work?
Federico Pomi: Seth, we make it extremely, extremely easy for our users. As a seller, as a user, you really just have to tie it into the price of a property, the number of months that you want to set up the loan for (the terms, essentially), and click on sell. And we automatically generate the document for you with a legal description and everything is done in the way that it’s correct for the state the property is in. So, setting up the property for sale, again, takes like five minutes and you’re ready to go.
Seth: As I’m thinking through the process, is it possible to set up some kind of an auto-generated length that could go on your website so a buyer could just show up, click buy, and it happens? Or do you have to have some conversation first and then you manually generate the link and send it to them and do it that way?
Federico Pomi: The link is generated the moment you put the property for sale. So, at the end of the process, you get the link, you use that link and copy and paste it on Facebook, on your website, on LandWatch, wherever you want. And that’s it. And if you want, we also provide a button that you can embed in your website and it’s like a checkout system in a sense.
Seth: Yeah, I guess that makes sense because I know when they’re going through like that, the buyer needs to create their own account and enter their own details in there. So, it’s like they kind of do the work themselves. It’s not like you need to be there to manually type it all out. Right?
Federico Pomi: Right. And let me add one thing. Since you mentioned, this morning, you actually bought the test property. I want to share what was my experience on the other side. Because I was the sender of that test property. I have like a two weeks old baby. And I was in the middle of managing the baby, which is quite a big deal. And I just received an email that said your property was sold. You have nothing to do. The money is on the way to your bank account. It was a cash transaction and that’s it. And that’s how it should be. And that’s what we do. We save a ton of time for land investors and we make the process so easy that you can focus on growing your business or doing the things that you really care about, but not the paperwork.
Seth: And just to understand logistically, let’s say I’ve got my property. I want to sell it on Fabrica, but it’s currently deeded in my name and the name of my company. So, in order to get that queued up, do I have to fill out a deed and transfer it to a trust and then it’s ready to go? I kind of have to do some groundwork first before I can put it into this system. Or how does that work?
Federico Pomi: That’s correct but we take care of everything. So, you go on the website, just type in your APN of your property or history to address. And we create all the documents, verify the title and set up the trust instantly for you online. And then if it’s in a state where we can use the remote online notarization, you would meet a notary directly online and sign it and the property is ready to go. Otherwise, it would send you to a notary to sign it. But yes, we take care of all that. And it’s super streamlined. And regardless of a state, you get the link to sell the property right away.
Seth: Is there a cost for that pre-work?
Federico Pomi: Absolutely not. We take care of it.
Seth: Wow, that’s pretty cool. Whenever I hear people telling me, “Oh, it’s easy. We take care of it all.” I always have a hard time believing that because nothing is that easy. Like there’s always gotchas and wrinkles and stuff that aren’t really being told to you until you get into it. And you’re like, “Oh, okay. I see. This is actually harder than I thought.”
So, what I’m trying to do here is poke holes in this and see, “Okay, where are the problems?” As I was going through this in my test transaction, I was the buyer. And I’m wondering, it sounds like this is a really good tool for the sell side. When the real estate investor is selling their property to somebody else and their buyer is the one who’s going to receive this link and go through the process.
But if I’m on the buy side, say if I’m buying this from a motivated seller or somebody who responded to my direct mail campaign, because they would have to then get it into the trust, which I always just assume everybody I’m dealing with is incompetent and they can’t do that. Is there an easy way for that to work or is this more intended for the sell side of things?
Federico Pomi: It’s a good question, Seth. So currently we are focused on the sell side. You’re right. But we have on our roadmap a solution for disposition too. So, we want to make it easy, not just to sell the property, but also to buy it from anybody out there.
Travis King: Yeah. Seth, I’ve used it. So, I’m backing up a little. Like you said, I went through the acquisition process myself on a self-close. It generated the deed, it had a notary meet with the seller. They signed it, sent it back to me. I then logged into Fabrica, took the source deed, granted their information source deed legal description, and loaded that in Fabrica. Fabrica converted that from the warranty deed to the trust. So that’s a little bit of work on the front-end, but that’s all I did, is provide those two things. And then they converted it to the trust for me. And then that provides the link. And as part of that process, I went through, they have notarized.com that they used as part of that.
So that was initially, and I gave candid feedback on that. That was initially kind of clunky. And that was nothing on Fabrica. It was also part B, right? First time you’re using that service, that notarize.com, that trust, and the documents themselves. I’m not familiar with it, the notary person was not familiar with it, but having been through it once now, after one or two as the seller, I now know what those documents look like, where the signature fields should be. I’m more familiar with the process and loading a property and converting from a deed to a trust. Now that I’ve been through it once or twice, I’m familiar with it. But that very first one, that was my impression, like you said, nothing’s perfect, right? And obviously, as you’re relying on other vendors.
But they took my feedback, they have certainly improved it. Obviously, the acquisition side is a lot harder. Because on the sell side, everybody that finds your property, they are online already. They’re looking on their phone, on the computer, they’re savvy enough to at least have internet access.
On the buy-side acquisition, it’s generally more elderly people or people that owned it for decades, may not have access to that. So that was my first question. That’s something to put on your roadmap. But I’m happy with it right now. I’m like, yeah, I’ll just get the sell side perfect and then at some point I’ll harass you for the buy side. Absolutely, I think that on that side of things, it just saves so much time. And in human input, human involvement on the sale side, that for me, when I started using it, I’m like, “Where were you guys five years ago?”
Seth: It is a big deal. And especially on the sell side. If there’s any side that you wanted to make it easier, it’s the sell side because that’s where things usually get hung up anyway.
Travis King: Yeah. The buyers get all excited they find a property online. They click “buy,” there’s some back and forth, and then you say, “All right, watch for your deed, four to eight weeks, depending on the county.” It kind of takes the winds out of their sails.
So, the ability to generate the document, the deed, the trust electronically, digitally the same day. Sometimes the property is their first purchase, right? So, it’s an emotional thing. So, getting the deed the same day, that’s one of the frequently asked questions is “When will I get my deed? How long does it take? How will I receive it?” All these things, right? The digital title part of it. You’re working in multiple counties. Each county is different. So, there’s a different lead time. So, for me, it streamlined a lot of things. And the more transactions you’re doing a year, the more that time savings scale, obviously.
Seth: And I know when I first heard about this, one of the “wah, wah, wah” moments I had, it was when I heard that this is only available in California. And was there another state that this works in?
Federico Pomi: We are now in California and New Mexico and Arizona.
Seth: Okay. That’s right. And then is there a plan to expand? Was it into Texas and Florida and somewhere else soon?
Federico Pomi: Correct. We are working to launch in Colorado, Texas, and Florida next.
Seth: Gotcha. And it sounds like just based on the importance of having online notarization, is that one of the holdups? Is that why this isn’t just instantly available everywhere because not every place makes it this easy-to-get online notary and that kind of thing?
Federico Pomi: No. Honestly, I think there are more things. When you look at each state, each state has its own rules and regulation and licensing, and there are quite some requirements there and we want to get it right. So, we are going state by state to make sure that from a user perspective, the experience is the same. So, they just use one platform. Everything works the same way, regardless of where the property is. While on our side, we take care of the complexity and regulation of each state.
And that is something that we have learned by talking with people like Travis. Most of the investors clearly use templates or contracts that they finalized by fine-tuning. And then they adopted from one state to the other. And you discover that some of those contracts were far from perfect or had issues. While we have a full-time real estate attorney in the team working on that problem to make sure that it’s done right.
Seth: Yeah. I know that was something that I ran into. I think it was back in 2016 or 2017. I was trying to create this map of the US that would clearly say in this state, this is the type of loan instrument you’re supposed to use. And this is how the foreclosure process. Just trying to make it totally clear so a person knows “No, no, I can’t just take this Michigan land contract and start using that in California or Texas or something. That’s going to totally screw things up.”
So, I wanted to explain that and, oh, my word, it was a nightmare trying to get all that stuff figured out. I had to give up on it. I was getting to the point where I was trying to find attorneys and I was getting attorneys that would contradict each other and tell me different answers for one state. And I was just like, “You know what? I’m not even an attorney. Who am I to try to figure this stuff out?” And it’s very, very frustrating.
So, I know that’s a big problem to try to solve that nationwide and just get the right thing in each place. So, it totally makes sense that this isn’t just snap your fingers and it works everywhere.
Travis King: That was something initially where we just loaded the one or two loans I have in California, because most of my businesses are in Arizona. So, I was kind of impatiently waiting for Arizona to get ready, sending emails back and forth. It’s like “Oh, it’s two or three more weeks for Arizona.” But that was key too because you’re right, also with us, even our business, what led me to mainly focus in Arizona initially was that all the counties use the same streamlined forms for affidavits and stuff. And you’re right, as stepping into different states, I had an issue or two in Colorado, which made me go, “You know what? I’m just going to stick with my state where I can streamline this and I know I’m using a contract.” But at the same time, I believe the states they’ve selected are probably the states with the highest land investor activity or transactions.
Seth: Yeah, it sounds like sensible places to start. Absolutely. One random question I did have. So, I know in my test transaction at the very end of it, I see, okay, you are now the owner of this trust. But it made me wonder, how does the municipality know where to send the future tax bills to? Because they don’t have a deed and they weren’t notified of anything. So, how does that process work?
Federico Pomi: Behind the scenes, we do notify the tax assessor that you are the new owner of a trust. So that’s something that happens on the back-end. So, we just send up a form essentially to the county, providing them your name or your company name, who has the ultimate beneficiary of a trust. And that’s the way they know who to charge the taxes to. And by the way, we also take care of paying the property taxes for you.
Seth: Do I get carbon-copied in any of this stuff so I can see what’s happening on my behalf? Because sometimes I’ve had enough experience with people who just don’t do it right or don’t know what they’re doing and they do it wrong. Is there a way to see what’s happening instead of just blindly trusting that it will be taken care of?
Federico Pomi: Each property has its own page on the platform where you can see all the documents. You can download them and you also get a certificate of ownership, but clearly states your name as the owner of a trust. So, you can keep your hard copy and you can use it also for legal purposes to tell the world that you are the owner of the property. So, if you want to build on the property and so on, that is the certificate that you want to use.
Seth: Cool. Do you see this someday putting title companies out of business or anything like that? What is it that a title company would do that this doesn’t do?
Federico Pomi: Well, I wish we can get to the point to basically become competitors for a title company or title insurance. I think that the main part to understand is that currently we don’t provide title insurance for the properties on the system, but it’s something we are looking into to do either together with some big-name underwriter or possibly with a new or a different approach. So eventually you’ll get to a point where the properties on Fabrica are insured so that you are safe. That’s the thing that we don’t do yet. And that it’s where we’ll be focusing our efforts in the next year.
Seth: I was wondering when I was going through my little test transaction. So, there’s a part where you have to put in your legal name and your mailing address, like where your home is, like your residence, your social security number, and birth date. Why is that necessary? Who’s to say a person can’t just make up whatever name they want and put that as the owner. And along with that, do people ever give you pushback or be like, “Hey, what is this random link I got to enter my social security number?” Is that ever a problem or not so much?
Federico Pomi: Honestly, we are not hearing too much pushback on their social security number. Remember that our buyers and sellers are people that meet online and they want the peace of mind to know that there is someone real on the other side of the screen. The fact that we verify the identity of each and every person on the platform provides that peace of mind. And if they have additional questions on how we use the data and why, we have pretty powerful customer support so they can reach out to us using chat, email, or even calling us. And we’re happy to help them.
Seth: Is there ever any confusion or hesitancy regarding the fact that they’re buying a trust and not a deed? Are people ever like, “Huh? I don’t get it.”
Federico Pomi: Well, this is something we had to iterate on quite a few times, honestly, to communicate it in the right way. And what we say now is that you own the property through a trust and you can do whatever you want with the property. And again, we provide a certificate of ownership, but it’s like the proof of ownership of a trust. So, once you explain to people why, and the fact that it’s a pretty simple approach, you do own the property and it’s just wrapped into this trust instrument, they understand it and they see how easy it is to use it. They’re fine with it.
Travis King: I think that’s something that as the buyers of the property, even myself, having dealt a little bit with trust, but I had the same initial questions and I’ve seen hundreds of deeds. So, I had those same initial questions. Hey, let’s do some frequently asked questions, like demo videos or something. Because the seller is going to feel those same questions over and over and over. What’s the difference between a deed and the trust? Why am I getting a trust, not a deed? So, I think there’s a very small number of questions that will come up, but it’ll be the same recurring ones.
So, as long Fabrica has a good demo video or something that you can quickly point the buyer to, to explain that so that you’re not manually having to explain that each time, I think that’s helpful because that it’s certainly something that can be confusing to people because they think in terms of the very best as a grant deed or a warranty deed and then a special warranty and so on and so forth. They’re kind of familiar with that.
And then some people even go, “Oh, a trust? That’s better. I have a beneficiary. I don’t have to pay to put it into a trust or do a joint tenant type deed or something.” But then there’s also a lot of people who just have no clue and no understanding and being online might be a concern. So, I think if you just address those very few frequently asked questions that buyers might have, and they’re fair, because they’re the same ones I had, being more familiar with it.
Putting it in a trust is great because with the beneficiary, for me, it’s something I had heard other investors were doing anyway prior to Fabrica, with their properties and allowed them to transfer it easier. But it was just something I hadn’t really dug into until I stumbled across Fabrica. Because early on some of my questions, they are explaining blockchain and Ethereum and the technology and I’m like, oh yeah. And on that side of things, I don’t get it. But obviously the customer, the borrower doesn’t have to deal with any of that. It’s essentially a digital title. And I think those words people understand and follow.
Seth: Is blockchain at work in this process? Is that what’s going on?
Federico Pomi: Yes. We don’t usually pitch it. That’s correct. So, every single transaction under the hood is recorded on a blockchain. So, it’s a way to make sure that transactions are secured and tamper-proof and transactions cannot be denied.
Seth: I don’t know what it is about that word. I’ve heard it for so many years now, but I just hear the words blockchain and I just shut down. Like, okay, just out of my realm, I don’t want to know about. So, it sounds like whatever the reason, it sounds like it’s smart to not to pitch that. Travis, I know with the seller financing things, but it sounds like you have brought over some existing borrowers to the system. What does that look like? Is that a pretty smooth process? Maybe you can walk us through the steps.
Travis King: Yes. It’s been great. We talked a little bit earlier about transferring. And so, what happened, I currently had the properties I owned who were in my LLC via a warranty deed. And so, I went through the process with Fabrica of going to the dashboard, putting in the grant or information like current information, the legal description of the deed, and then did the online notary and transferred them from the deed into the trust. And then at that point Fabrica had a template email I could send out to the borrower with a link saying, “Hey, your loan’s now being serviced by Fabrica. Click here to get your portal, get your account set up.”
That’s the nice thing about it. I think that’s one of the differentiating things with their product versus other loan servicing specific to land. They actually have a team, a company of people, and support to do some of the heavy lifting for you. So, they do the correspondence. I generated the initial email with the link that says, “Hey, your account is being transferred.” And they’ve taken it from there. And then they correspond by email, by phone, get the seller set up, get their payments in there. And then I can just log in and look at my dashboard or get my emails. Your clients made an extra payment. I can export to CSV, bring that into QuickBooks.
So, for me, what it’s done, it’s removed. Sometimes you have your high-maintenance borrowers that you hear from more than others. I had one that was not really a negative. They were constantly making extra payments. And that’s fine, that’s great but each time I had to manually send an invoice because I didn’t have a borrower portal or something and that’s one of the loans we’ve moved over and she might need two or three extra payments a month. But it just reduced the back and forth. I’m at the kid’s baseball game or something and I get a text, “Hey, can you invoice me for $500? I want to pay extra.” And I’m on my phone on QuickBooks trying to see the invoice. So, it’s things like that. I just check, is the account in good standing or are there extra payments? I log in and look, and it completely removes the back and forth, like with this borrower specifically. And then the other borrowers that have a lot of questions, it just removed that.
And I think just providing a better experience to the borrower, having a client portal, like any of us that have one with our mortgage, our car loan, whatever, versus lenders where we don’t have that portal. It’s the difference between having to pick up the phone and call somebody or text and just logging in and doing it yourself. So, it’s been huge for us.
I was even slower last year. My wife and I are moving away from seller financing. Servicing our portfolio got so large that it had started almost being, not only its own department, like a good chunk of the company. So, I was kind of looking at changing our business model and focusing on cash-only sales, just because there’s no maintenance to them. But now it’s a thing where I think I can balance both because there’s so much less time. It’s going to be input. And I can really scale. We generally do 30 to 60 transactions a year and it’s a lot of work between my wife and I.
And if I can kind of automate and streamline this, I’ve already got the seller financing down, wash, rinse, repeat. If I now have a borrower portal on loan servicing company that’s specific to land that knows how to handle things, I can now focus on acquisition and cash sales and larger deals not have to feel the back and forth. Loan servicing is a high-touch thing, a lot of back and forth on it and they’re taking care of that for me. So yeah, I mean, I was thrilled to stumble across them. I’ve tried a couple of different products and we’ve done a lot of loan service ourselves over the years.
Seth: That’s a nightmare, isn’t it?
Travis King: Yeah. I just didn’t find anything else that I was happy with. And I think some of the recent tools that have popped up in the last year or so in the land space, and this being one of them have been a game-changer for us.
Seth: Yeah. It’s actually a really huge deal because for land, especially if you are willing to deal with the hassles of seller financing, it’s just a huge selling tool and profit-building tool and cash flow. And to say goodbye to seller financing, you’re giving up a lot. I mean, there’s a lot of stuff you’re walking away from.
Travis King: Exactly. And the people that say, well, my property won’t sell. Well, sometimes they’re not offering seller finance, right? You obviously open up to a way bigger buyer pool if you offer seller financing as part of it. It’s just, you could spend yourself out of money too, right. Selling everything. So there has to be a balance, cash in terms of sales that you’re doing unless you come into the game with a big war chest of money.
I didn’t want to say goodbye to it because I liked the predictability of it, that recurring revenue. And I’m not sure I’m a fan of the passive income term, but the recurring revenue, I’ll call it. It’s more like gardening, right? You plant these seeds. You grow the garden and then it feeds you every month. Whereas cash sales, it’s more of that hunt and kill, right?
Seth: It’s a good analogy.
Travis King: You’re out there hunting for cash flow, trying to generate money. But if you have both going on, your terms and your loan servicing money can fund your business, your marketing and cover those other months where cash sales aren’t really happening.
Seth: With the mechanics of how it works, given that you’re selling a trust here in a seller finance deal, when do they get the trust? Is it after they’ve made all the payments and that’s when the transfer happens or does it happen before and then you can take it back? Well, what’s the order of that?
Federico Pomi: It currently mirrors what happens with land deals. The trust is transferred at the end of the payment plan. So, with the very last payment, you get the property automatically transferred to you.
Seth: I know one of the other hassles with seller financing is when borrowers just stop paying or they start paying late. Are there any mechanisms in place like can you have a backup source of payment if one of them fails? Do automatic notifications go out saying, “Hey, deadbeat, you missed your payment. Hurry up.” What happens there in terms of late or missed payments? If anything.
Federico Pomi: So, let me first say that since we automate the payments, all the payments are on auto-pay basically. We are not seeing many cases though. So, it’s usually a pretty smooth experience. The buyer simply gets charged every month. And so, there’s no way he can forget about it because it just happens. So, it’s pretty rare or unusual to see missed payments for that reason.
If, for any reason, the payment doesn’t go through, there’s a grace period and we try to resubmit the charge again, the customer several times. And then after the grace period, we start talking with the customer and see how we can adjust the payment plan. Eventually, if there’s no way to do it, it goes into default and the property goes back to the seller.
Seth: And then I haven’t done enough testing with this to know, but I wonder if that’s a side benefit of having people use an ACH instead of a credit card because with a credit card is so much easier to just like, “Nope, cut it off, cancel the card.” Whereas an ACH is like an actual bank account.
Travis King: Absolutely, you’re spot on. That’s what I was kind of holding my breath and waiting to say. That’s exactly the case because we have a number of people that do credit cards, some do that. We’ve always found that I steer people toward ACH even prior to this because obviously it’s cheaper and they charge us less. So, the more loans you have, the more you’re saving if you have them on ACH versus a credit card. But also, if you’re not running through a title company, you’re buying land via seller financing. A lot of people, the income brackets that are in, some of them have prepaid credit cards, right? Like they load these credit cards and then they didn’t have the funds on there in time. And you are auto drafting from a debit card like that.
Because that was initially something early on. I said, “Hey, we got to be able to take credit cards because a lot of my buyers do that.” And that was just something I was kind of taught and had learned. And I thought that’s easier for them to check out through the website, it was the main reason I had done that. But at the same time as I’ve moved them, I haven’t found anybody with it other than one or two, I’d say, that had an issue moving to ACH and it is way more reliable and way more stable. And it’s one of those things I wish early on I had just fought that battle and said “Sorry, we only take ACH versus credit card.” I was trying to be flexible and offer buyers different options and fewer hurdles. But at the same time, people that have a checking account are genuinely more reliable and then you’re getting a higher class of borrower.
Seth: Yeah. It almost kind of begs the question. I know, obviously, we always want to make it as easy as possible to reduce barriers to selling something. But at some point, you have to have some barriers. You need to come to the table with something. You can’t just let anybody and everybody buy it. Like, “No I’m only going to pay you in pennies every month and I expect you to make that work.” It’s like, no.
Travis King: Well, exactly. And then you’re dealing with, like you talked about, these late notices, missed payments. So, the smaller down payment you take and the more payment options you take versus ACH, the higher your default rate I think is going to be.
Seth: Yeah, for sure. Fidel, I know you said that you kind of learned a lot of stuff from working with sellers and trying to automate things. What are some big lessons that you’ve learned since starting this company? And I don’t know, what comes to mind and where do people make mistakes? How can they make things happen easier?
Federico Pomi: I think the answer to this question, you have it in this podcast. I was listening to Travis while he was describing the process that he used to use to sell properties with seller financing. And you see more experienced or advanced investors basically have built their tech stack of tools that they use. They use Stripe or MoonClerk. And you start to hear more and more names of tools, over tools, over tools. You’re trying to automate something with a spaghetti to sort of find a solution. I’m Italian, I’m allowed to say so. It gets very hard and it’s very easy to do something wrong.
And something can stop working because all of a sudden, you know what? Your payment processor doesn’t accept payments for real estate because it’s not allowed by their terms and conditions. And you have like maybe a hundred plants, but all of a sudden you cannot get paid for. And what do you do? So, what we have learned is that this approach doesn’t work. So, you need to have something that takes care of everything from end to end and that’s what we do. And be careful in trying to patch that thing together by yourself because eventually, something will just stop working.
Seth: Yeah. It’d be interesting, like that whole spaghetti analogy, that makes tons of sense. I can even see it in my head as I think of all the different software things we use. But it would be interesting to figure out what parts can Fabrica handle and what parts can this CRM handle and what parts can this handle. And just try to pair it down to the fewest number of things in platforms you have to log into on an ongoing basis and just show a super-simplified picture. Like this software handles this department. And this handles this.
That’s the thing because there are different overlaps. Like some software things will handle little parts of this and that. And it’d be nice to have one place where it’s all there and it’s easy and you don’t have to be a genius to figure out how to use the software. Maybe someday we’ll get there. I don’t know.
Travis King: We are itching in that direction.
Seth: Yeah. It sounds like it.
Federico Pomi: Yeah. Well, we try to cover everything that is not marketing in a sense. So, we think that land investors should be spending their time finding new opportunities and new investments and the buyers and market their properties. That’s their job. And that’s what they like to do. And we want to enable them to do more and more of these and forget about all the backend paperwork and so on that we take care of.
Seth: When I think of how much work must have gone into building the software to get it to where it is. And it’s serving such a small niche market right now, where is all the money coming from to do this.? How have so many resources been devoted to building this up to the point that it’s at?
Federico Pomi: We are a venture-backed company. So, our venture capitalist invested in the company. That is basically allowing us to build a solution for real estate and to make real estate digital and programmable. So, that’s the vision for the company is to make sure that in the future, every single real estate operation will be performed fully online and in a digital way. Investors believe in this vision.
Seth: Can I invest anything and take 50% ownership of the company or anything like that?
Federico Pomi: Yeah, well, we can talk about it after the podcast.
Travis King: Seth, that’s what I was touching on earlier why this is a little different product than some of the others in this space. The support you receive, or that I receive, it’s not the same as some of the other ones, where you got one guy that was hired off Upwork who’s overseas and he may or make it back to you within 72 hours when you open a ticket but for some reason, he’s never online when you click the chat or the intercom button. So, I’m saying that this is a true company and a product with a support team and real estate attorneys.
I mean, I only moved one loan at first. I was hesitant myself early on because some of the ones in the space that I’ve tried just really fell short. I was slow to move on this and very suspicious of myself. And I think what they’re doing, they’re also building it out because they are back and they’re trying to do it right. They’re building out one state at a time. And I think improving it, land investing is kind of the wild, wild West, a lot of Cowboys out there. And I was getting the same way, using the same land contract in multiple states, just trying to streamline my DocuSign process and just bang out as many transactions a year as I could. The bigger you get, the more concern you get with liability once you actually have a little bit to protect or lose.
Seth: You can’t get away with that forever, that’s for sure.
Travis King: Yeah. You really can’t. So, it came at a good time for me because once the business finally had legs and it was well past that point, we needed to grow up right and start using real contracts that were created by real estate attorneys. And not just something we threw together, used a template out of a course from several years ago or something.
Seth: Yeah, that’s one of the things I kind of appreciate about just from what I’m hearing is the acknowledgment of the complexity in seller financing is something that so many people just throw around like, “Oh yeah, just do seller financing. All your problems are solved.” It’s like, you’re actually asking for a world of complication when you get into seller financing. It’s not that simple. And if you don’t have a way to address those issues, it’s like, I don’t know.
Travis King: Like accounting. They just say get a good accountant, right? There’s a lot more to it than that when you’re selling real estate, speaking of seller financing. But yeah, absolutely. There’s a lot more to it that you’ve got to unpack and multiple gateway processors and maybe processor payment gateways like you touched on earlier this spaghetti analogy, right? I mean five or six different accounts I have, whether it’s Stripe, QuickBooks, partnering payment system, you name it. All these different ones to try to duct-tape together a solution that I think Fabrica is kind of an all-in-one turnkey solution on the disposition for selling side. Obviously, it would be great if they move into the acquisition side of things as well. But this is such a game-changer. Just being on the selling side of it, that I’m happy with that.
Seth: I’m curious, is the plan to take this mainstream one day? Like this will be used for a lot more than just land.
Federico Pomi: Yes, it is. We started from land, we started from smaller properties. We are going up in terms of valuable properties. We’ll get title insurance and then we’ll get into residential space. So, the plan is to cover more and more of it.
Seth: I know, just looking at the pricing of it. I don’t know if this pricing is going to change over time, probably at some point it will, but it’s kind of a no-brainer just considering the cost of what it uses per transaction if it’s a cash deal or per month if it’s a seller finance deal. I mean, you could easily, very easily charge closing fees to your buyers to cover this stuff. I mean, it’s almost like a no-cost thing in most cases, it seems like. Given all of the things that it solves, if you’re in a state where it works, it seems like it’s at least worth trying out just to see if it works for you.
So, are there any questions I should be asking that I haven’t asked yet? Have we covered all the main things here?
Federico Pomi: I think we cover most of it. Travis, do you have anything that you think that you have noticed using the platform that you really liked and that you think the world should know?
Travis King: I think I would just tell people that are doing seller financing right now because I was at this point a while back when my wife and I serviced our loans is you kind of look at your loan servicing fee, your monthly fee, and your document for your closing fee as a profit center. And regardless of how many transactions you close, let’s say, we were up to like 30,000 a year between closing fees and loan servicing fees. And that may sound like a lot to somebody but at the same time, that’s a pretty low salary, right? If you’re constantly having to service these loans.
So, what I’m trying to say is you can pass on that cost and remove yourself from the business. So that closing fee, you’re right, most land sellers in the under 15,000 price points charge at doc prep fee or a closing fee that will more than cover Fabrica’s fee if you’re doing a cash sale or on a term sale, the monthly loan servicing fee, we charge like $19, I think. And I believe that’s what Fabrica is priced at, at this point.
So yeah, we’re just passing that cost onto the buyer to pay for those. Having the ability to have their own client portal. And you truly are servicing the loan. We’ve always just charged that loan service fee, but all that meant was it would respond to your email and let you make an extra payment or something. But now ours really do have a client portal to service their loan instead of looking at a loan servicing fee and closing fee as a profit center. We now look at Fabrica as a solution to remove ourselves to pass that cost onto the borrower.
One big cash transaction exceeds your annual loan servicing fees right there. So, if you can do one more cash deal because you’ve removed yourself from this part of it, that’s huge. And that’s the point we’re at where we’re looking at products and services and processes that can remove us from being part of the business, or at least reduce our involvement, if not totally remove us.
Seth: I used to work in a small business financing company. We had a few hundred loans on the books and we had a full-time loan servicing person. Literally all they did was just service loans. So, it’s a big job. And in my opinion, it’s not a fun job.
Travis King: That’s the main thing. If that brings you joy and that is your calling in life, so be it, stick with it, right? I actually started to grow resentful every time I’d see an email or a text come in and say, “What do you want? What do you need?” Well, it’s fair for a borrower to have a question or switch a card, right? The reality is when you have such a high volume of those coming in. So that’s what it’s done for me. And I wasn’t loan servicing. I wasn’t really providing great service because I didn’t find joy in it. It was a nuisance. I had to tolerate the trade-off of having that monthly recurring cash flow. But this product allowed me to remove myself and not deal with that client-facing side of it. That’s not my strength. You’ve got to stick in your area of genius, right? And for me, those are acquisitions and direct mail and buying more properties and researching new areas, not answering questions, and loan servicing.
Seth: I do have one last question for Fidel. Who makes a better sports car? Italy or the U.S.?
Federico Pomi: You can’t put me on the spot like that.
Seth: Or we can say spaghetti or pizza or anything?
Federico Pomi: Yeah. It’s Italy for all the questions that you asked.
Seth: I’m not going to argue with that. Thanks to both of you guys for talking with me, it’s been very enlightening. I’m glad you guys reached out to me and let me know about what was going on. It’ll be exciting to see where this goes over the next year or two or three years. And yeah, I think it’s a viable resource to at least know about, if not use. I appreciate it guys. And hopefully, we can bring some more awareness to the world about what’s going on here.
Federico Pomi: Thank you so much, Seth. It’s been a very great conversation. Thank you very much.
Seth: And if people want to go to the website, obviously that is fabrica.land and that’ll bring you right there. Travis, is there anything you want to share if people want to reach out to you or check out your website or anything?
Travis King: Oh yeah. If they want to reach out to me, our selling website is landtownusa.com. We’ve been in business for several years. And then we’re also in the process of launching a site called connectedlandinvestors.com. Also, a Facebook page just in, literally building it out this week, but to help new land investors and point them in the right direction and kind of fill that void of funding, getting funding for your deals or providing funding.
Thank you because it’s been several years, I don’t know, six, seven years ago when I was just getting started in land investing and actually I reached out to you. At the time, I couldn’t find courses. I had heard your interview on BiggerPockets and I reached out to you. You had responded to my email and that was key to kind of the genesis of us starting land investing. And it was something that initially early on my wife and I always wanted to build a couple of thousand a month income on the side. And I mean, we’ve taken it, you put 20X that.
And a lot of that was really on the foundation I built consuming your free content. You being willing to point me in the right direction and click reply on that email really is key. Several years later we’ve got a land company that I’m proud of. So, absolutely, I want to show gratitude.
Seth: That really makes my day and it’s a good reminder of why I’ve been doing this for so long. So, I appreciate you, email me. It was back in 2014 or something?
Travis King: Yeah, I think 2014 or 2015 or something when we were kind of dinking around with houses and I was listening to BiggerPockets and I heard you give an interview on land. It resonated and then I went from there.
Seth: And luckily that was one of those days when I wasn’t dealing with a nasty seller financing. I didn’t reply with “What do you want?”
Travis King: You were on your game. Yeah, exactly. Yeah. You were servicing your own loans.
Seth: Thanks again, guys. I appreciate it. Hopefully we’ll talk again soon.