Some of Randy Hopkins’ clients have bad credit.
Others are self-employed and lack a stable income. One flips houses. Another is a first-time business owner. A few are developers, snapping up large acreage in Boise’s suburbs. Many of them need money quicker than a bank can provide it.
Hopkins, 64, was born in Caldwell and raised in “an entrepreneurial family” that sold Christmas trees, rented apartments and ran a farm. After graduating from the College of Idaho with a degree in business administration and economics, and getting his real estate license, he started Hopkins Financial Services with $2,000.
Now, 40 years later, his Meridian business has funded over $1 billion in unconventional loans, or more than 3,000 transactions, in the Treasure Valley and beyond. How’d he do it?
The Idaho Statesman spoke by phone with Hopkins to understand his business model and how he became successful. During the conversation, which has been edited for length and clarity, he talked about why he got into private lending and how his company survived the Great Recession.
Tell me about Hopkins Financial Services. What does it do?
We are a nonconforming, private-money real estate lender. We simply make loans where banks and conventional sources cannot or will not make loans, which is generally for three reasons.
One reason is a borrower is nonconforming. For example, they have terrible credit through a bankruptcy or foreclosure, or they could be self-employed and lack a stable income.
The second reason is a property is nonconforming. An example of that would be a residence on a commercially zoned lot in downtown Meridian or a manufactured home on land with no foundation.
The third reason is a nonconforming time frame, meaning that a borrower needs money more quickly than a bank can fund a loan. The best example would be a developer with A credit. [Editor’s note: A credit is a grade some lenders will ascribe to borrowers who have a high credit score, among other factors.]
Are these loans riskier?
From a certain perspective, yes. A bank looks at the income and the credit of the borrower first, then they look at the property. We are the opposite. We look at the property first, and then the borrower. We loan generally 80% loan-to-value or less, where conventional bank would loan a higher percentage of loan-to-value.
Loan-to-value is the amount of loan that you would loan someone as compared to the value of the property. For example, if there was a $1 million property and we are willing to go 80% loan-to-value, we would loan $800,000 as a maximum.
How often do you turn away prospective borrowers?
Quite frequently. Like if the borrower does not show enough repay ability or if the property is not worth the amount to have a proper loan devalue. Just like a bank turns loans down, sure, we turn down a lot of loans.
What does your vetting process look like?
It’s similar to a bank. A bank would look at credit, character and collateral, and we do the same thing. But again, we’re a niche lender — meaning that, if someone can get their loan at the bank, they should do so. Because they’re cheaper than us.
Our niche is loaning to those people that can’t get a loan at the bank. And so there’s going to be something that makes the loan nonconforming: either the borrower, the property or the time frame. The simple threshold that I always tell people is: If you’re going to borrow private money, or nonconforming money, the benefit has to be greater than the cost.
Can you talk about your upbringing, and how you got into private lending?
I was born in Caldwell in 1959 and raised in Middleton, in an entrepreneurial family. I knew I wanted to do business, but I didn’t know what. So I took a real estate class at the College of Idaho and I sat for the exam and passed it.
At the same time, I was running a small restaurant in downtown Caldwell with my sisters, but it had no chance to succeed. It didn’t have a big enough kitchen or parking. So, after college, I started selling real estate part-time. That was in 1982, when interest rates were much higher; bank interest rates were around 13%.
As a real estate agent, I saw situations where the banks would not make a loan that I thought they should. And I was lucky enough to play college golf, so I knew business guys with money.
So, for three real estate sales that year, I arranged my own private money to fund the loans to complete the sales. The first was on a duplex in Nampa next to commercial zoning. When the bank said they wouldn’t make the loan, I asked the borrower if they would pay a higher interest rate if I could get it done. They said, “Yes, we want to buy the property, and we’re fine with a higher interest rate and a higher payment.”
Then there was another situation with a farm. And another with a mobile home on an acreage with no foundation. I got a contractor in Meridian to fund my third loan. I was just an agent trying to get a property sold. But I saw situations where banks simply would not make a loan that I thought they should. I thought well, this could be a good investment.
Our slogan at Hopkins Financial Services is: discovering opportunity and creating solutions.
How did your business survive the Great Recession, and how is it getting through today’s high mortgage rates?
We barely survived the Great Recession. We lost significant money for investors, and we protected significant money for investors. It was very difficult. Why we survived has a lot to do with staying honest, having integrity, loyal clients, some luck and a crazy amount of hard work. We came very close to going out of business.
The fundamental thing was a huge devaluation of real estate in Idaho and across the country. As you know, there were banks that went out of business.
We were concentrated too much on bare land and had too much exposure in the second-home market. We responded differently. In today’s market, we make loans mostly in primary home markets. And we don’t put too many eggs in one basket.
What advice do you have to offer after all these years?
Stay humble and always remain a student.