Episode Transcript:  

  So AI is all the rage these days, and it's even starting to penetrate real estate in some pretty interesting ways. We're gonna unpack that and more on today's episode. Let's get REady2Scale.

Hey guys, my name is Jeannette Friedrich. I'm the director of Investor Relations here at Blue Lake Capital, and today joining me is TJ Burns. TJ is a partner of Cindra Lending as well as the founder of Burns Capital Partners. Before that, he was a senior product design engineer at Amazon, as well as a former licensed real estate salesperson.

He has a bachelor's degree in mechanical engineering from MIT, and he's joining us today from Long Island. So tj, welcome to the show. Thanks for having me. Excited to be here. Yes. So I hear you are famous for what's called the wallet story. So will you clue both myself and our listeners in on that action?

Absolutely. So this goes back to December of 2019. I was working in am in Boston, and I was working at Amazon, living in Boston, and I was walking home from my friend's house one Saturday night cold, Boston Day. It was dark, and as I'm walking, I see a lump in the street and it catches my eye.

It's out of place. I go up to an, it's a wallet. My first thought is I'd like to return this to a, whoever it belongs to pick it up. Look at the id. Honestly, it looks like a college kid or something. And I'm, I go to the internet, of course, and I look the person up and up pops their Instagram page.

And it's not a regular Instagram page, it's a business page. And it is all of the deals that this person had done over the last two to three years in the real estate space. They were building a business outside of Boston in a tertiary market. They were documenting everything that they were going through, all the wins, all the challenges, all the crazy looking homes, and when, 'cause he was buying c class properties.

There was a lot of stories that come with those. And for me it really it was very serendipitous because I was trying to figure out how to break into the real estate space myself. I had been experimenting with my own small properties. Trying to balance that with my job at Amazon, reading a lot, listening to a ton of podcasts.

And here, right in front of me was an actual person that was in the business and was doing all the things that I wanted to be doing. So I, of course, reached out to them. We met up made sure all the stuff was in the wallet. And before that I thought to myself what do I have that this person could ever find useful, which would make them wanna work with me?

And I had no experience. I had no connections in real estate, but I did have a great job that produced income that I could set aside and invest. And before I knew anything about passive investing, I approached this individual and said, Hey, if you ever need a partner that will just invest the money alongside you, maybe we can collaborate in some way down the line.

But I do wanna do that. And, little did I know that's a whole industry and of course you said you're gonna gimme money to buy real estate. Yeah, sure. Let's keep talking. And here I was, I thought he was doing me a favor, but we did our first deal about nine months later and.

It went pretty well and I probably asked the most questions that any LP has ever asked about any deal. It was a small 16 unit property. There really wasn't much to it. And fast forward, that same individual is now one of my business partners. We've bought over $25 million in real estate together.

We've raised probably north of $10 million from investors just like I was. And and yeah, finding that wallet was a big supercharged, supercharging moment on my journey in real estate. 

Wow. Wow. Very interesting. And yes, it sounds since then you have indeed come a long way, including the company that you recently started Xiidra, which is very interesting to me.

So you're now expanding into the world of lending and you're actually experimenting with an AI voice agent. So what exactly is this agent and how does it work? 

Yeah, so I'll back up real quick about Xiidra. So it's a business that my two partners actually started about two years ago. Just your typical fix and flip loan originations business where they were using credit lines to fund these loans.

They were collecting the fees and in a lot of cases they're actually holding the loans for the interest and. It's somebody I met at Amazon. We had been talking for a long time. I had actually referred a lot of business over his way and earlier this year we came together and decided to try to scale this business because one, we, one we think it's a great business to be in the business of, lending for fix and flips.

And two, we could sense this change with technology and thought that a lot of the things that were coming out would be. Great building blocks to build a business around. So specifically with lending there, there are the typical steps. You have to go and find people to borrow from you.

You have to do the intake process for all their information. You have to process that information. You have to do research on that person and the deal. And a lot of these things are. It would be useful to, to have AI to help you with that because AI is very good at gathering data from around the web and structuring that data making it more readable for humans especially when you have large amounts of data.

And it's also very good for automating things. So things like intake and. That's what the voice agent is for. So imagine somebody answers the phone at a typical lending business and they're gonna just simply collect information and that information's gonna be passed on to an underwriter.

If the underwriter's gonna go onto the web, they're going to use their tools to underwrite the deal that they're gonna do some research. A lot of these steps can be done automatically. So you could have a voice agent that is an AI that answers the phone before the phone even rings every single time.

And it asks all the right questions, and it keeps the right pace with the person. So if they're in a rush and they just want to blurt out all the information at once, that's fine. If they wanna go step by step and they're not sure what pieces of information are relevant, that's fine too. The agent can do that, and then it all automatically gets logged and it automatically sends a notification to the team.

Then it automatically kicks off some initial underwriting process. The tech is at a place now where you can start to build these things. It's not perfect, but it's the worst that it's ever gonna be. So I'm very excited for where it's going because there are def definitely a lot of bugs right now, but give it a year, give it two years.

I think it's gonna be more of the norm. 

Very interesting. Now you make that sound so easy and like it's just working so smoothly. So I have to ask, has this AI agent actually helped or hurt during these live borrower calls? 

I have to caveat it because it's very easy to get caught up in the futuristic sense of it all and to think more idealistic, this is.

It's making a big difference, especially on social media where things are exaggerated. I'd say short answer is the world's really not ready for the tech yet. The adoption is low. And people like myself who read the AI newsletters are using the tech as soon as it drops. We're so early, and so I've been doing some calls with.

With other businesses who see some of the stuff that I'm doing and they're interested in, they're wondering how they can implement this stuff into their business. I did one last week with a lending business. So they're further along than we are. We've originated about $8 million in loans.

They've done, north of 20 to 30 million, they have a full team, your standard people within a lending business. I had a call with all them where I was able to speak to them about some of the tools that we're using, and I asked them before we started, who is using AI in, in your day to day right now?

And almost nobody was. They, yeah. I, and for somebody like me, that, that blew my mind because in, in my very small silo, in my basement office, the world is already running on AI agents. Yeah. But here I was talking to people that are actually doing the work and the most advanced person in the room is using chatt PT for certain applications.

To answer your initial question, there are a ton of bugs in building this stuff. It takes a lot of my time and because my background's in engineering and my brain is programmed to enjoy solving those problems. The time just flies when I'm debugging the voice agent and working through all the different outcomes.

But the reality is that it's not worth most people's time to, to build these things just yet. And even when we're working with borrowers, they still want to talk to us. They don't want to talk to the agent. It's gonna, it's gonna be a while before their instinct is to go and work with the agent, and it's probably gonna.

Be the result of some kind of friction in the business. Maybe we grow to a point where we can no longer have that personal phone call with every single borrower, and then it becomes the best option to call the voice agent. 

Interesting. Yes. We will have to see relationships, as everyone knows is definitely a key component, especially in real estate.

So I can see the challenge in trying to get people to adopt, speaking to, and having to interact with the ai. Now, I'm curious to know, I, it makes perfect sense for the intake. How much are you utilizing it for underwriting? 

So when somebody submits their information, they submit their name, their entity details, their the address, they're looking at some of the numbers.

That automatically kicks off a process for us where we go out and we pull market data, we're pulling comps, we're analyzing those comps. We are trying to check the quality of the data that we're pulling to, and giving ourselves a confidence score. And that serves as a, as an initial screen for us.

So behind all this is me and my two partners, and we don't do anything until a human looks at it. But it's very useful for pulling all the data together that we would otherwise have to go and find. 

So you do have that port, you do have that actually automated? 

We have it automated, yeah. And that's really useful. And you can scale that as much as you want. For instance, with our process, I, for a while I had it just running where it would work through one. One set of data that we had, it was basically Zillow data. 'cause we do a lot of one to four unit properties, but you miss certain things and there's holes in the data.

For instance, like if somebody submits a duplex, sometimes the number of bedrooms and the property doesn't come through and it screws everything up. So what I found is that a good supplement to that is to have another process where it outputs a prompt. So it just gives us a very detailed prompt. So picture like a, three paragraph essay.

On. All of the information we've been provided so far structured in a way where we can go to some other model that is maybe better for searching the web or more fact-based. We can input it so it just makes it a bit quicker. Whereas somebody who maybe they're using ai, like in my example of the talk I did last week, you know that one team member who is on the cutting edge of their team, they're using chat, GPT.

Perhaps they're taking all the inputs and then they're structuring them into something themselves and then putting it into ai. We're just automating that as well. 

Interesting. Now, ultimately, what specific problem is it that you're trying to actually address with this fix and flip lending to begin with?

So funny you asked that because I just had a conversation with another person who's very similar to me earlier today and. We both reminded each other that you shouldn't build something without having a problem that you're trying to fix, right? Which as an engineer, right? I'll go and over optimize things, and i'll get excited about the fact that you can even build voice agents and I'll go build one thinking that solves something in the marketplace. And I'd say right now, while we're small, there's really, there is no need for that because we can go hire those people to sit in those seats and to do those typical things that, you know.

Somebody on an underwriting team might do? I would say the problem that, or at least the solution it provides without maybe having a very strong problem is that it allows us to scale with way fewer people and way faster. So it, there's really no reason why our business will have large costs.

When, maybe two, three years from now. The very interesting thing about these things, so like for instance, voice agents. Last month there were about 140 calls. Most of those were me testing it. The total cost of the LLN was dimes. It was like 20 cents, 30 cents. You put a human in that seat that takes 140 calls.

It's. It's much more expensive. And I don't want people to hear that and think, oh wow what's gonna happen to my job? Because Yeah. That's not been my experience. What happens instead, like within my business is rather than us doing the things that we did five years ago that AI can now do for us.

We're doing new things. So AI is working underneath us. It elevates us to the next level in, in, in our business. And we're just getting more done. Maybe we're doing it better. I think that's what's gonna happen, instead of people being replaced. Perhaps in my business, we're, we won't hire as many people, but whoever we already have, they're just gonna be orchestrating these things along with us.

Yeah. Yeah, for sure. Now, I am curious to know, because you did go to MIT and you're super smart and you're in the lending space. A lot of people have developed a lot of interest around getting into, private debt funds or just getting involved in some way or shape, on the lending side of the house.

What is a specific metric that you're watching to basically predict. Predict, loan performance after you've sent out these, or extended these credit lines to people. 

We care a lot about, like the loan to values of the deals that we're doing. So we're looking for, 30 to 35% buffer.

We're lending at 65, 70% LTVs. And then to date, all of our borrowers are people within our network. So they're people that we know. We know not only who they are as people, but what kind of businesses they run, the deals that they've done. And for me, that's taken away a lot of the risk because, so me and my partner who, the wallet belonged to, we run a multi-family fund as well.

So I see it from that side too, where we're operating. And all the problems that come up in the day-to-day that you have to solve for, and nobody can predict those things. So as lenders, we don't know all those different instances that are gonna come up. But what we can do is we can pick who to bet on and know that they're gonna figure it out and we can incentivize them to do so if they have a great deal where there's a lot of money on the line, and also they're personally guaranteeing the loan and they have their own skin in the game, then. Those are the things that we care about the most. 

Yeah, for sure. It is admittedly challenging. When there's, when there is volatility in the market as there has been, and, a lot of uncertainty as to what's gonna happen with cap rates.

And then of course the direct correlation that has to valuations in being able to really underwrite deals with a lot of confidence. And I think it's interesting though, because I assume that must be mitigated to a certain extent since you're focusing more on this. Fix and flip model. So what are some other, interesting advantages that you've discovered about doing the fix and flip as opposed to maybe a longer hold period?

I think the yields are higher. Is the main thing. S that's one another thing comes to mind, which I'll touch on in a second. For one, the yields are higher. So as a smaller lender, our cost of capital is higher than most more established lenders. Groups that can go to a bank and they can get a line of credit at some spread.

We don't have that option yet. That's the goal. But for now, if our cost of capital is around, eight to 10%. Then we're going to lend at 11, 12%. We have to find the instances where that makes sense without taking on more risk. So usually it's a time-based thing. We're working with people who they don't want to go through the process of working with bank.

Maybe they don't have time to do that. Maybe the deal doesn't qualify for bank financing. And that's where we can step in and we can lend we're also not doing. Big projects yet, so we're doing mostly a hundred thousand to a million and there's maybe slightly less competition there, although it's still pretty competitive.

I'd say the other big advantage is that we're not locking into anything long term, so our average duration is about 12 months. And. Especially with where the macro environment is today. I think that debasement iss a huge risk for lenders. So locking into longer term debt and having the value of that principle eroded just because of inflation.

That's something I think about a lot and being a shorter term lender, it allows us to mitigate for that a bit. At least un unless we see a situation where there's hyperinflation, then we're locked into this note where. At the end of 12 months, it's worth way less. Yeah, let's hope. Let's hope we don't get there.

Yes. Yeah, indeed. All right. This has all been very interesting and I appreciate you shining some light on it, especially the newer aspects of ways that people can, efficiently run their business. Particularly with the power of AI and all the fun tools and toys that we're starting to create with that.

So before I let you go though, I do wanna ask you what are called our lightning round questions, which are five questions that I ask all of the guests on the show. So are you ready for those? 

Let's go. 

All right. So when you're not fiddling with your AI chat agent and troubleshooting that, what do you actually do for fun?

So yesterday there was a nor'easter here in New York. High winds. And I went wing foiling. I don't know if you're familiar with that. No. Wing flailing. Wing foiling. So the foiling, 

okay. No. What is 

this? The wing part is it's basically like a big kite that you hold onto not to be confused with kiteboarding, which actually is a kite.

This is one where you're holding onto the sail. It's just not attached to the board. And and the foil part is a hydrofoil, so it's this big carbon fiber fin that goes two feet off the bottom of the board. And that is. What creates the lift for the board? So when you get up to speed, the board's off the water, it's much lower friction and it's kinda it's kinda like windsurfing, but you're windsurfing plus flying together.

Wow, that is very interesting. No, I absolutely have never heard of that. How fun. How interesting. I was a noreastern enough of a nor'easter to make it a good a, a good game, a good, ride. 

It makes it a lot easier to have a lot of wind. So it definitely helped. 

Interesting. Interesting. Okay.

Alright. And then what about as far as a book or a podcast? You mentioned earlier that, when you were learning, you were listening to tons of podcasts and if somebody wants to say, freshen up or start to sharpen their skills a lot more in this AI space that a lot of people just feel like they don't even understand or know anything about it.

Is there a podcast or a book you'd recommend. 

That's a good question. I, nothing comes to mind, but in terms of a good book, stuff that I've been reading has been more focused on the history of money and civilizations and how they, they cycle up to empires and how those empires collapse.

There's one great book that I've been listening to. It's called Broken Money by Lynn Alden. It goes through the whole history of money, so how money came to be going through all different types of civilizations, bringing it up to the present day, and then it ties into Bitcoin as well which I think is interesting, but would recommend 

it.

Very cool, very interesting. All right. And then, oh yeah. So what is something interesting about you that most people don't actually know? 

I think people that, that know me, more in my, my normal life setting know this, but in the business world, probably not. I've been with my wife Jamie since we were 16, so Oh, wow.

I'm in my thirties now, so it's been a long time and we just have been building a life together and now we have a, a two, two and a half year old,

ah, nice. Very nice. Alright, and then, one of the things that we'd like to focus on too is that, yes, we all wanna make money, we wanna have some good returns, but the point of it is really about being able to build and live extraordinary lives.

So what is your advice to someone that's focused on doing that? 

When I was at Amazon I thought about retiring a lot. So I was working at as a senior engineer and I thought I liked my job, but looking back I, I really didn't because I just didn't have anything to compare it to which now I do.

Back then it was very important to me to hit a certain number. In my finances and to have freedom to go and retire or do whatever I wanted to do. And I found that when I left and I started my own business which I did on the side for a while, while I was at Amazon, but when I went full-time, that fear evaporated because I realized.

One, I was finally spending my days doing things that I liked. I was back to growing as a person and it just became way less important to, to look into the future at this, maybe date that I could go and live the life I wanted to live. So I just started living it now. Yeah, I guess that would be the advice.

If you're somebody where. You are looking to a later date, try to figure out ways in your life where you can implement those things today. In my situation there were fears that were unfounded. There were things I didn't think of that, that were, things I had to figure out.

But once, once I stepped into that life, all the other things they weren't as important. I realized that I could go out and make money if I needed to. I could, if I lost everything, I could make it back. Yeah. That's the advice. I probably don't wait either because you, we just never know.

Yeah. Excellent advice. All right, and then last but not least, tj, if folks wanna get in touch with you, how can they find you? 

My website, burns capital.com is a good place to get in touch. If you want to check out the AI stuff to test out the voice agent, the chat bot, go to zender lending.com.

Even if you're just playing around with it, we'd love to, get some reps in for it and and then LinkedIn as well. You can reach me on LinkedIn at TJ Burns. 

Awesome. Alright, thank you so much for taking time to come on the show. I really appreciate it and it was a fun and interesting conversation.

Thanks again 

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