Combining both the ‘fix and flip’ loan product with the DSCR loan product can be a great way for our borrowers to increase their wealth: John Femenia

“Currently, we are in the process of expanding our operations to Texas. This market appeals to us due to its favorable landlord-tenant laws.”

 John Femenia is the force behind Source Realty Capital, a company he founded in 2019 to meet the growing demand for private capital in the real estate market. With a sharp focus on financing 1-4 family and small-balance multi-family properties, John has adeptly positioned Source Realty as a leading provider of tailored financial solutions to experienced real estate investors.

Drawing from over 15 years of finance experience, John’s journey to entrepreneurship began after honing his expertise in raising capital for the shipping and maritime industries, where he successfully procured over $2 billion in equity and debt financing. This extensive background equipped him with a deep understanding of capital markets and a strategic approach to business development.

John’s academic achievements further underscore his commitment to excellence. Holding an undergraduate degree in engineering from the United States Merchant Marine Academy and an MBA in finance from Columbia Business School, he possesses a rare combination of technical expertise and financial acumen.

Under John’s leadership, Source Realty has flourished, originating over $200 million in private money real estate loans and solidifying its reputation as a trusted partner in the real estate finance landscape. With a relentless drive for innovation and a dedication to delivering superior results, John continues to run Source Realty Capital towards continued growth and success in the competitive real estate market.

The Silicon Review contacted Mr. Femenia for an interview, and here’s what he had to say.

Interview Highlights

How would you describe your professional journey so far? Tell us about a few roadblocks and learning lessons that helped you grow through the years.

My professional journey leading to real estate finance has been unconventional, as my initial focus was not within the real estate sector. I began my academic pursuits in engineering before shifting gears to finance during my time at business school. Following graduation, my career path led me to investment banking, albeit in areas unrelated to real estate.

Before founding Source Realty Capital, I explored real estate investing as a personal interest, despite lacking formal training in the field. My intrigue with real estate persisted, yet I faced significant challenges in grasping the workings of real estate finance. While I possessed a solid foundation in finance, adapting to the specific demands of Source Realty Capital required a considerable learning curve.

To overcome this obstacle, I committed myself to immersing deeply in the industry. This entailed active participation in conferences, engaging with industry leaders, and conducting extensive research.

Q. Trust is one of the most important currencies of leadership that requires authenticity and consistency to maintain. What’s your take on this?

I completely agree with that statement. At Source Realty Capital, we have many different counterparties. We have investors who trust us with their capital. We have borrowers who trust us to close their deals. We have credit lines and note buyers that trust us to deliver quality loans. Without trust in any of these counterparties, our business would fall apart.

Q. As the CEO of the company, what are your major roles and responsibilities?

As CEO of Source Realty Capital, I see my major roles as both overseeing the day-to-day operations and spearheading the strategic growth initiatives of the company. To me, it’s very important to strike the right balance between focusing on both operations and growth. I don’t want to get bogged down too much with operations and not focus on growth. But I also don’t want to only focus on growth and ignore our current operations. I put a great deal of effort into being able to focus on both with the right balance.

Q. What can you tell us about Source Realty Capital? What are its focus areas?

Source Realty Capital is a direct lender for real estate investors. We provide experienced real estate investors with the capital needed to purchase, renovate, or even build (ground-up construction) investment properties. We primarily focus on deals valued at $5 million and under. We will fund anything from a small single-family property to a 50-unit multifamily property. We only fund properties that have a residential component, which means we stay away from warehouses and offices. We also only fund investor loans, meaning the property must be owned by an entity and cannot be owner-occupied.

Our lending activities predominantly target the East Coast, encompassing regions such as New York, New Jersey, and Florida. Currently, we are in the process of expanding our operations to Texas. This market appeals to us due to its favorable landlord-tenant laws. We also only focus on well-populated areas, avoiding rural areas.

Q. Can you introduce us to your services? What are their key features?

Our primary product is the investor bridge loan, also known as a ‘fix and flip’ loan. This is a 12–24-month loan. This product is ‘asset-based’ since it’s underwritten value of the property rather than its cash flow. These loans are generally used to purchase ‘un-stabilized’ properties, which means that the property needs updating or repairs. This is a great product for real estate investors looking to make quick purchases and add value to their properties.

The other main product we offer is a long-term rental loan, or a DSCR loan. This loan product is for stabilized properties that are typically either currently rented or at least rent-ready. This loan is underwritten based on the cash flows of the property. This is a great product for the real estate investor looking to build a rental portfolio of properties.

Combining both the ‘fix and flip’ loan product with the DSCR loan product can be a great way for our borrowers to increase their wealth. For example, our borrowers can use the ‘fix and flip’ loan to make a quick purchase of a value-added property. They then renovate that property, which adds value. Once that property is rented (stabilized), the borrower can then refinance the property based on the higher, renovated value. Since the value of the property generally increases substantially after the renovation, the borrower will be able to ‘cash out’ a portion of their equity in the deal, allowing the borrower to use the cash out as a down payment on another property. This is known as Buy, Renovate, Refinance, and Repeat (BRRR) in the industry, and it has created a massive amount of wealth for those that do it well.

Q. How do you see Source Realty Capital changing in five years, and how do you see yourself creating that change?

I see Source Realty Capital having a much larger balance sheet in the next five years. We’re going to be launching a large initiative to raise capital from retail investors. This will allow us to portfolio, or hold, more bridge loans on our books, as opposed to selling loans in the secondary market. Furthermore, I see Source Realty Capital as a significant player in the long-term DSCR space, with a dedicated institutional partner.

Q. Is there anything you would like to add before we wrap up?

Yes, the industry over the past couple of years has been rapidly changing. The spike in interest rates in 2022 and the persistent inflation caused a shakeup in the private lending space. As we progress through 2024, we expect the private lending space to normalize with less volatility from the capital markets. Source Realty Capital has navigated the recent headwinds well and has continued to prosper.

“Our primary product is the investor bridge loan, also known as a ‘fix and flip’ loan. This is a 12–24-month loan. This product is ‘asset-based’ since it’s underwritten value of the property rather than its cash flow.”