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The Lender Checklist: Finding a Solid Real Estate Investment


paperfree Aditi Bansal 29:14
Published on Tuesday, June 20, 2017

Finding the right real estate investment as a lender is about more than the property; you need to perform due diligence on both the property and the borrower.

tags  #Real Estate Investment  #Property Qualification #Property Search

 

Every lender aspires towards creating mutually beneficial relationships, which requires spending time understanding the property business. The due diligence process involves both parties; as a lender, you should follow a checklist before given a stamp of approval to any project, which includes:

  • Property Qualification

Every property you look into will have a plethora of data available to help you in your decision making, which is only useful when properly interpreted.

A property Search

Use multiple listing services (MLS) to help get more information on the property such as its sale history, time in the market, lot size, neighboring amenities and physical description. The MLS can also give you access to data on the neighborhoods crime history, current issues and/or problems.

CMA Result Analysis

Once you have your data, you can create a comparative market analysis (CMA) to help you conduct a comparative sales statistics analysis for similar properties in the area, giving you an estimate of the amount of time the property will spend on the market.

Analysis of Existing Liens

Tax and related public records are crucial to your property search. Some properties come with complex taxes and issues, which you are better of discovering before making a commitment.

Estate Regulations

There are several regulations that govern the changes you can make on a property, especially in more urban zones. Always ensure your borrower knows and abides by these regulations, including additional homeowner’s associations' rules such as material selection and paint color.

Physical Inspection

As a lender, a physical inspection of the property is quite useful. While pictures on the MLS look flattering, they don’t always give a complete picture of the property. A physical inspection helps you get the true feel of the surroundings and you can check CMA data first hand.

Third-Party Appraisal

While an independent appraisal may mean additional costs, it gives you the assurance that price estimates are thorough and inclusive of all costs. If cost is a factor, you can go for the BPO (broker price opinion), but you will not get as much detail as you need.

  • Borrower Qualification

Trust between a lender and a borrower is important. You must care for the creditworthiness of your client as much as you do about the property. Some of the characteristics you may want to consider are:

1. Your borrower’s ability to respond to your requests and questions quickly. The borrower must understand and respect your interest in the deal.

2. The borrower should present you with a realistic and concrete plan for improvements, which gives you confidence in their ability understand the scope of work needed to make the sale a success.

3. You should always check your borrower’s history with private money loans, liens, foreclosure, and bankruptcies. You need to know what you are walking into upfront.

4. A borrower’s references from other partners and lenders may give you insight that will help you make a decision. Other references might include the property tenants or owners.

5. Building a face to face relationship with your borrower is very important to help you find someone you can trust. Your gut feeling will always guide you to the right decision.

The best way to grow and thrive as a lender is to build relationships with borrowers, where you can step in when there are problems. This will also help you grow repeat borrowers’ you can rely on for your business. 



This page with a focus on Real Estate Investment, Property Qualification was shared by Aditi Bansal.

 
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