The Lender Checklist: Finding a Solid Real Estate Investment

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.

last updated Friday, April 11, 2025
#Real Estate Investment #Property Qualification

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by John Burson

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Every lender aspires to create mutually beneficial relationships, which requires time to understand the property business. The due diligence process involves both parties; as a lender, you should follow a real estate investment checklist before giving 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 valid when correctly 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 neighborhood's crime history, current issues, and 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 off discovering before committing.

Estate Regulations

Several regulations 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 helpful. While pictures on the MLS look flattering, they don't always give a full shot of the property. A physical inspection helps you get an authentic feel of the surroundings, and you can check CMA data firsthand.

Third-Party Appraisal

While an independent appraisal may mean additional costs, it assures you 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 essential. It would be best if you cared 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 to understand the scope of work needed to make the sale successful.
3. Always check your borrower's history with private money loans, liens, foreclosures, 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 to help you decide. Other considerations 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 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.

 
 
 

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