You’ve decided to embark on your next real estate project . . . congratulations! Whether you’re a seasoned developer or a first-time fix-and-flipper, you’ll probably need to obtain some financing for your project. Though borrowing for your real estate project may seem daunting, with the right partners you’ll navigate it with relative ease. Below are five characteristics to look for in a real estate lender.
1. Experience
Before you take out a loan, research the lending company’s team. Having experts by your side as you go through the renovation and resale process is invaluable – especially if you’re new to the space because, let’s face it, sometimes the world of real estate can be confusing. Take a minute to speak with a few potential lenders, and make sure they have experience specifically in real estate lending. Better yet, check that they specifically have experience in the type of project you are embarking on – whether it’s a rehab, a ground-up construction, a residential acquisition, a mixed-use property acquisition, and so on. If their website doesn’t have any information, don’t be afraid to send them an email. Finding a reputable contractor, helping review the construction budget, or timing your exit appropriately are just some of the things a lending partner can help you with. Be strategic and work with a lender that can advise you through the process.
2. Speed
You want a lender that can work quickly and efficiently. As the best properties tend to go quickly, you want to partner with someone with a quick turnaround time. If you can’t obtain capital quickly, you may lose out on a great deal. You also want to hit the ground running with your project because, the longer you are holding a vacant property, the greater the cost of carry. Undoubtedly, the underwriting process does take time, but we believe that a hard-working, skilled team can complete the process and fund a loan in under a week if everything is in order.
3. Flexibility
Here’s where we think a skilled team of private lenders becomes especially advantageous. Unlike large real estate lenders who offer very little leeway when it comes to loan structuring, smaller private lenders typically have the ability to craft bespoke financing solutions that best suit their borrower’s needs. For instance, they may be willing to take on additional collateral to give you the capital you need, or maybe they’ll expedite the loan application process for a slightly higher interest rate. Regardless of the circumstances, a lender should do everything in their power to help make your project a success. Find a lender who will work with you along this process, not just for you.
4. Terms
If a lender checks the three boxes we mentioned above, then you’ve definitely found a decent option . . . but you still need to make sure their rates are competitive. From what we’re seeing in the marketplace currently, private lenders generally charge interest rates between 8 – 15%, depending on the market and type of property. Private lenders may charge a slight premium, but we believe this small difference is well worth it for the value they add.
5. Partnership
The final, but perhaps most important, trait of a great lender is that they will become your partner along this journey. Whether you’re rehabilitating a home or acquiring a commercial property, they’ll be there to assist you. And then when this project is done, they’ll be there for your next project and even the one after that. As you continue to work and build a track record with your lender, they should be more likely to give you better rates. This is much more common with private lenders who work with you as partners, rather than large corporate banks.
There are many lenders, so do your due diligence to find the one that will do everything in their power to make sure your project goes as successfully as possible!
Let us know what you think about this article, or if you have a project you are considering we’d love to help you! Please contact us at <a href="mailto:contact@rdadvisorsre.com>contact@rdadvisorsre.com</a>.