What does a lender really need to trust a first-time investor?

Question

I’ve seen many great deals slip away because new investors don’t meet the standard checklist — but everyone has to start somewhere.

I’d love to hear from lenders:
• What matters more — credit score, team, down payment, personality, LLC setup…?
• What would actually make you say “yes” to someone doing their very first deal?

Mohammed Rahman · Answer

Honestly, this is a great question — because new investors get discouraged fast when they hear “no” without knowing why.

From what I’ve seen and heard directly from lenders I’ve worked with, here’s the real breakdown:

It’s not always about having a perfect credit score or tons of cash. What actually matters is showing you’re prepared, coachable, and realistic.

If you don’t have experience, bring a solid team (GC, agent, mentor, etc.). If you don’t have capital, make sure you’re not overleveraged and the deal itself makes sense with a real exit plan.

And if you’re working under an LLC, that’s great — but they’ll still be looking at you as the guarantor on that first deal.

What tips the scale? Clarity. Show your numbers. Show your plan. Know your ARV and how you’ll hit it. Be upfront about your gaps — and how you’re filling them.

Some lenders say yes because they see someone who’s not just throwing offers but really understands the risk and the process.

If any lenders are reading this — I’d love to hear what makes you take a chance on a first-timer.

Mike Klarman · Answer

The only parameters they will check is Credit/B.G. - those have to be good and then cash is king. Show a bank statement with 6 figures.

Now, you'll still be in the bottom bucket of pricing and may have to lay out more to get the deal done, but you can get it done.

They use their common sense. A 22 yr old with no exp, who has never held a mortgage, is different than a 40 yr old with 0 exp who has never missed a car payment or mortgage payment.

But really, with cash and credit, the exp parameter is no real obstacle.

But I can't tell you the last time a 0 exp person brought me a good deal to finance. I used to think a 74% cost to arv project was good too. Then after being on the front lines for dozens of them, you see what will and does go wrong to evaporate the profit margin.

You show a 10% - 15% profit margin, a lender will essentially let you do it. They'll ask you to pump more money in upfront to lower the loan amount to make it work, but they'll let you do it. You'll lose way more than win and when you win, what are you gonna win...?

You have to operate in a way that provides project costs that are 65% or lower of the ARV. Good deals for me now means something totally different.

That's part of the catch 22, yes this new investor has the money and the credit, but do they know what the hell they are doing? 9 out of 10 people who jump into REI, they jump right into the deep end and right over their head, totally underestimating the current and they go under. That's a real metaphor. I've seen it happen. I was working with a lady who had 300k. She showed me. My advice to her was to do one small project. Get in and out of it. Then reassess the process. She was a 0 exp, but had great credit and 300k so I was able to get her 85% of her purchases.

What did she do? Got into 4 projects right away, GCs screwed her, holding costs, overages, ate her money up. She went broke in 9 months and had two houses seized by lender, sold 1 at a loss and 1 breakeven.

Chris Seveney · Answer

You would be surprised how many people start out trying to bite off a lot more thann they can chew. Here on BP and FB (especially one guru group) people think that they can handle anytype of deal. Glad to see you are starting out making smart decisions.

Stacy Raskin · Answer

It depends on what kind of loan you're looking for. If it's a hard money loan to finance a fix and flip, there's hard money lenders who will finance 90% of the purchase price and 100% of the rehab done on draws (if you have very good credit- no high credit card balances, no missed payments, etc) for first time investors. Most want an LLC set up.

For a DSCR loan, you don't need an LLC set up but you generally need a minimum of a 620 middle mortgage FICO score (will require a higher down payment) and generally a 20% down payment if you have a better credit score (for some lenders, middle mortgage credit score of 680 and above will be a 20% down payment).

These programs are for 1-4 units so anything from a single family rental to a fourplex. It doesn't need to be rented as the appraiser will do a rent schedule to calculate what the property will rent for which will help calculate the DSCR ratio.

Many DSCR programs require an investor to have a mortgage history- there are some DSCR mortgage programs that will work with investors who are renting- some refer to them as first time home buyers (FTHBs)- DSCR loans are only for investment properties where the owner isn't living there.

DSCR loans won't use your income to underwrite the loan.

DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.

Here's a bit more in detail about how rates are calculated for DSCR loans:

1. Credit score- the higher the best. 760-780+ generally gets best pricing for investment property loans with most lenders. From there every 20 point increment affect pricing differently. So for example, a 761 credit score will be in the 760-779 credit category, then going down to 740-759 and so on.

2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.

3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.

4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs.

I've included an example below to help illustrate this.

So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.

See example below:

DSCR < 1

Principal + Interest = $1,700

Taxes = $350, Insurance = $100, Association Dues = $50

Total PITIA = $2200

Rent = $2000

DSCR = Rent/PITIA = 2000/2200 = 0.91

Since the DSCR is 0.91, we know the expenses are greater than the income of the property.

DSCR >1

Principal + Interest = $1,500

Taxes = $250, Insurance = $100, Association Dues = $25

Total PITIA = $1875 Rent = $2300

DSCR = Rent/PITIA = 2300/1875 = 1.23

If a purchase, you also generally need reserves / savings to show you have 3-6 month payments of PITIA (principal / interest (mortgage payment), property taxes and insurance and HOA (if applicable). If a cash out refinance, many lenders will allow the cash out to satisfy the reserves requirement.

DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.

Happy to connect to discuss further.

Montse C. · Answer

Thank you for your response, Chris. I completely understand your point about experience and the need to have realistic expectations. However, I’d like to share a slightly different perspective from my own experience:

I don’t believe that someone who’s just starting out would try to take on a full multifamily renovation right away. For example, I’m looking to start with a modest single-family home — two bedrooms and one bathroom — something much more manageable and logical for a first project.

As for the money aspect, I believe that’s also relative. I’ve seen people with capital and experience lose it all due to poor management, and others with limited resources succeed by having solid structure, focus, and commitment. In real estate, there are no absolute guarantees — that’s why analysis, attitude, and support make such a difference.

And regarding “learning to walk before running,” I completely agree. But I don’t think people want to run without first walking. Rather, I believe that in order to walk, someone has to reach out their hand. And in this case, that “someone” could be lenders willing to look beyond the numbers and invest in a new investor’s potential and determination.

As for DSCR loans, they’re certainly a great option — although better suited for long-term investment. Personally, I’m currently focused on learning and growing through fix & flip deals that are well-structured, realistic, and sustainable.

Thanks for opening up this space for honest conversation. For those of us starting out with our feet firmly on the ground, reading this kind of feedback is truly helpful.

AJ Exner · Answer

¡Felicidades por el progreso! Espero que las cosas sigan juntándose para ti.

Con respecto a los puntos que mencionaste:

1. Tienes razón en que estar bien preparado puede ayudarte en el futuro, pero desde la perspectiva del prestamista sigues siendo una mercancía desconocida. No te conocen a ti ni a nadie de tu equipo y hay muchas personas bien preparadas y bien intencionadas que se han puesto patas arriba en las propiedades porque surgió algo para lo que no estaban preparados. Si piensas en prestar como inversor, prefiero invertir más dinero en un producto probado que en algo desconocido, y eso es lo que está sucediendo

2. Porque hay demasiadas variables, y honestamente los grupos que están haciendo una financiación del 100% le cobrarán una buena cantidad de puntos/tasas por hacerlo. Además, cuando prestan el dinero (especialmente TODO el dinero) escriben las reglas y encuentro que sus directrices son bastante estrictas para que suceda

3. Ese siempre será el caso. Yo soy todo lo contrario y trato principalmente con grandes corporaciones, pero el dinero privado les vencerá 9,5 de cada 10 veces porque no tienen tantas manos que alimentar.

Creo que cuando se trata de nuevos inversores, la puntuación de crédito y un proyecto manejable es un gran punto de partida. A menudo veo cuando los "ojos de un inversor son demasiado grandes" y ven grandes números en lugar de obtener acuerdos repetibles y confiables. Un amigo inversor me dijo que es mejor ir por individuales y dobles y sorprenderse cuando golpeas un jonrón en lugar de tratar de hacer de cada trato un jonrón. Te mojar los pies y probar algunos fáciles es una gran manera de empezar.

¡Buena suerte! Y me encanta que podamos tener conversaciones como esta en diferentes idiomas y desde diferentes lugares, gracias a Dios por el traductor de Google

AJ Exner · Answer

I think its having a clear picture of which lenders are most 'comfortable' with first timers and what their expectations are and leverage requirements.

I think what I've found in working with investors is starting with an unrealistic expectation of leverage (100% financing) or a misunderstanding of a lender's 'buy box'.

Understanding the requirements of the lender, especially for a first timer (minimum purchase price, required rehab-to-purchase allowed, regions they will/won't lend to, etc) are all factors that they have to know or anticipate going into applying with a lender, so for the first few, a good HM broker isn't a bad idea. Especially if you are looking into tough areas (Det, Chi, STL, etc.).

Then, being okay with anything from 10% to 30% down on the first one (potentially), having reserves, and/or a decent FICO can all help. All in all, it unfortunately comes down to having clarity with your goals and finding a way to optimize your time in line with finding a deal and being willing to jump in.

It is a lot and it makes sense why so many can struggle to get going.

Good luck! Happy to connect and help!

Chris Seveney · Answer

Professionalism.

skin in the game

not biting off more than they can chew

if we see someone with no experience want to renovate a five family home with little to no money that is not something we would touxh

if it's a first time investor for DSCR buying a rental with decent Down payment that is much easier to finance

while you have to start somewhere you also need to walk before you run

Montse C. · Answer

Gracias @AJ Exner @Mohammed Rahman por compartir ideas tan claras y útiles. Realmente abren la conversación para aquellos de nosotros que intentamos hacer las cosas bien desde el primer día.

Actualmente estoy en proceso de obtención de financiación para mi primer proyecto de inversión inmobiliaria (de forma remota, desde los Países Bajos). Tengo una LLC activa en EE.UU. UU. y un equipo local, así que conozco muy bien tanto las limitaciones como las oportunidades.

A lo largo del camino he notado algunas cosas que vale la pena mencionar:

1. Parece que los prestamistas suelen ofrecer mejores condiciones o mayor flexibilidad a los inversores experimentados. Pero me pregunto… ¿no debería ser al revés? ¿No debería alguien bien preparado, con un equipo detrás y dispuesto a aprender, recibir más apoyo? La experiencia se construye con la práctica; alguien tiene que darte esa primera oportunidad.

2. Respecto a la financiación al 100%: Sé que existe, y también entiendo que suele reservarse para inversores con Múltiples acuerdos cerrados. Pero al final, creo que todo se reduce a cifras y confianza. Si el acuerdo es sólido y está bien estructurado, ¿por qué no?

3. Hasta ahora, mis mejores interacciones han sido con prestamistas privados, no con grandes empresas. Parecen comprender mejor la estructura, el potencial y el lado humano del proyecto.

De todos modos, estoy aprendiendo mucho a través de este proceso y realmente aprecio los comentarios honestos.

¿Qué le confiaría hoy en un nuevo inversor?

Montse C. · Answer

Gracias, for taking the time to reply in Spanish, AJ — that was a really nice touch! 😄

I also saw your private message and truly appreciate your interest. I’ll reply there as well.

I fully understand your perspective, and in fact, I agree with many of the points you raised. It’s true that lenders need to be cautious, and I respect that. I understand how, from the outside, someone just starting out and without a solid track record might raise concerns.

But we investors often feel the same way in reverse. When we don’t know the lender, we also wonder if they’ll be reliable, if they’ll stick to what was agreed, if there’ll be flexibility… or if they might back out halfway through the process. In other words, the lack of trust can go both ways. That’s why I believe the most important thing is to build trust-based relationships, beyond resumes or experience.

Every successful investor started out as an unknown at some point. Someone gave them their first chance—or they gave it to themselves—and it didn’t always come with a long background of experience. A great example for me is Pace Morby, he started with no capital or traditional background, embraced creative strategies, and now leads one of the biggest movements in real estate.

Regarding your second point, I completely agree, lenders offering 100% financing often impose very strict rules. Personally, I’m not looking to rely on that model. My goal is to explore other alternatives that allow for clear, flexible, and trust-based relationships. It’s not just about closing one deal, but about building repeatable, sustainable, and mutually beneficial agreements.

You also brought up something very interesting about private money. From my experience, what I value most about private lenders isn’t just the flexibility or percentages, but the more human, personal relationship they usually offer. With those I’ve met so far, I’ve seen a genuine interest in building long-term trust. In contrast, working with large corporations can sometimes feel like you’re just “another number,” with no real personal connection or shared vision.

And I know not all lenders think the same way, but that’s exactly why your profile stood out to me. I read on your website that you support both seasoned investors and those who are just starting out with a solid foundation. That says a lot.

I’m holding onto this phrase you shared:
“Es mejor ir por individuales y dobles, y sorprenderse cuando golpeas un jonrón, que tratar de hacer de cada trato un jonrón.”
So true — it perfectly aligns with my approach.

What does a lender really need to trust a first-time investor?

What does a lender really need to trust a first-time investor?

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