INVESTMENT PARAMETERS WHEN MAKING A PRIVATE MORTGAGE LOAN - PART 4
Ability and experience of borrowerFinally, the investor in private mortgage notes must evaluate the ability of the borrower to successfully operate the property and to successfully complete the property renovation or disposition plan. A professional real estate investor with a long and successful history of investment and renovation in the type of property and location being considered would be considered a prime candidate for maximum financing. A new investor trying to tackle a major renovation project with no construction experience would be prime candidate for a turn down. It is decisions in between these two extremes that will make or break an investment portfolio. To a great degree, adjusting the loan to value downward as the borrowing candidate’s experience and expertise decline can lead to a successful loan. Ultimately, a point is reached where the lender has so little faith in the borrower that the lending decision becomes a matter of whether the lender would want to own the property and whether the property if foreclosed on can be sold for a large profit. Ironically, it is just these situations where default may actually be least likely to occur. We have lend 20-40% loan to value many times where we had little confidence in the borrower but knew we could sell the property for substantial profit in short order should foreclosure become necessary. In each case the borrower had so much equity in the property that they did every and anything to keep payments current. We ended up with good loans at amazingly low risk.Private mortgage investors entering the field who have experience and a background as property investors themselves have a significant advantage and head start over someone brand new to investing in real estate. For the brand new investor, aligning with a good quality private money mortgage broker who can perform the investigation and due diligence required in choosing private mortgage loans to invest in is necessary to insure success.
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