Private Lenders: I could really use some honest perspective

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Private Lenders: I could really use some honest perspective

Kate Porter
Investor · Beverly, MA · Member since 2017 · 19 posts · 6 votes

I've been researching the private lending process pretty deeply, particularly what happens around borrower and entity diligence, and I could really use some perspective from people who actually do this day to day.

I've spent a ridiculous amount of time reading about the process and talking to people, but I'm realizing there are some things you just can't understand from the outside.

I'm especially curious about:

  • What information are you actually manually checking against other sources?
    For example, borrower/entity information, state filings, EIN documentation, operating agreements, bank information, title, insurance, appraisal, closing documents, etc.

  • What kinds of discrepancies actually cause you to stop and investigate?
    I'm much more interested in the things that genuinely happen in your workflow than hypothetical fraud scenarios.

  • Where does your team spend the most time going back and forth to get a file right?

  • When a loan gets reviewed by a warehouse lender, investor, or another downstream party, what tends to get questioned or kicked back?

  • What LOS do you use, and what parts of your diligence process still happen outside of it?

  • If you could wave a magic wand and eliminate one tedious verification or reconciliation task from your lending process, what would it be?

I've actually already built quite a bit around this, but the more I research and talk to people, the more I'm questioning whether I'm approaching the problem in the right way. I'm trying to make sure I'm solving a real, painful problem rather than falling in love with something I've already built.

I'm not trying to sell anything here. At this point, I genuinely want to understand how lenders actually work, where the friction really is, and what I'm missing.

If you're willing to share your experience here, I'd genuinely appreciate it and if anyone would be open to a 20-minute conversation, I'd be incredibly grateful. I mostly want to listen, learn, and pressure-test what I've built and what I think I've learned so far.

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  • G. Brian DavisPro Member
    Investor · Hatboro, PA · Member since 2016 · 2k+ posts · 845 votes
    1d

    The more deals you do, the more you realize how important the boring stuff is. Good documentation, good processes, and good communication can prevent a lot of problems later.

    From an investor standpoint, I want to know that the people handling the money have a consistent process and aren’t just relying on relationships or memory.

    A lot of real estate problems don’t come from the big decisions. They come from the small things that weren’t verified or documented along the way.

    0Reply
  • Jason WrayPro Member
    Banker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes
    1d

    Kate,

    As a 20 Year Veteran being on both the Owner/Lender side and now as an FDIC Banker. Most loans get denied due to ignorant underwriters with a lack of tax return knowledge. Meaning they do not have a degree in Taxes and know very little about being a proper CPA/Tax Accountant. I have seen thousands of deals over the years get denied because an underwriter does not know what a "Pass Through Company" is and why its used. I have also seen UW not use (1X) one time losses as a waived loss and add it to the negative income.

    One UW will allow you to average and one will tell you it cannot be averaged and you end up with a great current years income getting destroyed!

    If I could waive a magic wand I would change all loans to 100% financing if the property has ARV potential or the rents debt service in all occupancy scenarios! Then build in an Escrowed PMI that builds up over time to cover preventive maintenance losses. Build the PMI into the loan as the borrowers money same as escrow and it stays out of a 3rd party's hand and is used for emergency cases. Could refund on refinance or after a certain year mark you could add to the principal balance once below risk.

    What this solves is more Aemricans owning REI and not having to drain their own savings to buy a home just to cash flow enough to make back the down payment in 3-5 years. I would encourage to look at Military VA 100% financing loan defaults (Not as high as FHA 3.5% Down, why> Because lower rates, No PMI and they Do Not have to deplete their savings, 401K's, IRA's just to buy a house and when something happens as life does, you can use those accounts to play catch up versus given to the bank!

    [email protected]727-637-4289
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  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    9h

    "When a loan gets reviewed by a warehouse lender, investor, or another downstream party, what tends to get questioned or kicked back?"

    This is very nuanced and important and a cause of a lot of issues and misunderstandings in my experience. "Private Lending" tends to merge "DSCR Loans" and "Hard Money Loans" and the level of TPR (third party review) and/or the warehouse lender/loan buyer review and documentation process is VERY DIFFERENT depending on loan type and lane you are in.

    [email protected]
    Harpoon Capital514 Reviews
    WebsiteView Page
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