WHY MAKING YOUR BUSINESS LENDER FRIENDLY IS WISE

We see too many real estate investors build their business (whether holding for cash flow, or flipping for quick profit) without taking the time to make adjustments to be attractive to a lender if ever needed.

Certainly debt free has its advantages, however you can still assemble the business to be inline with the way lenders think and NOT borrow, but are able to if absolutely needed.

So, what does a lender friendly real estate investing business look like?  Well, lenders like the 3 C's: Cash, Credit & Collateral.

C #1 - CASH:

Rehab lenders (short-term lenders) like to see that they are not the only party that is contributing cash to the transaction. Often referred to as "skin in the game".  Long-term lenders (20, 25 or 30 year loans), like to see cash "reserves" to help cover the costs of "capital expenditures" (referred to as CAPEX), as they realize that these larger ticketed expenses often can't be covered easily by the normal cash flow. Bottom line - lenders like it when they see lots of cash.

C #2 - Credit:

Short-term lenders (hard money, rehab, private, etc.) may no be as concerned with a certain FICO score as long-term lenders are, especially is they have the impression that the exit strategy from the loan is to sell (flip) the property in a short period of time. However, if they have the impression that the exit strategy from the loan is to refinance and hold the property for cash flow, then they might be more concerned with FICO scoring as the next lender may have guidelines toed to it.

Long-term lenders almost always will have guidelines tied to FICO requirements. Sometimes experience can have an impact toward adjustments in those requirements. Most typically in today's market they prefer to see a Mid-FICO of 680, although some local lenders (banks or credit unions) may have lower scoring options.

C #3 - Collateral:

Collateral is normally the asset that the loan is being extended on. In most cases the lender will want to place a lien on the asset in first position (any other liens come after theirs). The leverage that the lender extends is the amount of the loan in relation to the value of the property. An example of this might be, if the lender is extending 70% LTV (Loan-to-Value), then they are loaning 70% of the current value of the property. Typically this means that on a purchase of a property the lender is seeking the 30% to be covered by the buyer (whether in cash, equity, a combination of each, or otherwise).

As a real estate investor (regardless of the level of experience), if you pattern your business to be lender friendly utilizing the 3C's, then whether you are seeking loans currently, or in the future, you are in a better position to be able to gain the funds that you seek.