process. For example, if the budget specified real hardwood floors and laminate is installed instead, it would significantly diminish the actual market price of the home and damage the profitability of the project. It could also hurt the borrower’s credibility with a lender. An experienced lender with a strong loan servicing practice can ensure that these discrepancies are avoided by having a construction draw process in place, which will act as a guardrail by confirming the quality of work at each stage of construction. This isn’t just in the lender’s interest; it also protects the borrower. WE'RE ALL IN THIS TOGETHER The lender’s process for underwriting and servicing loans contains many layers of complexity, so this article can’t detail every aspect of how a lender vets its investments. And these kinds of processes can’t be developed overnight. It can take decades for companies to build processes and refine them, but these processes are meant to protect lenders from getting into a bad real estate investment, and they have proven even more valuable for borrowers in preventing their projects from being unsuccessful. If you’re a real estate investor and want to learn more about what lenders look for, or you’re a lender and would like to know more about how we approach underwriting and loan servicing, feel free to reach out. I’m always happy to help! •
vendors and contractors they may be working with.
CREDENTIALS For private lenders, it’s essential to vet the real estate investor – not just the project – prior to financing an investment. Lenders will usually do this during the underwriting process, and there’s a number of things they will consider when it comes to vetting a borrower, but as it relates to making an investment loan, it largely boils down to evaluating a borrower’s level of experience, past successes, and their general credibility. Borrowers should be able to show evidence (HUDs) of past projects completed. But lenders typically look at every possible indicator of a borrower’s capacity and reliability. So, a comprehensive due diligence process should always consider the borrower’s financial history. Though the process and requirements will vary from lender to lender, it’s important for borrowers to realize that they are accountable for every aspect of the project and every person involved including the
WORKMANSHIP The quality and scope of work of a renovation or construction project is also a key factor in the success of a real estate investment and grows more complex with larger projects like multifamily workmanship will help the operator achieve the target ARV and possibly even help the home sell faster. The amenities and features of the property should align reasonably with those of the properties used as comps during the underwriting process. If they don’t, the due diligence process was fatally flawed from the beginning, and the project may be doomed to fail. Likewise, the materials and quality of work must track accurately with what was laid out in the budget, and it must all be verified at intervals throughout the construction renovations or community developments. Professional
Romney Navarro is a partner at Noble Capital and Co-founder of the Private Lender Network (thepln.com). He specializes in financing renovation and construction projects through private
capital and has more than 16 years of experience in the real estate industry. He can be reached at rnavarro@noblecapital.com.
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