10 Things You Need to Look For in a Real Estate Finance Company

Partnering with a private real estate finance company that knows your needs, and has the flexible programs to support them is a crucial component to successful real estate investing. 

This blog provides the straightforward information you need to find a private real estate finance company that will help you make sound decisions, and see lucrative returns. Here are 10 non-negotiables when it comes to partnering with a private capital real estate company.

1. The company offers investment solutions for YOUR specific commercial real estate goals.

One of the alluring components of commercial real estate investing is the broad spectrum of opportunities available. Whether you’re passionate about developing raw-land, or you want to capitalize on meeting your local market’s demand for multifamily housing, or you want to explore building and leasing warehouse space, commercial real estate is chock-full of opportunities.

However, not all companies fund all types of investments. Research the exact type of commercial investing you’re hoping to get into, and narrow down which companies you consider partnering with depending on their niche expertise. That way, your team will be well versed in the specifics of your type of investment, translating to a smoother underwriting and approval process.

2. Private investors look at more than your credit score.

A major benefit to working with private equity investing firms is that they are more likely to consider your experience, and the expected value of your finished project rather than just your credit score. This can be vital when you’re looking to accelerate your business, and capitalize on unique opportunities.

3. The company’s financing range aligns with your budget.

Find a company that specializes in the size of investments you’re looking for. By aligning with a company that has expertise in the size and scope of the project you’re interested in, you’re more likely to have an advocate in your corner. As your investment portfolio grows, the size of companies you’ll be able to work with will grow as well.

Private capital firms invest amounts ranging from just a couple thousand dollars to hundreds of millions. Based on your experience and budget, find a firm who’s financing range matches your project size.

4. They have a reasonable interest rate or offer a mortgage point incentive.

Familiarize yourself with a company’s interest rates, but don’t stop there. Perhaps they may charge a higher interest rate than others, but do they offer any discount points or lender credits if you are able to make a large primary payment? If you’re in the position to make a large initial payment, a higher interest rate may not be a deterrent. Either way, get upfront information about these fees so you have a clear picture of what to expect.

5. The company is transparent about any other fees charged with originating the investment.

There’s nothing more stressful than having a well organized budget be turned upside down by unexpected fees and costs while procuring a loan. It’s crucial to connect with your private capital investment partner to learn whether or not they have:

• Origination Fees
• Broker Fees
• Application Fees
• Underwriting Fees
• Document Prep Fees
• Processing Fees
• Funding Fees
• Asset Management Fees

There are many common private capital loan costs, so it’s not always a deterrent, but getting a transparent outlook from the get go will help you fund your opportunity quickly.

6. Their LTV and LTC amount matches your budget and goals.

The Loan to Value ratio looks at the amount of money being borrowed compared to the market value of what’s being purchased. Similarly, a Loan to Cost ratio examines the amount of money loaned compared to the cost involved to complete a project. These ratios will differ from company to company. An advantageous loan ratio for you may be an LTV of 60-65% and a LTC of 70-85%. Talk with a market expert at the company you’re interested in to see what LTC and LTV ratios they adhere to.

7. The company can fund your project quickly without massive delays.

One of the major benefits of partnering with a balance sheet lender is that they are lending out capital they already have. This makes for quick, seamless funding transfers which is quite a different story from more traditional bank lenders. Talk to companies about how long they typically take to draw funds once clients have been through their approval process. If their turnaround time is expedited, you’ll have a higher chance of securing competitive bids and can get going on your project faster.

8. They make you aware of any prepayment penalties, extension options, and term limits.

Talk to an account executive from the beginning about whether or not you’ll be penalized for prepayment. Similarly, explore the knitty gritty details of loan packages to make sure they align with your investment goals. If you need to extend your term, will the company help connect you with another lender? Are term limits flexible? Are they a recourse- or non recourse lender?

For reference, a recourse loan means that if you default on repayment, the lender can pursue additional assets outside of your collateral. A non recourse loan means that your lender can only recoup the value of the collateral agreed upon when you received the loan, even if it is of less value than your debt owed to your lender. Furthermore, some companies offer non-recourse loans with some carve outs. In short, talk with the capital provider you’re interested in to get a clear picture of their offerings.

9. Look for a balance sheet lender that offers many services in-house.

If a private lender is an internally managed balance sheet lender, they may offer their own underwriting, asset management, loan servicing and construction draws. It’s worth taking your time to find a firm that offers multiple services as it centralizes all the processes into one place. Once you find the capital lender that you like, being able to work with them from managing the loan through repayment is a wonderful perk.  You’ll have a lot on your plate, so reliable and rapid financing that streamlines the process can make all the difference.

10. You enjoy working with the company

The benefit of actually liking the brokers and administrators you’re partnering with can’t be overstated. As you expand your business and build wealth, having a trustworthy and responsible company on your team can make all the difference. Don’t be afraid to be selective. Your investing partner will be by your side through the complex journey of procuring your next venture, so find a company who’s values, experience and people you support.

If you’re hoping to obtain above market returns with a trusted source, Contact Broadmark Realty Capital.