Private lending can be a great way to earn a higher return on your investment, but it’s important to thoroughly scrutinize the terms and conditions before making a commitment. It’s also important to be aware of the risks involved and to perform your due diligence.
When you fail to do due diligence when it comes to private lending, you may be putting yourself at risk and creating several potential problems.
I recently interviewed Jesse Bobrowski, a partner at Calvert Home Mortgage Investment Corporation and the vice president of Business Development.
Now Calvert Home Mortgage is a Mortgage Investment Corporation with $320M mortgages under management, roughly about 920 loans right now…
They have been doing this for 40 years and have lent billions of dollars on thousands of mortgages.
They have gotten this far in the game because they do not just lend to any and everyone. Instead, they have a scrutinized approach they use to lend to their customers and, over the years, have developed underwriting practices around protecting their downside risk.
My conversation with Jesse was quite lengthy, and I learned these seven tips the big players and professionals use to scrutinize deals, so they minimize their risks.
- Have a niche in the market
- Lend to people that are buying right, ie. power of sale
- Determine if the borrower has the capacity, expertise, and experience to complete the work
- Determine if the property you’re buying is profitable for you
- Ensure you have real profit left over for you
- Don’t do a second mortgage.
- Pull a title on every property your lenders own to assess your risk.
I’ll let Jesse Bobrowski give you the inside scoop and more details on how they scrutinize private lending deals and how you can too.
In conclusion, private lending can be a great investment opportunity, but it’s important to be aware of the risks involved and to thoroughly scrutinize the terms and conditions before making a commitment.
By following these tips, you’ll be able to evaluate private lending deals like a pro and make informed decisions that minimize risk.
So, don’t be afraid to dive into the world of private lending; just make sure you have your trusty magnifying glass in hand.
Until next time, happy Canadian Real Estate Investing.
Cherry Chan, CPA, CA
Your Real Estate Accountant