Last week I discussed the importance of the Executive Summary, the first document to send to a lender and the last document you create in your loan file. This week I want to give you a few very important questions to be asking at the outset of a potential financing to help you discover if you should give a particular request priority or even pass on it all together.
So you get a call from a prospective borrower and he/she starts to run through all the really great reasons why you should give him 110% LTV, interest only balloon note financing on his outhouse in Podunk. This is where you step in and ask these questions:
- How much is your property worth and how did you determine that? (Is there real value here?)
- How much do you owe on the property and are you current on your loan(s)? (What kind of trouble is this borrower in and is it even possible to finance him?)
- Where is the property located? (Are you in downtown LA or in Podunk… guess which is easier to finance?)
- What is your motivation for getting this loan? (Gets to WHY they need the money.)
- When do you need to close on the loan? (Gets to HOW motivated they are to get financing.)
- What are your credit scores? (Again, do you have problems you have to solve?)
First, notice that these are all open-ended questions. The prospective borrower can’t give you a Yes or a No. He’s got to tell you the story. Can you see how these questions will give you enough information to make a determination on whether to proceed?
I’m not suggesting that you turn down a tough to close if you know what you’re doing. You can make real money on tough loans because they ARE tough. It’s simply better to know up front what you’re getting into.
Next week I’ll elaborate more on the Executive Summary and its structure. The better you craft this document, the better your chances of getting initial interest in your loan request.
Craig Higdon is the Chief Executive Officer of Dragon Realty Capital, a nationwide private money direct lender. More information can be found at www.DragonRealtyCapital.com. We also offer educational, interesting, FREE Reports for industry professionals and investors: Click Here to get yours.