There is always an inherent risk associated with the lending process. Circumstances can change at the least expected times that present serious issues for all parties involved. Accordingly, lenders need to be proactive in taking steps to mitigate foreseeable risks so they can provide their clients with financing options whilst simultaneously shielding their investor base from losses.
The objective of any effective risk mitigation effort is to ensure adequate protection without compromising speed and flexibility. These hallmarks have allowed F.E. Forbes to garner a reputation as a truly innovative private money lender in the Bay Area and deliver outstanding results to our loyal customer base. The experienced team at F.E. Forbes has been successfully lending for over a century. During that time, we have learned a thing or two when it comes to responsibly managing risk and have used that knowledge to compile the following risk mitigation guide to assist you in making sure your investors receive their anticipated returns and your borrowers maintain reliable access to the capital they need to carry out real estate transactions.
Accurately Calculate Value
The initial phase of the risk management process involves making an informed assessment as to whether the underlying property possesses sufficient value to secure the proposed loan balance. While this sounds relatively straightforward, there are a myriad of factors to take into account when making this determination. A professionally conducted property appraisal can aid in this endeavor, but you will still need to take other specifics into account when analyzing a property’s value. The first variable relates to the costs of both the real estate and home itself. Do the comps support the asking price? Is the home in turn-key condition or does it require extensive repairs before being sold? If the asking price is too high, what is a fair value? Are there any issues associated with the property that could significantly reduce its value? Another key consideration is the geographic location of the property. Are there attractive economic and recreational amenities situated in the general proximity? What is the crime rate like? Is the local population steadily growing? At F.E. Forbes, we have the requisite experience to assist our clients in accurately forecasting the ideal value of a given property and providing useful insights to help our clients make informed business decisions.
Confirm Clear Title
Lenders should ensure that the property has a clear title—a process that involves substantial research effort but is well worth it in the long run as it prevents expensive legal fees down the road. A clear title means there are no outstanding liens or levies on the property from third-parties that could potentially threaten the ownership of the property. F.E. Forbes conducts a thorough background check into all property’s title records to protect our investors as well as ensuring that our borrowers do not run into any issues.
Income & Credit Verification
The overarching goal of the underwriting process is verifying whether the potential client has the resources to reliably repay the loan. Lenders typically require proof of income in addition to any preexisting debts or other financial obligations that could detract from their income. This information allows the loan officer to predict whether the borrower has the ability to cover the monthly mortgage installments. As hard money lenders, however, F.E. Forbes does not solely premise our underwriting approach on a borrower’s credit score and reported income. A number of extremely successful full-time real estate investors do not have a traditional employer. When working with these type of applicants, we adopt a more comprehensive review process that involves evaluating the individual’s experience in the industry, the success of previously completed real estate investment deals and the financial viability of the proposed transaction at hand. Do they have revenue-generating properties that provide a steady stream of passive cash flow they can rely on to cover another loan? Are they leveraging their retirement or investment income as a form of credit to diversify their portfolio with an additional transaction? Have they paid off previous loans on time? All of these considerations and more are factored into our underwriting protocol. Yes, it is at times a granular and nuanced task, but the team at F.E. Forbes takes pride in thoroughly reviewing all loan applications and working with clients to ensure promising deals are funded in the most effective manner possible.
Discover the F.E. Forbes Difference
Contemplating a real estate project? F.E. Forbes Company has the consistency and stability that makes them a collective value-add to any property transaction. Our team of client-centered professionals takes pride in delivering creative and effective alternative financing solutions and investment property products that are specifically tailored to their individual needs. Contact us today to learn more about how we can help you accomplish your real estate objectives.