Key Factors Lenders Consider When Evaluating an SFR Borrower
Borrowers looking to expand their single-family rental (SFR) portfolio and secure financing to carry out their investment strategy might be wondering what are the key factors lenders consider when reviewing a borrower for a loan. Here are several tips for borrowers looking to build, acquire, fix, sell or rent their SFR portfolios.
- Experience. Having a proven track record in the SFR market will give a borrower a leg up when applying for a loan. Lenders want to be sure that an investor has the experience necessary to carry out their investment strategy. The level of experience should also match the type of strategy. Strategies can range from buying and holding a portfolio for rental income, substantially renovating a property to sell or building a ground-up asset.
- Liquidity. Liquidity and net worth requirements may vary by lender. But all lenders will generally want to confirm that the borrower is well capitalized and has a net worth greater than the loan they’re requesting. This ensures payments and fees are paid without issue.
- Business plan. Borrowers with a detailed, clear business plan will also be attractive to a lender. If a borrower has a plan for how to execute their strategy and the experience to do it, lenders will feel more confident in the success of the project.
- Repeat business. Doing multiple loans with a borrower and developing a long-term relationship will ultimately be beneficial for future deals. If a lender is familiar with a borrower’s background and has closed successful transactions with them, they can often be more flexible on loan terms as well.
- Property management. Having an in-house or third-party property management team with experience in SFR is another benefit. Lenders will feel more secure if a borrower can demonstrate its ability to successfully operate a portfolio of assets. This is particularly important if the borrower has a variety of property types located in different markets.
- Market knowledge. When reviewing a loan application, lenders will want to know if the borrower has local expertise in the market. Knowing the market, including neighborhood characteristics and demographics, gives borrowers a huge advantage in understanding what type of properties and rent levels will be successful. This gives lenders peace of mind that the transaction will be successful.