Would You Lend Money To Yourself?

April 15, 2015

What you must know when approaching a lender


America Property Source blog USA real estateReal estate investors who are not actively looking for ways to grow their portfolio are in fact slowing. At some point you have to approach a bank and borrow money to acquire more assets. Mark Bouris the founder of Yellow Brick Road reminds us that “debt is not a burden – it is a tool.”

The criteria that lenders apply are universal – the same if you are looking for US bank finance for your next USA real estate investment property or shopping for a loan in your home country. As an active investor and borrower you must know the “Four C’s” that lenders are looking for when you head out to source finance. These are:

  • Collateral
  • Capacity
  • Character and
  • Credit

You are in the business of owning and growing your US property portfolio. You must see yourself as a borrower and put on your business face. You will secure a loan if you tick four out of four of the following points, or three out of four, but your chances diminish when you only have two out of four covered. Here is what the banker reviewing your loan application will be evaluating:

Collateral: This is the asset or property in question, which involves looking at the location, attributes, features, etc of the property. Is the house located in an established area or an up-and-coming area? What’s the neighbourhood character like? Is it in a flood prone area? At the end of the day, the lender uses the property as collateral against the amount of money they are prepared to let you borrow. The big question will always be, “How quickly can the asset be sold, and for what price?” The lender will be asking, “Am I covered if the borrowers disappear and we’re left holding the keys?”

Capacity: This is your ability to service your debt obligations and expenses. Are you able to pay back the money you are lent? A lender cannot lend you money unless you can demonstrate that you are in a position to pay them back. Be prepared to prove that you can pay the lender back easily. Take stock of your assets and liabilities and write them down. Ask yourself whether you look good on paper. Have your personal financial statement ready.

Character: First impressions count. It doesn’t hurt to wear your best clothes to see the person you will be asking for a large sum of money. The lender will be thinking, “Are you the type of person I would lend my own money to?” Your current job and work history come into play here. Have you had five jobs in twelve months, or one job in five years? Are you fresh out of university? Bankers and mortgage brokers see all types of scenarios. If you have an unconventional story, be upfront and transparent about it. When meeting lenders face to face you should dress to impress and cover up your tattoos.

Credit: Do you pay your bills on time? Did you know that Australia is shifting to a US style of credit reporting and it will not be very long until you have a credit score that lenders will use to evaluate you. Get into the habit of paying your bills on time. Sign up for automatic payments for bills that debit direct from your account. Even paying your bills in full will work against you if you always pay late. You can’t be an active property investor with the bad habit of paying bills and suppliers late.

Like it or not, you are being judged and scored by the system you want to benefit from. As an active real estate investor you should be current with your tax returns (to maximize the benefits of your property portfolio!) and have a current list of your assets and liabilities – or a personal financial statement.

Now you know what mortgage brokers and banks are looking for when you want a loan to purchase your next USA home for sale. Do you have your past two years tax returns in order? Make a list of your assets and all of your liabilities. Now ask yourself, “Would I lend money to me?” If you want to secure US bank finance from Australia, America Property Source is here to make the introduction to our preferred US lenders and provide you with the necessary paperwork to get you in the game.


Invest well,

John Carney