Private Equity and Having Skin In The Game
Category : Blogs
Private Equity Lenders are different than traditional lenders. With a private lender the key component qualifying the deal is the collateral property itself, as opposed to you, the borrower. The attributes of said collateral property that will entice a lender into more amicable terms are it’s income stream and property value. Income is typically proven by bank statements where as value is usually ascertained by a combination of appraisal, previous purchase price, tax record, etc. Furthermore, more favorable terms will always be granted to a performing asset i.e one making substantial rental income.
That being said, private money lenders feel safe at low LTV (Loan-To-Value) ratio for the same reason that borrowers do. A low LTV makes it a bad idea for the borrower to default but also a bad idea for the lender to take the property, thus mutual cooperation is rewarded. It’s a symbiotic system. It’s set up so that both parties are rewarded for doing what is in the interest of the other party.
My feelings on the matter
Nathaniel S. Fulford