When real estate investors are looking for capital to fund their deals, the only thing as important as speed is creativity. Most real estate investments don’t fit into the neat credit boxes of traditional lenders. By their nature, real estate investment, development, and fix-and-flip projects require loans that are tailored to fit each project in amount of money loaned, timeline, and scope. Builders, developers and investors need financing that is not only quick but provides them flexibility and “out of the box” thinking. This is where creativity in lending comes into play. Some lenders are able to use their creativity and flexibility to fund deals that others can’t, enabling investors to land the deal as well as creatively structure deals to save borrowers additional money.
Real Estate Investors Know the Value of Creativity
Real estate investors know that creativity matters because the successful ones use it in their own businesses every day. From figuring out how to best outmaneuver the competition and land that great deal to determining the smartest renovations to invest in for each property based on budget, trends, and neighborhood demographics, creativity rules the real estate investing world. It’s not just real estate investors and lenders who understand the value of creativity to their businesses. A recent national study conducted by Adobe and Forrester Consulting found that 82 percent of companies across all industries think that there is a strong connection between creativity and business results.
In order to have the confidence to be creative in their businesses, companies need knowledge and insight. Sometimes, that insight can come from unexpected places, like your private lender. In the private lending arena, a strong foundation of knowledge and experience in actual “boots-on-the-ground” building is a key differentiator in the ability to be creative while funding deals.
For example, truly creative loan originators truly understand the up- and downsides to the deals that they encounter because they have been on the investor side themselves for hundreds of successful deals. For example, one borrower came to us in desperate straits because unforeseen construction costs had derailed his project and his prior lender was threatening foreclosure. He was worried that his retirement account might even be at risk. Because our loan originators were familiar with the specific construction issues he had encountered, we were able to estimate the cost to finish the project more accurately than the other lender had, make a loan within 48 hours, and recommend a reputable stager with great prior success with that type of property and an experienced real estate agent who moved the home quickly through the sales process.
Lesson: A lender who has truly been in the real estate investors’ shoes understands the pitfalls of real estate deals better than just about anyone else because they have been there as well.
How Insight Reduces Risk
Let’s face it: the process of buying and selling properties has inherent risks. Real estate investors have decided that they are willing to take risks for the sake of independence and freedom along with the chance to be their own boss and control their schedules, not to mention to have a chance to reap some truly amazing rewards.
To some real estate investors as well as some lenders, creativity means risk. If you don’t fully understand your industry, the decisions you make are uneducated and, by extension, riskier. That risk causes some lenders to avoid getting “too creative” with financing terms because an uninformed investor’s lack of education is inherently riskier for their bottom line. Fortunately, insight and experience can dramatically reduce risk, as is evident in the attached case study.
The bottom line is that a successful real estate investor is not just creative for the sake of creativity, but because he or she really understands the real estate investing business. Likewise, successful financiers of all types understand and value the knowledge that backs effective, profitable creativity in the real estate investing space. Taking on what seems like a significant risk to some is not necessarily risky for a lender or investor with the right knowledge and experience. Lenders who are able to be creative in funding deals not only help their borrowers land the best deals with the best terms, they help them mitigate their overall risk, ease their anxiety and help them stay on track by transferring their confidence and experience.
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