Summary:

Procuring mortgage brokers and their client borrowers sometimes assume that private money loans are equity-based only. They think that nasty habits are overlooked.

A person's character over time proves what kind of person they are. A person with an extremely low credit score in the 400s and 500s has terrible habits when making timely payments.

Most private investors will not make a loan when the feasibility of default is high because of the borrower's lack of both character and capacity to make timely payments. Lenders and private investors do not want the servicing headaches. Ideological factors can significantly impact loan values, so it's crucial to be aware and cautious.

A background check and a credit report will indicate one's character and capacity.

Article:

The creditworthiness of potential borrowers is significantly influenced by the five Cs:  character, capacity, capital, collateral, and conditions. These core components play a crucial role in the decision-making process for real estate loans, particularly in private money credit decisions. Understanding and knowing about these 'Cs' is not just vital; it's empowering. It gives anyone involved in real estate loans a deeper understanding of the process and the confidence to make informed decisions. Private money lenders, in particular, play a vital role in the market, providing crucial financial support and guidance.

The five Cs of credit risk analysis identify each borrower's and collateral property's strengths and weaknesses. The two industries, institutional and private money, weigh each factor differently in making a final decision.

The five Cs of the credit risk analysis system are like a sliding scale, meaning one or more of the core components take on greater or lesser importance in the overall credit decision. Private money credit decisions focus on collateral, capital, conditions, character, and capacity to a lesser degree. Banks and institutional lenders concentrate on character, capacity, collateral, and, to a lesser degree, capital and conditions.

Character- Is the borrower likely to uphold their obligation to meet timely payments per the loan agreement, irrespective of unforeseen future events? A credit report and background search will reflect the borrower's payment history.

Capacity measures the borrower's financial ability to repay the loan. Sometimes, a debt-to-income (DTI) ratio applies, which, in many cases, may improve by distributing the net proceeds of a loan to pay off debts.

Capital refers to the amount of available money invested in the property to protect the loan in the event of default. The more protective the equity in real estate loan transactions, the safer the loans. In other words, the more money the borrower has invested in the property, the less likely they are to default on the loan, making it a crucial factor in credit risk analysis.

Collateral refers to the security property to be encumbered. If a borrower defaults on the loan, the lender will look to the protective equity in the collateral from the foreclosed property to recapture the principal and costs upon resale of the asset. Protective equity is the difference between the property's market value and the loan balance. The more protective the equity, the safer the loan. Understanding and considering the concept of 'protective equity' is crucial in private money credit decisions as it directly impacts the loan's safety. It's a safety net for the lender, ensuring that even if the borrower defaults, they can recoup their investment by selling the property.

Conditions refer to the general conditions relating to the loan, such as length of employment, terms, and interest rate, and how the borrower may use the loan proceeds to improve their financial circumstances. Conditions also include considerations outside the borrower's control, such as government intervention in real estate ownership, recently passed and pending legislative changes (e.g., changes in tax laws or zoning regulations), the state of the economy, and industry trends. Understanding these 'Conditions' is crucial for making informed private money credit decisions and feeling prepared for any eventuality.

Conditions also include considerations outside the borrower's control, such as government intervention in real estate ownership, recently passed and pending legislative changes, the state of the economy, and industry trends. For instance, a sudden increase in interest rates due to a change in the Federal Reserve's policy can significantly impact the borrower's ability to repay the loan. Understanding and considering these 'Conditions' is crucial for making informed private money credit decisions and empathizing with the borrower's situation.

As to the fifth C—Conditions, assume a borrower's request does reflect all acceptable criteria for the four Cs. Consider that the property is a small commercial building in a San Francisco, CA, neighborhood with 60% vacancy. The declining nature of the area and other neighborhood conditions may prevent any loans from being made.

When the government forces business owners to allow criminal activities, including theft, and not intervene, it creates a dangerous ' negative feedback loop' in the real estate market. This cycle perpetuates criminal activities, leading to financial losses, business closures, and a significant decline in the city's economy. The impact is not just on paper; it's felt in the lives of San Francisco residents and the city's overall well-being, sparking concern and urgency. Understanding and breaking this negative feedback loop is crucial for maintaining a healthy real estate market.

Encourage visitors to come and spend money, which encourages businesses to open and flourish; continuously intrude to destroy and inflict pain on operational successes; pass onerous laws penalize any successes of operating companies; promote parasitic activities of crime and legalized theft; prevent the companies from protecting themselves from violence and robbery; Threaten business owners that if they try to protect their business enterprise that may be sued for discrimination; profits diminish-disappear-financial losses become excessive; business owners are decimated and close their doors; vacancy, vagrancy, and crime in retail increases; neighborhoods fall into blighted conditions, invited vagrancy, homelessness, drug infested, with high vacancy; No new businesses would be foolish enough to fall into this trap of progressive-governed (Marxist-leaning) existence; paying customers and visitors disappear leaving a trail of bewilderment. How could this happen? The fools voted for this and are getting it hard and irreversibly.

In primarily progressive-governed (Marxist-leaning) cities across America, flash mobs (gangs of criminals) aged 15 to 30 routinely engage in smash-and-grab robberies, stealing everything in sight without worrying about bothersome police intervention. These flash mobs, often organized through social media, can quickly overwhelm a business, causing significant financial losses and emotional distress for the owners and employees. The business owners and employees are told to stand down and do nothing; otherwise, they could be sued for discrimination. The criminals feel empowered and entitled. They couldn't care less about destroying someone else's property and lives, which, of course, is entitlement conscientiousness. I can take whatever I want to hell with everyone else. The negative feedback loop occurs similarly to what is happening in San Francisco, CA.

The above fifth C- Conditions are essential for underwriting and approving any real estate loan, including private money. It's crucial to remember that ideological progressive-governed laws and regulations can cause values to plummet, and this awareness can help make more informed decisions. Being well-informed about the 'Conditions' can prepare you to navigate the potential impacts of ideological and legislative factors on private money credit decisions. For instance, a sudden increase in interest rates due to a change in the Federal Reserve's policy can significantly impact the borrower's ability to repay the loan, and the prevailing ideological factors could influence this.

Private money lenders are not just players in the real estate market but vital contributors. They offer unique benefits and opportunities that bring optimism and hope to the industry. Their presence and contributions are significant and essential. They bring a fresh perspective and innovative solutions to the table, fostering optimism and hope for the future of the real estate market. Private money lenders are not just alternative funding sources but critical players in the real estate ecosystem, providing crucial support and driving innovation.