As a hard money lender in Los Angeles, I will tell you that an important aspect of our due diligence is the measuring of the qualifications and synergies between the partners that comprise the borrowing entity.
This blog contains the characteristics of an equity partner that make for a successful investment.
Regardless of the actual involvement of your equity partners in the real estate investment, you will need to choose a partner not only for liquidity and the willingness to invest but for a partner to depend upon and collaborate. The structure of the borrowing entity is secondary.
Before arriving at this point, there needs to be a high level of trust and comfort between the partners before the specifics of the investment are discussed. The personalities need to be in sync and the ease of communication must be evident. You and the equity partner do not need to be best friends, but you need to be the best of business partners.
There are three traits I look for in the initial meetings with a potential borrower and the equity partner. These traits are a passion for investment, adaptability to change, and honesty.
A venture in commercial real estate is a business rather than an investment. The business of the deal needs to be understood and acted upon quickly. For a successful investment, you need to align yourself with those who not only share your passion for success but also your passion for acting boldly upon the required strategies and decisions.
A partner’s limited involvement does not translate into a limited interest. If a partnership elects to depend upon your expertise in real estate, this should not be interpreted as a lessening of your accountability and the sharing of information.
Always keep your equity partner fully apprised of the performance of the investment and of your efforts toward a successful outcome. It is the decision of the partner as to what is done with the information once received. Your responsibility is to make sure the partner receives status reports that are accurate, defendable, and complete.
The survival of any business venture depends on the ability to adapt to change. In this age of instant information, changes become known at a pace much quicker than in prior times. The equity partner needs to share your characteristic of being able to alter the direction of the forward path.
Uncertainty is a natural occurrence in a real estate investment, and the partner needs to appreciate your foresight.
This needs to be a mutual trait between the partners. You, as the sponsor, look for honesty in the equity partner, and the same holds true when the partner looks for deals within which to invest. Without honesty between the sponsor and the equity partner, then know the traits of passion and adaptability are negated.
There is no way that circumstances, or the changes within them, can be accurately evaluated if the communication is not trusted.
A partner’s need to further discuss a situation, or to have the situation explained in more detail, is not the same as disinterest. Rather, this is a sign of your partner’s wanting, and needing your expertise. As the loan sponsor and the person responsible for the performance of the investment, you should welcome these lines of communication.
It is always beneficial to an investment where the talents of one partner complement those of the other. An investment needs different perspectives to recognize, discuss, and agree upon. Compromises between partners are good as it shows that each is acting upon their stake in the deal and working toward success.
A hard money lender will not be evaluating the personalities of the partners nor measuring the synergies between them. These are not within the checklist of items of a lender’s due diligence.
However, in addition to the merits of the investment, come the personalities of the investors—all of them. It is the goal of the sponsor to present to the hard money lender an investment with merit and an entity comprising trustworthy partners whose allegiance is clearly to the success of the investment.
This is my wish for all my borrowers.
If you are interested in purchasing real estate or need funding for your next project, then you need to work with a reputable and respected hard money lender in Los Angeles. PB Financial Group is a premier, direct hard money and bridge lender that has been providing quick funding since 2006 and has funded over 2,700 hard money/private money loans. Our objective is to satisfy your financing needs on important real estate projects throughout California in an efficient manner.
To learn more about how to successfully finance your next real estate venture, please contact PB Financial Group at 877.700.3707 to schedule a consultation or visit www.CalHardMoney.com to learn more.
PB Financial NMLS #357614/DRE #01522495