As a private lender, your success depends not only on the property you’re funding—but also on the person or team behind the investment. Evaluating a borrower’s investment strategy is a critical step in minimizing risk and ensuring your capital is deployed wisely.
Whether you’re funding a fix-and-flip, BRRRR, or new construction deal, here’s how to assess whether a borrower’s strategy is sound, realistic, and worth backing.
1. Understand the Exit Strategy
The borrower’s exit plan is your repayment plan. Always ask:
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Are they planning to sell or refinance?
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Do they have a clear timeline for the exit?
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Have they completed similar projects in the past?
✅ What to Look For: A clear, realistic exit backed by market data and past experience. If a borrower says they’ll refinance, they should already be in communication with a long-term lender.
2. Analyze the Scope of Work
A vague or overambitious renovation plan is a red flag. Ask to review the borrower’s scope of work, budget, and timeline.
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Is the renovation cosmetic or structural?
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Are estimates aligned with current labor and material costs?
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Have they worked with the contractor before?
✅ What to Look For: A detailed, itemized scope of work with contingencies built in and a contractor with a track record of completing similar jobs.
3. Review Their Experience Level
New investors aren’t necessarily risky—but experience matters, especially with large or complex deals.
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Have they completed similar projects?
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Can they provide before-and-after photos or ROI results?
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Are they working with a mentor, partner, or project manager?
✅ What to Look For: Demonstrated knowledge of the strategy they’re proposing and the ability to execute under pressure.
4. Look at the Numbers (and the Math Behind Them)
Every deal should be backed by solid math:
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ARV (After Repair Value): Is it supported by recent comps?
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Loan-to-Value (LTV): Does it leave room for market fluctuations?
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Profit Margin: Is it worth the effort and risk?
✅ What to Look For: Conservative estimates and comps that justify the borrower’s projections.
5. Assess Market Conditions
Even the best strategy can flop in the wrong market.
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Is demand high in the area?
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Are there job growth, school, or retail anchors nearby?
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Are there any new regulations or zoning issues that may affect the exit?
✅ What to Look For: A borrower who understands and adapts to current market conditions.
6. Check for Contingency Plans
Things rarely go 100% according to plan. Ask:
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What happens if the market slows?
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What if renovation costs run over?
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Do they have access to additional funds or partnerships?
✅ What to Look For: Backup plans and financial reserves.
Final Thoughts
Evaluating a borrower’s investment strategy goes beyond numbers—it’s about trust, planning, and experience. By asking the right questions and requiring clarity, you can protect your capital while helping investors bring great projects to life.
At Conduit Capital, we specialize in working with serious real estate investors who think long-term, build responsibly, and plan strategically.
