When it comes to private lending, ROI (Return on Investment) gets most of the spotlight. And while it’s a crucial metric, it’s not the only one that matters.
If you want to protect your capital, grow your returns, and build a resilient lending portfolio — you need to dig deeper.
Here are the top metrics smart private lenders track beyond just ROI:
1. Loan-to-Value Ratio (LTV)
LTV measures the loan amount compared to the property’s appraised value.
For example, if you lend $100,000 on a property worth $150,000, the LTV is 67%.
Why it matters:
Lower LTV = lower risk. It gives you a cushion if the borrower defaults or the market shifts.
Ideal Range: 60–70% for most fix-and-flip or rehab projects.
2. Debt-Service Coverage Ratio (DSCR)
DSCR shows a borrower’s ability to cover debt payments with their income.
It’s mostly used for rental property loans.
Why it matters:
It tells you if the property’s income can safely pay the loan — a critical factor for long-term rentals.
Ideal DSCR: 1.2 or higher (meaning income is 20% higher than expenses)
3. Time to Payback
Also called the Duration or Loan Term, this measures how long your capital is tied up in a deal.
Why it matters:
Longer terms mean slower reinvestment. If you’re aiming for velocity of capital, duration matters as much as return.
Watch out for delays — especially in projects involving heavy rehab.
4. Rehab Completion Percentage
In fix-and-flip loans, tracking the percentage of rehab completed (versus timeline and budget) is key.
Why it matters:
It alerts you early if a project is falling behind schedule or burning through funds too quickly.
Request regular draw inspections and milestone updates.
5. Borrower Responsiveness
Not a number — but still measurable.
Why it matters:
Lenders who track how quickly borrowers respond to emails, send documents, and communicate issues are better at spotting future problems.
Score your borrowers informally during each stage. Fast, clear communicators tend to be safer bets.
6. Default Risk Indicators
Things like delayed payments, insurance lapses, or lien issues should be flagged and logged.
Why it matters:
Small red flags early can prevent bigger losses later.
Keep a simple risk dashboard for each active loan.
7. Reinvestment Rate / Capital Turnover
How often do you get your capital back and reinvest it?
Why it matters:
Getting a 12% return is great — but if you can do that twice a year by turning deals faster, you’re compounding growth.
Track average time between payback and reinvestment.
Final Thought: ROI Is Only the Starting Line
Private lending isn’t just about the numbers you earn — it’s also about how you manage risk, time, and relationships.
When you track the right metrics, you don’t just get better returns — you become a more confident, strategic lender.
