The best deals in real estate are distressed properties that the average buyer can't finance. Deferred maintenance, code violations, unpermitted additions, tax liens, estate sales — these properties scare off conventional buyers and sit at steep discounts. Private lending is specifically designed for this market.
What Makes a Property Undeniable for a Private Lender
A private lender will look past property condition issues if: the as-is LTV makes sense (they're protected even in the worst case), the borrower has a clear renovation plan and track record, and the after-repair value demonstrates strong exit equity. They're not looking for perfection — they're looking for collateral protection and a credible borrower.
Title Issues
Tax deeds, heirs with unknown interests, chain of title gaps, and lis pendens are all issues that require resolution before most lenders will close. However, some private lenders will close into escrow while title issues are being resolved — particularly on properties with significant as-is equity. A good real estate attorney and a title company experienced in distressed property is essential.
Code Violations and Open Permits
Open permits and code violations need to be addressed either before or concurrently with your renovation. Many private lenders will allow a hold-back — a portion of the loan held in escrow until violations are resolved. Budget for violation resolution in your rehab scope, and get a lien search to identify all open issues before closing.
How to Structure the Offer
On distressed properties, use an as-is contract with a clear inspection contingency. Get your private lender's preliminary approval before going hard on due diligence deposits. The lender needs to approve the as-is condition and your renovation plan — don't risk your earnest money before you have lender buy-in on the deal.
