Education: Private real estate debt investments – some things to consider

Leaving no stone unturned

Anyone looking to make an investment knows the value of due diligence. It’s a safeguard that helps you make an informed decision and minimises the risk of loss down the track. Private real estate debt is no different – each transaction must be carefully qualified to ensure risk is mitigated.

Ticking the due diligence boxes  

In much the same way that the banks operate, private real estate debt transactions must cover off the risks.  Below are some of the main ones to consider:

  • The borrower: Must be a company. If not a company, the loan must be primarily for business purposes.
  • The security: The loan must be backed by property security. This can be residential, commercial, industrial, or land. We examine the quality, value, and liquidity of the property/ies being used as security.
  • Income verification: The borrower must be able to demonstrate the income to pay the interest owing.
  • The exit: The borrower must be able to demonstrate how they will repay the loan. This is normally done via a refinance, sale or other cash injection.

The value of valuations

Because the loans are backed by real-estate security, understanding the collateral in detail is a key part of the due diligence process.  While an externally commissioned 3rd party valuation report is an important starting point, relying on that alone is sometimes not enough.  To get a 360-degree view of the asset, it can be prudent to call local real estate agents, check council records, zoning potential or recent off-market sales to get up to the minute information on the state of the local market and specific things that may impact the property.  No amount of detail is too much in understanding the collateral!

 

We go the extra mile

If you’re a wholesale investor looking for access to 1st mortgage-backed real-estate opportunities, the AltX platform offers a range of deals for you to consider. To learn more about real estate debt and how to unlock alternative investment opportunities with AltX, visit www.altx.com.au/investments

 

Contact Us

Level 21, 10 Grafton Street
Bondi Junction, NSW, 2022

Phone: 1300 991 380
Email: marketing@altx.com.au 

 

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