12 Points Of Value Private Lenders Use For Collateral Valuation

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12 Points Of Value Private Lenders Use For Collateral Valuation

Although private lenders have four primary tools they will use to determine collateral valuation: appraisal, broker price opinion, automated valuation model, and personal research, they can include extra points of value in their collateral assessment.

Knowing what factors they consider during their valuation process is essential to structuring deals in your favor and getting the most out of your investments.

Still, keep in mind that even when considering the same factors, lenders may have very different opinions of what’s acceptable based on their experience and risk tolerance.

Here are some factors not always included in a standard valuation tool and some private lenders can use:


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Table Of Content:

  1. Access
  2. Building permits
  3. Capital expenditures
  4. Environmental considerations
  5. Expenses and operating costs
  6. Floor plan and functionality
  7. Future zoning changes and area developments
  8. Income
  9. Location, location, location
  10. Market trends
  11. Parking availability
  12. Vacancy factor

  1. Access

This is how the property’s primary users will get to it. Properties on private streets can have access due to no local road maintenance. A commercial property located amid residential structures may have licensing issues if the business requires frequent semi-truck deliveries, impacting potential lessees.

Also, a property must have access to sewer, water, and utility hookups or can have a septic system installed if a municipal hookup isn’t available.

  1. Building permits

If the previous owner completed unpermitted work, the structure might have to be dismantled depending on local codes. A correctly permitted construction project may require new or updated permits, causing costly project delays. 

  1. Capital expenditures

These will vary by property type and use and define one-time-cost assets that will be productive to the property for an extended time. They may include appliances, carpets, roofing, large machinery, etc.

  1. Environmental considerations

Environmental studies may be required to determine past uses of a property. Residential properties should be tested for mold, radon, and meth.

  1. Expenses and operating costs

Verify property expenses are realistic and that you have factored in a reasonable increase to these costs in the future. These are expenses related to specific transactions and operating periods, such as the cost of goods sold and repairs and maintenance expenses (like trash service, utilities, etc.).


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  1. Floor plan and functionality

Whatever the property type, the layout should be practical for the intended or best use. 

  1. Future zoning changes and area developments

Changes in the immediate area may positively or negatively affect value depending on what they are and how close they’ll be to the subject property. Check with the local zoning and planning office for possible future changes, such as large shopping centers, residential areas, and more.

Check with the state Department of Transportation regarding roadways and construction.

  1. Income

The income projections must be realistic to ensure you accurately determine your net operating income for the property (real estate rental project). This lets the private lender correctly determine the rental property’s value and appropriate debt coverage ratio. 

  1. Location, location, location

The same home will be worth a wildly different amount if it backs up to an oil change shop vs. another house. This detractor comes down to the individual property rather than the neighborhood. Amenities nearby the property are a good indicator.

  1. Market trends

Know the market trends for your state or zone, property type, layout, and design. Are there a lot of for-sale or for-lease signs on similar properties in similar areas, and if so, why?


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  1. Parking availability

This mainly impacts commercial real estate property loans. A lack of parking spaces for customers, employees, or tenants is a bad sign. 

Residentially, a home located in an area that doesn’t allow street parking will be worth less if the lot doesn’t accommodate more than one vehicle.

  1. Vacancy factor

Generally, vacancy factors refer to the percentage of units within an apartment building or complex currently without an occupant. A higher vacancy rate means less demand for any given real estate property; thus, finding tenants may be more challenging.



Many factors go into how private lenders value your investment property for collateral, and you must do your due diligence. Understanding these key points allows you to be better prepared when applying for real estate funding in New York, Texas, Florida, Carolina, or any state. If you have any questions or want help getting started, the RE Investor News team would be happy to assist you. Contact us today!


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Damon Riehl

Damon Riehl
As someone who has been in the real estate industry for over 30 years, I am always excited to share the latest market updates with investors. Being informed and up-to-date on the latest trends and changes in the real estate market is essential for making the right decisions when it comes to investing in properties. That’s why I aim to provide insightful information to anyone looking to invest in the real estate market.