Understanding real estate values is essential for private lenders, but conventional appraisals are often not enough. Here’s how to compile an accurate private lending appraisal.

What’s in This Guide

There are many factors that influence the value of a piece of real estate. The gap between appraised value and realistic final sale price can be huge.

In this guide, you will find a list of tools and resources that will help you figure out a realistic disposal value for any property. We’ll look at some of the key factors that you won’t find in a standard appraisal. And, I’ll give you my own private lending appraisal model and method.

  1. Understanding the Value Range
  2. Getting an Accurate Scope of Work
  3. Private Lending Appraisal Products
  4. Other Influencing Factors
  5. My Private Lending Appraisal Method

Related: Absolutely Everything You Need to Know About Private Lending

1. Understanding the Value Range

Whatever type of property it is – a house, apartment, or maybe commercial – your Borrower will have a plan. In most cases, this plan will involve some kind of value-add rehab. As the Lender, you need to understand the whole value range of that piece of real estate. From wholesale value in current condition, through to what we call the after repair value or ‘ARV’.

Current Wholesale Value

This is the absolute rock bottom price you could achieve in the shortest possible time for the property in it’s current condition.

This bottom-value point is important to understand because some projects stall or fail before they even get started. If your Borrower is not able to complete the rehab and you have to foreclose, then the most likely route for you to liquidate quickly will be on the wholesale market.

The easiest way to get a current wholesale value is quite simply to ask a local wholesaler what they would pay. A simple search on the internet or social media will provide you with plenty of contacts. They are not hard to find!

Now you know the wholesale price in as-is condition, you know your worst case scenario!

After Repair Value (ARV)

The ARV is the projected value of the property once the rehab has been completed. You will notice that the ARV is typically used to calculate the loan-to-value for private lending transactions. Some Lenders will loan up to eighty percent (80%) of ARV, but for the most part, sixty five percent (65%) is considered relatively low-risk.

The major assumption in calculating an ARV is that your Borrower not only completes the rehab, but does so to a satisfactory standard. Even then there is still some value range to consider. Do they intend to rehab the property to rental market standards, or for the retail market? Again, the difference in value between the two can be significant. So, you need to understand your Borrowers plans, and set your expectations accordingly.

There are various tools and resources you can use to ascertain an ARV, including appraisals and brokers price opinions (BPOs). You will find a list and description of 7 useful appraisal products in part 3 of this guide. Once you understand the full value range of the real estate, you are well on your way to making a well-informed lending decision.

Key Takeaway:

Use multiple valuation tools to find the full value range of the property. From value at the time of purchase through to completed rehab

Related Content: My Top Tips For Assessing Potential Private Lending Borrowers

2. Getting an Accurate Scope of Work

A scope of work tells you what rehab will be done to the property. Ideally, this will be completed by the contractor that will carry out the work. It should be itemized and fully costed. This is important for a number of reasons as follows.

a. The Importance of a Physical Inspection

An itemized and costed scope of work ensures that there is less chance that a major repair has been overlooked. That happens a lot with drive-by valuations, walk-throughs and site unseen purchases.

If the rehab runs way over budget because major defects were not detected, the Borrower could default before the rehab was complete. In that case, you would have to foreclose or take a deed in lien. You would be left with an incomplete property with a major defect. That could lead to a total loss for you as the Lender!

b. Getting an Accurate ARV

The standard of rehab will affect the ARV for resale purposes. It will also impact the Borrower’s ability to refinance. Both of these things could impact the Borrower’s ability to repay you loan. Will it be a rental market standard rehab, or retail level rehab? Understanding this will help to set your expectations and arrive at an accurate ARV.

c. Accurately Assessing Lending Risk

An accurate rehab budget is an essential part of calculating the profitability of a project. As a Lender, it is always better to loan against projects with accurate projections and big profit margins. This means there is more room for error, and your loan-to-value will be lower.

Key Takeaway:

Make sure you have an itemized and fully-costed scope of work in hand before you lend. And, understand your Borrower’s plans for the property.

Related: [Case Study] An Analysis of One of My Real Life Private Lending Deals From Start to Finish

3. Private Lending Appraisal Products

Whilst there is no specific private lending appraisal product, there are many useful valuation tools that will help. Some are better than others for the purposes of private lending. But, each has it’s place in helping you to come to your own conclusions as to the value range for a property.
Here is my list of the valuation tools that can help you put together your own private lending appraisal:

Broker’s Price Opinion (BPO)

A BPO is; an assessment of the value of a property in the opinion of a licensed real estate broker. I provide detailed BPOs to all of my private lenders. I also use them when I am providing a loan to another investor. The quality and depth of detail in a BPO depends largely on the Broker who produced it. Be careful who you work with, and be comfortable that you can trust their opinion.
TOP TIP: When I set out with a new Broker, I have them produce a BPO. Then I get a full appraisal for the same property and compare the two valuations. I do this for at least the first 5 deals. If the BPOs are consistently close to the appraisals every time, then I know I can rely on them. 

Comparative Market Analysis (CMA)

A Comparative Market Analysis (CMA) is a detailed report prepared by a real estate professional. It is an analysis of the sale price of recent sales of similar properties located nearby the subject property.
A CMA can be a standalone product, or part of a BPO or appraisal product. I make sure that my BPOs include a CMA. I find them very useful in determining the NET after repair value of a property when I am putting together a private lending appraisal.

Conventional Full Appraisal

A full appraisal is a detailed report provided by a qualified Appraiser that is licensed by the State. It contains details of current listings and recent sales of similar local properties, and photos of both the subject property and the comparables.
A full appraisal is the gold standard of valuations. However, they can be expensive and often take some time to produce due to the amount of work that goes into them. This makes them less suitable than a BPO combined with a detailed scope of work.

Drive-by Appraisal

Drive-by appraisals – also known as a summary appraisal – are exactly what they sound like. An appraiser will carry out their regular detailed analysis as per a full appraisal, but without an interior inspection of the home.
These are sometimes used by institutional mortgage companies, but they are less appropriate for private lending transactions. Private money loans are often used to fund the purchase of distressed properties that will then undergo a rehab. As such, a drive-by will not provide the level of detail and accuracy required for form an opinion on current value.

Desktop Review Appraisal

One step down from a Drive-by appraisal, all of the research and analysis for a desktop appraisal is conducted from the appraisers desk. There is no physical inspection of the property at all, and so the valuation is concluded using comparable sale in the multiple listing service (MLS) and tax records.

On their own, a desktop appraisal is not enough to conclude the actual value of a property. But, you can use desktop appraisals in conjunction with a building inspection report and detailed scope of work to compile your own private lending appraisals.

Income Approach Analysis

An income approach analysis uses rental income to estimate a property’s value. It is calculated by dividing the net operating income (NOI) by the capitalization rate. For example; if the NOI is $18,000, and the capitalization rate is 9%, then the property value would be $200,000 (18,000 / 9%).

As a private lender, you are concerned with the current and future disposal values of the property, so an income analysis approach valuation is not really relevant.

Online Portals (Zillow, Trulia etc.)

In my opinion, this is about as low as you can go in terms of accuracy for real estate valuations. Whilst there is some useful information on these websites, there is nothing that you will not find in a BPO or an appraisal product from a qualified professional.

4. Other Influencing Factors

All of the tools mentioned above can be useful resources for private lenders. But, many factors can impact a property’s value that you will not find in an appraisal or BPO. Even when physical defects are picked up by Appraisers, their adjustment to the value is effectively their best guess.

For example, an appraiser might notice that the roof may need a repair, and so they adjust their valuation accordingly. On closer inspection by your contractor, it appears the entire roof needs replacing. This kind of defect can turn a project upside down financially, or make the property unmarketable. That is why a detailed scope of work from a qualified contractor is essential.

I currently have over 70 rental properties in my portfolio. Here are some of the major value influencers I look for:

Location Location Location

This is one I learned the hard way. I buy houses in some tough neighbourhoods. We aim to clean them up, and help working families to own them on our rent-to-buy program. In these neighbourhoods, location is an especially important factor. Buy on the wrong street, or even the wrong part of a street, and you could end up with an unmarketable, unrentable mess.

As a Lender, you need to feel confident that your Borrower knows their onions. Do they know this market? have they bought and sold here with some success already? Do they have a proven track record of picking the right houses for their business model? Again, having confidence in your Borrower is fundamental to success in the private lending game.


This can be another big one. In urban neighbourhoods, everybody drives. So a lack of parking can have a disproportionate impact on the value of a home. The same goes for commercial property. Many older properties were built at a time when many people used public transport to get to and from work. An office building without enough parking


I bought a house on a private street with access issues. It was a nightmare. The local authority did not maintain the access route and it was left to fall into disrepair. In the end I fixed it up myself (at significant cost) in order to be able to sell the house. If the house is located on a private street, make sure there is a maintenance agreement between owners.


If there is unfinished construction work, the permits may need renewing or updating. In some cases I have seen building inspectors require entire structures be torn down and the work started from scratch. This would likely push the project way over budget, and risk default and foreclosure for the Lender.

Environmental Issues

Make sure your physical inspection includes environmental issue such as mold and termites. A friend of mine once bought a house to fix and flip. Turns out it was riddled with termites. They had to rebuild all four walls from the ground up at significant extra cost.

Market Conditions and Trends

You want to be sure that there is current, ongoing, and ideally growing demand for that property. You do not want to be lumbered with a house that you cannot rent or sell. For example, In Jackson, Mississippi, I know that large families occupy rented accommodation. So, I only buy houses with at least 2 full bathrooms. Anything less and I would struggle to find good tenants or keen buyers.

I pull market information from a combination of sources. These include the BPO, conversations with my Broker, and my own local market experience. I have been operating in my markets long enough to know what types of houses rent and sell, and I focus my acquisitions accordingly.


When buying land, easements can be a big issue. I came across some land issues when I invested in a farm in Oregon. There were easements for maintenance and repair access for City water running under the property, and power lines running above. Fortunately, we were aware of these issues in advance, and valued the land accordingly. From a Lender’s perspective, easements can make the property difficult to liquidate or develop, so be careful.

Also, if you are lending against a lot that your Borrower intend to build on, make sure the land has access to sewer, water, and utility hook-ups, or is able to have a septic system installed if a municipal hookup isn’t available.

Floor Plan/Functionality

I have bought some weird houses before. In most of those cases the ‘weirdness’ was where the value-add opportunity was. Moving key rooms such as the kitchen, adding an extra bathroom, or pulling down walls to open a space up. These are all are good examples of taking a property with layout issues and turning them to your advantage.

All that said, If you are lending against a house that is impractical beyond reparation, it could be rendered unmarketable, even after rehab. Make sure your Borrower knows what to buy and what not to buy. Again, check their track record!

Rental Income

Figuring out accurate market rents is important if you are lending against a rental property. You can use them to establish the debt service coverage ratio (DSCR) – a key metric in risk assessment. Understanding the DSCR is fundamental to making good private lending decisions.

Make sure that the projected rents are accurate. Research current rental listings of similar houses in the area, and/or speak to leasing agents. You want to be sure that the property generate sufficient income to cover your loan payments AND a cash flow profit for the Borrower.

Vacancy Factor

Alongside and accurate rental projections, you want to understand vacancy rates. Will the property take a long time to lease? A lack of income from a long-term vacancy could result in a default by your Borrower. Again, I pull this information together from various sources. I already know my own markets, but if I am lending to another investor in a new market I will research online listings, and speak to local leasing agents

Accurate Monthly Expenses

Has your Borrower estimated their ongoing holding costs accurately? These include property taxes, insurance, property management and ongoing maintenance. A miscalculation or omission here could drastically alter the DSCR and turn a good investment into a risky one.

This list is not exhaustive. There are a ton of issues that impact property values. I have been in the game for ten years and I still uncover new ones all the time. As a private lender, much of this work should already have been done by your Borrower. I cannot stress enough the importance of buying into the Borrower, their track record and capability as much as you buy into the real estate.

Related: How I Lost 80 Per Cent of my Money in a Private Lending Deal

5. My Private Lending Appraisal Method

I have been – and continue to be – both a Borrower and a Lender. I have well over 100 transactions under my belt, and I currently own a portfolio of over 70 rental properties. Now, almost every time I buy a house, I do so in partnership with a private lender.
When I am putting together a private lending appraisal, I use a combination of tools and resources. First, I always get a detailed BPO from a Broker I know and trust. This will include a building inspection report with photos, a CMA, and a detailed analysis of local market conditions.
When combined with an itemized and costed scope of work, and  some simple wholesale market research, I have all the information required to compile my own reliable private lending appraisal.

Here is a list of my top 5 go-to tools and resources:

  1. Borrower’s Plan for the Property
  2. Brokers Price Opinion
  3. Market Analysis
  4. Detailed Scope of Work
  5. Wholesale Market Analysis

Remember, an accurate valuation is essential, but there is much more you need to know before you make a lending decision! Most importantly, you need to be comfortable with your Borrower.

For my top tips on getting to know your Borrower you can get my free 28-point private lending checklist here.

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