Lending to a First-Time Investor?

Mitigate Your Risk With These Four Strategies

Not every borrower will come with a resume full of successful deals and perfect repayment history.

And that’s okay.

Because experience, while important, isn’t the only thing that matters.
But if you’re considering lending to someone with little to no experience, you do need structure. You need clarity. And you definitely need guardrails.

Here are 4 ways to mitigate risk while still giving someone a chance:

1. Require an Experienced Sponsor

This is non-negotiable for many lenders — and for good reason.

If the primary borrower is new, make sure someone involved has a track record and skin in the game. That person should be visible, signed on, and available to answer questions. They’re not just a name to make you feel better — they’re your buffer if things go sideways.

This is how you shift from wishful thinking to smart risk mitigation.

2. Lower the LTV (Loan-to-Value)

New borrower? New risk profile.

A conservative loan-to-value ratio keeps your exposure lower. I like to keep it under 65% for new or unproven operators. That margin protects your capital and gives the borrower enough equity incentive to perform.

Remember: Just because the deal looks good on paper, doesn’t mean the operator can execute.

3. Buy in Your Name

This one gets overlooked.

If you’re truly unsure about a borrower’s ability to perform — but still believe in the asset — you can structure the deal so you buy the property in your name, and deed it over only after the borrower hits key performance milestones.

It’s more hands-on. It may require more paperwork.
But it’s also a smart way to protect yourself when lending to someone with no real track record.

4. Avoid Second (or Third) Position

Subordinate liens might sound like a shortcut to high returns.

They’re not.

If you’re not in first position, you’re second in line to recover your funds — and in a default scenario, that usually means you're recovering nothing. Especially if the first lienholder has a high balance or foreclosure moves quickly.

First position = control.
Everything else = increased risk. Again you CAN lend in subordinate positions, but for a new investor?? Probably shouldn’t. Just because you can, doesn’t mean you should.

Final Thought:

Due diligence isn’t just paperwork - it’s process.

Each risk factor should trigger an adjustment elsewhere.

You want to lend to someone with no experience because the asset is solid? Cool. But shore up your safety net. Lower your LTV. Get a sponsor. Take first position. Ask more questions.

No one wants to be the lender who “trusted their gut” and ignored the gaps — only to lose big when the market shifted or the borrower ghosted.

🧠 Process protects you.
💸 Structure sustains your capital.
🤝 Clear terms save relationships.

And those three things? Are what make you a professional not just an uninformed gambler.