Owners of commercial properties have financial needs for many purposes such as purchase and renovations. Sometimes traditional financing is not available to the borrower or perhaps the borrower does not want to tie up personal funds to finance the project at hand. In today’s more complex borrowing world banks or credit unions cannot fulfill all of the needs of commercial borrowers. Often these borrowers look to Private Lenders to move their projects along.
Commercial hard money loans are typically short in duration and come with higher interest rates when compared to traditional financing. For borrowers the analysis is about their end goal and the planned realization of profit from the completion of the project. Hard Money Loans play an increasingly important part in the commercial real estate world. Here are some instances where Commercial Hard Money Loans may make sense for borrowers.
Capital Improvements
If a capital improvement, repairs, or renovations are needed to the property which if completed would enhance the value of the property from both a valuation and rental income standpoint, a borrower may use commercial hard money loans to achieve the enhancements to their properties. Often in these situation once the work is complete and the increased value or rental income is realized the borrowers sell the property and take the profit and move onto their next project.
Developments
If a borrower is the owner of a piece of raw land and wishes to proceed with basic developments, commercial hard money loans may be a source of financing that they cannot find in the traditional financing system. Conventional lenders such as banks will often put caps on the construction loans that they make as a percentage of the total development costs, but hard money lenders may finance up to 100% or more.
Purchase of a Property
When borrowers are interested in purchasing a property often the timing of the purchase is critical. Hard Money Lenders service this market and provide an effective tool in the purchase process. Attractive real estate opportunities and strategic property purchases are often time sensitive. Banks are typically not able to provide financing quickly and thereby are often not a good alternative in these types of real estate deals. Hard Money Lenders are nimbler and able to evaluate, approve, and close loans quicker than traditional lenders.
Loan Underwriting
It is clearly understood the credit worthiness of the borrower is a primary focus in the underwriting of a traditional real estate loan. Conventional lenders are also restricted by regulatory guidelines which limit how creative they can be in the loan approval process. Factors such as late payments, tax liens, mechanic liens, bankruptcies, foreclosures, and high debt levels all play a part in the underwriting of a loan. Hard Money Lenders set their own standards about the level of risk they are willing to accept. These lenders can establish asset based loans whereby the cornerstone of the loan is the property itself.
Current restrictions in the traditional financing marketplace for those real estate investors that own more than ten single family rental residences make it difficult to borrower additional funds. Hard Money Lenders are not as concerned about the number of properties that an investor owns rather they analyze the property itself and its attractiveness as an investment.
Undervalue/Underperforming Properties
Undervalued properties or properties that are performing below market efficiency are good candidates for Hard Money Lenders. Traditional Lenders shy away from these loans due to the underwriting guidelines related to income statements and current expenses. On the other hand Hard Money Lenders focus primarily on the value of the underlying property. With a properly constructed loan a real estate investor can obtain the required financing to provide time to improve the property, fill vacancies, increase rental income, and get expenses in line.
Conclusion
Hard Money plays a necessary role in the real estate investment marketplace as they fill a need that is created by the lack of traditional financing sources. Often the higher costs of the loan is well worth the purpose it serves. This provides investors the opportunity to participate in these loans and earn attractive yields with the security of a first position lien status.
Magna Capital Group, Inc is a leading commercial hard money lender, we understand that sometimes circumstances can make it difficult to qualify for a bank loan. Our commercial hard money loans provide you with the fast funding and loan terms that you need to help you reach your real estate goals.
Visit our “Commercial Loans” tab for various residential loan programs and investor requirements, or Contact Us Today at (323) 655-6888.
