If you are investing in commercial real estate property, the best time to do it was 10 years ago. The next best time to do it is now! Investing in commercial real estate property is one of the most lucrative ways to build wealth, as seen in many successful real estate investors.
The common notion of the public is that millions of dollars are required to start as a commercial real estate investor. However, the truth is far from the notion.
It is rather easy to start investing in commercial real estate, and one needn’t have millions of dollars to buy commercial property and start investing.
There are many investment property financing methods available today which can help you enter commercial real estate investing. While there are many methods, it is important to note that not all methods will work for everyone.
The high qualifying standards set by traditional lending institutions and banks might be bad news for many investors. That does not mean to say that a poor credit score and an average credit history can stop you from investing in commercial real estate.
One of the best alternatives to traditional financing is using hard money loans for commercial real estate property.
Hard money loans are the solution to thousands of investors who want to enter into commercial real estate investing with little or no financing and a poor financial track record.
In this blog, we will walk you over the basics of hard money loans and how to find the right hard money lender for your commercial real estate property.
What are Hard Money Loans?
Hard money loans are loans provided by private money lenders who do not use stringent loan qualifying standards to select their borrowers. In other words, hard money loans are non-bank loans that private lenders provide.
A typical hard money loan would carry a higher interest rate than bank loans and is generally used for short terms or periods. The good news is that, unlike banks that give extreme importance to your credit score and income, hard money lenders are focused on how much equity you have in the property which you plan to use as collateral and are more interested in the potential return on investment.
Thus, if you have a commercial property that you think can produce great returns for you – and you can successfully assure your private lender about your loan repayment capacity, chances are you’ll get your hard money loan funded.
Advantages of Hard Money Loans in a Nutshell
One of the major downsides of banks is that hard money lenders have overcome a lot of documentation and paperwork. Since there is a much lenient documentation process, you can be assured that the approvals and closings of hard money loans are much quicker and typically happen in less than a week when you’re working with hard money lenders.
This is also one reason why hard money loans are the best option for properties that need immediate financing or an urgent closing.
For instance, if you want to acquire an investment property with numerous competing bids, and you do not want to lose out on it, choosing a hard money lender will give you the leverage of time instead of a bank loan take months together.
This is also why most commercial real estate investors turn to hard money lenders for their immediate financing needs and do not rely on traditional bank loans.
Disadvantages of Hard Money Loans in a Nutshell
Like every other form of financing, hard money loans have their drawbacks as well. Since hard money loans are provided based on little documentation and verification, they generally charge higher rates and shorter terms due to risky investments.
As such, you can know that hard money loans are best used for short-term loans like commercial bridge loans. If you can get approved by traditional lenders and banks – it does not make a lot of financial sense to find a hard money loan for a long period going to the lower is charged by banks.
If time is of the essence, and you need to close your deal fast, using hard money loans can be your best bet.
How to find the right hard money lender for your commercial real estate property
Finding the right hard money lender is of utmost importance, which will significantly impact your overall real estate investment success. Staying away from the unscrupulous players in the market and finding your best hard money lender is something that will pay off in the long run.
Here’s our summary on how you can sift the good hard money lenders from the not-so-good ones:
#1 – Begin by searching for a list of private money lenders in your locality
The process of finding the right hard money lender for your commercial real estate begins with searching for a list of private money lenders in your locality.
You can do this by doing a simple Google search using the right keywords, like “hard money lenders for real estate in Texas,” “hard money lenders for commercial real estate in Nashville,” etc.
You can also find real estate experts through social media or attending real estate investor club meetings.
#2 – Understand the background of the hard money lending industry and run a background check on your potential lenders
Running a background check on your potential hard money lenders is very important. One of the best ways of doing that would be to get referrals and look at the reviews of your lenders’ existing clients.
Most of the hard money private lenders will be open to the idea of providing you the contacts of their existing customers so that you can run a quick background check and get some reviews about your lender.
Remember that an authentic and genuine private lender will not be hesitant to let you run your background check. Additionally, as a matter of general rule – it helps to understand the background of the hard money lending industry and understand the meaning of certain terms used as a loan to value ratio, collateral value, down payment, loan origination fees, processing costs, etc.
#3 – Hunt for the Best Value Loan, Not the Lowest Rate Loan
On the outlook, it may appear like finding the lowest rate loan in the market is the best thing to do. Reality is far from this assumption. Finding the right private lender for your commercial real estate property involves hunting for the best value loan in terms of good rates and overall good terms and conditions rather than finding the lowest possible rate loan in the market.
Thus, the right private lender for you is a lender who will provide you the best terms and deliver many unaccounted services like providing you consultation on what types of properties you can invest in and who has a good understanding of the local market and properties.
Remember that finding the best private lender for yourself goes beyond the loan rates and terms and extends your relationship with your private lenders. As such, it’s important to find the land of who you can rely upon in times of immediate financing needs.