If you have ever applied for a commercial mortgage loan from traditional banking institutions, you must already know how tiring and complicated the process can be. The waiting period can sometimes lead to the loss of an important deal. However, you need not have to worry any longer. The good news is the processing time now can be a lot faster and easier. This is where contacting good hard money lenders becomes beneficial.
Hard money loans- How do they work for commercial real estate?
Hard money loans are generally short-term instruments used by property investors, especially those involved in flipping and real estate development projects. It is ideal for renovating or developing the property and then selling it for profit. In contrast to traditional options from the banks, private or individual investors offers hard money commercial mortgages.
The lender checks the commercial property value when determining if they need to approve or reject the application. They will focus specifically on the after-repair value or the estimate which is considered for the funding.
No doubt there can be great benefits of hard money loans in the commercial real estate industry. However, the loan is not suitable for everyone. The cost is one of the major drawbacks herein as the rates can reach up to 10% or even higher when compared to the conventional options. Further, one needs to pass the different things like orientation or closing fees. One must also consider the fact that the repayment period for commercial hard money loans is relatively low. This type of financing is designed majorly for the investors there to get a commercial property renovated or developed so that it can be resold in the market as soon as possible.
So when planning to go for hard money loans is essential to have complex money financing and a good business plan.
Benefits of hard money loans
There are certain drawbacks, but many seasonal commercial real estate investors make use of the hard money loans as it offers excellent benefits that cannot be found with other financing options. You can check out the advantages of hard money loans here.
1. Faster turnaround time
With the Dodd-Frank Act applying for a mortgage is now a lot more time-consuming as the banking institution has laid out regulations that the lenders must follow before lending money to a borrower. It can take two months to close on a commercial mortgage loan, leading to the loss of sensitive projects.
However, with a hard money loan, the funding can be available fast. Sometimes, one can get it within days. This quick turnaround time is beneficial for finding significant projects that cannot be deviated from the completion timeline.
2. Flexible terms and rates
When opting for a hard money loan, there is a possible chance for negotiations. Most private lenders even allow the borrowers to customize the repayment schedule based on the business requirements and plan. You can even reduce or eliminate the origination fees or any other associated costs during the underwriting process.
3. Possibility for borrowing more
Most banking institutions look for borrowers who can put down at least 20% of the property’s purchase price. Paying anything less than 20% means that you will have to get mortgage insurance, increasing the monthly payments. Further, some investors are ready to provide complex money financing and 100% of the purchase price depending on the project’s profile. This means you need not bring in any down payment.
4. Flexible collateral
In the case of hard money mortgage, the commercial property is collateral used by the lenders to sanction a loan amount. But some lenders allow the borrowers to get some leverage. For instance, they can allow you to use the assets like residential property or a retirement account for securing the loan.
- 5. Hope for rejected loans
If a banking institution has previously refused your application because you don’t have a steady cash flow or good creditworthiness. You can apply for hard money loans. The lenders might be able to give you the financing you need for the investment. Although the interest rate will be high, for sure, you will benefit.
6. Access to better knowledge
The banking institution generally does not have interest in the property one will invest in or if it will be profitable. However, the hard money lenders have excellent knowledge about the industry. They are the ones who are focused locally and understand the market space. So they can give you some advice and show the viability of the investment. They want you to succeed so that their fund is safe and they can even benefit from your success.
7. Great option to startout
As a new real estate investor, it is pretty hard to raise the capital on your own. The hard money loan will allow you the chance to buy a property without spending any significant amount of the fund. Once commercial property investor considers you reliable, the institutions will then start to lend you. No doubt, you can get the conventional options at a much lower interest rate. Still, your experience will allow you to establish a good relationship with private lenders.
When they find you good for honoring the contract terms and paying back the loan amount responsibly, they will be willing to work with you on future projects. They may become comfortable reducing the orientation fees or lending a higher percentage of the property’s purchase price.
The benefits clearly show why real estate investors choose hard money loans for their investment. No doubt it comes at a higher interest rate, but the benefits and the ease it offers are unmatchable, making things worth it for all. It is a perfect fit for investors who require money instantly for pursuing a project. Many people think that credits can influence the results, but this is not true. Even the well-established commercial property investors and flippers use hard money financing to enjoy immediate access to funds for time-sensitive projects.
Undoubtedly, hard money loans can serve as an excellent means to acquire funding quickly. But as it can be an expensive option than conventional loans, it is essential to evaluate hard money lenders and the loan options. Besides, you must also ensure to understand the loan terms, interest rates associated with the process. Paying too much for sure will affect your profitability. As a new investor in the industry, you might require certain professional assistance. Private Capital Investors is the company you can trust for it. They have professionals who have the expertise and skills to guide you well. Right from help in finding the right lenders to ensuring good rates for you, they will do it all. No doubt, it will ease the process and will help you find great deals for your investment project. So without any wait, it will be better if you directly contact them as for sure the results will be satisfied with their professional assistance.