Hard Money Lenders Process

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Are you thinking about taking out a hard money loan? Before you do, researching more about getting one might help you decide if it’s for you. Read on to learn what it takes to get a loan from hard money lenders.

Who are Hard Money Lenders

Hard money lenders give out loans to people who need money for a new startup, flipping a property, or are trying to renovate their current home. These hard money loans can be the answer to all your financial struggles if you can’t get a traditional loan from a bank or credit union. However, like all loans, it comes with its own set of rules.

So, you might wonder: how can I find these hard money lenders? Well, it’s a lot easier than you think since they are all over the place. You can easily research some local hard money lenders to see which one is right for you.

Asking Hard Money Lenders for a Loan

After you find a few that look reputable and legitimate, put together a professional proposal that will have them saying yes. It’s easier to get a loan through this lender, but they will more than likely approve your loan when you present them with a laid-out plan. This plan should portray how you will repay the loan you owe them within the time they give you, which is likely 3 to 5 years.

Like most lenders, they will each have their interest rates and other particular rules for each borrower. You should go to more than one lender to see where you can get the best deal.

Asking Others for a Loan

Are you okay with asking family for money? It can be awkward, but you can borrow the funds from family, friends, or acquaintances for financial help. Even though family and friends aren’t hard money lenders, they are still another option for getting a fast and private loan.

Your family or friends trust you so that you will get a loan from them faster than other lenders. You can also figure out the loan requirements, such as how long before you need to repay them.

This option might sound great, but it can become a little messier if you drag out repaying them. It could affect your relationship if you don’t pay them back on time, so try to stay on track.

What It Takes to Get Approval

Most people know that it’s hard and takes a long time to get a traditional loan approved by a bank or other lender. However, it’s faster and easier to get approval by a hard money lender. If you are tight on time and need financial help with a project right away, this might be your answer. As reported by Harvard.edu, a traditional loan can take up to 30 to 45 days, while a hard money loan can take a few weeks. Therefore, a hard money loan can get your project going more quickly than a traditional loan can.

Traditional lenders often deny those who have a low credit score. However, that’s not the case with hard money lenders and their stipulations for approval. According to Harvard.edu, “An individual with bad credit can find a hard money loan in the event the job indicates a probable gain.” So, your credit score not matter to them as it does to other lenders since you have to pay them back sooner. This also means you are left with high-interest rates and points could be added to your total amount owed to them.

However, you need some collateral, such as your house or another property for them to approve your loan. They need that collateral in case you aren’t able to pay them back within the time frame you agreed on. Therefore, this is another reason your proposal needs to be perfect. Knowing how you will repay them will be crucial to keeping your collateral in your hands. Otherwise, you might lose it if you don’t commit to your business or remodeling plan.

Conclusion

Is a hard money loan for you? You should research and go over all your options before you settle on this loan. It might seem like your only solution, but going over all the pros and cons of seeking hard money lenders is essential. You could risk losing your collateral and owing them much more than you originally planned. Getting further into debt won’t solve anything, so make sure your proposal is perfect enough. Stay committed and focused on your business goals so you can repay them on time. You can do this if you put the effort and work into it!

Sources: https://exed.canvas.harvard.edu/eportfolios/931/Home/Understanding_Private_Mortgage_and_its_Advantages

 

 

Private Hard Money Lenders Are Seeking Funding Opportunities

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You need to know who to go to find money for your business. You believe in your business but now you need to find an interested money lender who believes in it too.  You know a bridge-loan or a hard money lender is the perfect solution for the influx of capital you need.

This article will provide you with information on the hard money lender criteria and process. If you want to know how lending and investors work, the below article will let you know. When you have questions about being an entrepreneur in this competitive business world, or just need a bridge loan for your business needs connect with us anytime.

Differences Between Private Lenders and Hard Money Lenders

Private money lenders are private investors. They can be difficult to find as most of them don’t advertise. Most of the time you find private money lenders through a professional network or peer. Private money lenders offer you more power to negotiate your loan terms for the deal. But attorneys are often involved unless you know your way around term sheets and contract obligations.

A hard money lender is defined as a short-term bridge loan funder. A good deal of hard money lending is used in real estate transactions, you may just not realize it. In hard money or bridge-loans there is higher risk for lenders so sometimes the loans have higher interest rates or payoffs. But these lenders also provide you with faster access to the capital you need. What’s more, they have a less stringent application process with flexible repayment schedules.

Right now is a great time to go after business funding. The economy continues to be healthy so there are more funding vehicles being created daily.  We are going to go over some secrets to finding interested funders who want to learn more about your business or funding needs.

The world used to be divided into private funders, hard money lenders, bank loan lenders, and loan sharks. All these groups had funding, and all were usually interested in speaking to you. Each group had its own reasons for wanting to lend you money. They also had their own respective criteria on what risks they would take.

There is no steadfast investment formula followed anymore by those who have money to fund projects, businesses, and dreams. If you are bold enough to have the vision with a concrete plan behind it, you may find a funder willing to listen.

Secrets to Finding Interested Money

There are bridge loan and hard money lenders interested in speaking to you today.  The truth is that bridge loan notes are used all the time by businesses. Many times, businesses today use hard money loans as their first infusion of dollars raised. Funders are doing it that way because it’s easier to negotiate the terms of a bridge loan than determine the value of a startup.

For a business or entity to run out of cash and need an influx of capital is not uncommon. “Founders have too much confidence in their business model, too little ability to forecast their burn rate, and too little willingness to give up equity.” Deepak Malhotra, Harvard Business Review. The businesses end result maybe it fails altogether.

Hard money lenders trust the relationship and put a premium on trust. If you want to find a funder interested in you and your product or service than a hard money lender is the place to go. But just like angel investments or bank loans there is a process and once you’ve settled on the terms of the loan, it’s important to sometimes remember you are creating a long-term partnership.  Honor the loan and the lender, and the lender will respect you back.

You never burn any financial bridge when you are in business for yourself. You never know when you may need funding or an influx of capital again. In the end, it doesn’t matter where you are getting your funding from, if the terms of the loan work for you. It is never too late to own your dream and find the interested money funder you need to make your dream a reality.  Reach out to us today, and we will help you find what road leads you to your future.

[1]  https://hbr.org/2013/05/how-to-negotiate-with-vcs

Laying Out The Myths And Facts Of Hard Money Loans

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The hard money or private loan can, under the right circumstances, provide borrowers with an easy to obtain loan. Unsurprisingly, it is getting increasingly popular, with the lending environment in banks remaining very unfriendly to borrowers. Indeed, there are numerous reasons as to why these loans are now so common.

Recent years have seen major growth in the private capital market with more lenders offering hard money loans and more borrowers seeking them out as alternative financing. While there are many reasons for the growth in this segment of the real estate market, here are four main ones: Mutually beneficial to borrower and lender. Credit availability. Asset-based underwriting. Higher returns on investments.

Yet, despite the fact that there are so many clear benefits, people are still skeptical about these types of loans. One of the reasons for that is perhaps because these loans can be quite a bit riskier because they don’t have a standard application and acceptance process. They also have much higher rates of interest. Nevertheless, everything has its pros and cons and it is all about weighing these up. Let’s review some of the most common myths about hard money loans.

Myth 1 – A Private Loan Is an Expensive Loan

The fact is that these loans indeed have a higher price tag, but a loan is taken out for a purpose, which means that what really matters is the return on investment. When you consider that a traditional bank will only finance up to 65% of the total cost of the project, it means a borrower must still be able to raise at least 35%. This is known as the loan-to-cost (LTC) ratio.

The loan-to-cost (LTC) ratio is a metric used in commercial real estate construction used to compare the financing of a project as offered by a loan to the cost of building the project. The LTC ratio allows commercial real estate lenders to determine the risk of offering a construction loan.

With a hard money loan, borrowers could raise as much as 90% of the total cost of the project. This means that they have more disposable capital to work with. And although the interest rate is higher for a private loan, many have found that the return on investment is also higher.

Myth 2 – Hard Money Borrowers Lose a Lot of Control of the Property

It is quite common for those who decide to go the traditional lending route to have to bring in a partner in order to be able to finance their project, leading to them having to give up at least partial ownership of the property. Some, in fact, will require full ownership to be given up. With a hard money loan, the lender owns part of the project, not the actual property.

Myth 3 – It Is Much Easier to Deal with a Bank

This myth stems from the fact that banks have a standardized process. While this may be true, this also makes them highly rigid. Banks also generally do not provide any finance for development or construction loans at all.

The implementation of HVCRE (High Velocity Commercial Real Estate) rules that went into effect for the banks at the beginning of 2016 has made a large impact in the space. This causes acquisition, development and construction loans to be reported separately from other CRE loans and to be assigned higher risk weighting by the banks.

Banks have to stick to the HVCRE regulations and they are only allowed to provide loans according to the rules of the Federal Deposit Insurance Corp. Additionally, they underwrite based on the borrower’s income. Finally, they are concerned about exposure and will therefore often only work with borrowers they already know.

A hard money loan does not have to deal with this, which is one of the reasons why even residential borrowers are now considering these types of loans. They have a quick, streamlined process and generally complete the transaction within 30 days. In fact, underwriting often only takes 48 hours. Private loans are also far more flexible as their terms and conditions can be modified or altered as a project progresses.

Refinance

How to Refinance a Hard Money Loan

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A hard money loan offers borrowers an opportunity to get quick financing without having to deal with the red tape associated with traditional bank loans. They’re often used by people facing foreclosure or looking for capital in order to flip a piece of real estate. These loans have high interest rates and shorter repayment periods, which means they need to be paid back quickly. However, if this is a problem, you can refinance a hard money loan.

For many people, this is a great time to buy a house. According to the U.S. Department of Housing and Urban Development, mortgage rates have fallen since November of 2018, reaching an average weekly low of 3.75% in June.

Unfortunately, those with bad credit still aren’t able to secure a loan from a bank. However, with a hard money loan, a private lender uses the value of the property as collateral instead of looking at your credit score. But what happens when the unexpected occurs and you can’t pay back the lender on time? It turns out there are ways to refinance a hard money loan. Let’s go over a few.

Consider a Fixed Mortgage

If you secured a hard money loan to purchase your home or avoid foreclosure, you may now be able to get approved for a fixed mortgage loan. Sure, you weren’t able to get approved for a traditional mortgage loan in the first place, but things could be different now. The initial hard money loan may have allowed you to improve your credit score.

Securing a fixed mortgage loan will allow you to pay off the private lender you got the hard money loan from. This may seem counterproductive. However, a fixed mortgage will carry a much longer repayment period and allow you to lock into a low interest rate.

This approach allows for a lot more breathing room than a hard money loan does. You have more time to focus on paying off the loan. Plus, your monthly budget won’t be eaten up by high interest rates.

Refinance with a Home Equity Loan

If you got a hard money loan to make renovations to your home, you may be able to use a home equity loan to pay it off. It’s important to remember that you’ll need to have acquired healthy equity and also a good credit score. If you don’t have this, you won’t get the loan.

Some homeowners seek out hard money loans when they can’t get a home equity loan due to bad credit. The hard money loan allows them the financial security to rebuild their credit score. If you’re in this position and want to refinance a hard money loan, consider applying for a home equity loan again. You healthier credit will make it easier to get approved.

Look for a Subprime Lender

Another option is to find a subprime lender to secure financing to pay off your hard money loan. Many subprime lenders work with banks and provide options for those who don’t qualify for a traditional loan.

What makes these lenders unique is they’ll do business with individuals with bad credit and lots of debt. The subprime loans they offer carry different terms. There’s a good chance you’ll have an interest-only or adjustable-rate mortgage.

On the surface, these loans may seem unattractive. However, they allow you the ability to refinance a hard money loan and enjoy a long repayment period.

A Cash Loan

If your hard money loan has a relatively low balance, getting a cash loan will allow you to pay it off quickly. This approach should only be used as a last resort, as most cash loans have very high interest rates. Many of these loans also come with fees. However, as Warren Buffet said, “Cash combined with courage in a crisis is priceless.” It may be time to bite the bullet.

Only consider this option if you’re at risk of losing your property by not adhering to the terms of the hard money lender. Yes, you’ll have to deal with paying back the cash loan, but you won’t lose your home. Look for a lender who’ll provide a little flexibility regarding the terms of your cash loan. If you find the right lender, you may be able to pay it off without much hassle.

Resources:

https://www.huduser.gov/portal/sites/default/files/pdf/Housing-Market-Indicators-Report-July-2019.pdf

https://www.investopedia.com/terms/s/subprimeloan.asp

Hard Money Financing Addresses Your Loan Dilemna

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Are you trying to get a loan to flip houses? Or need some quick money to finance your new startup business? Some people aren’t able to get a loan for their new business no matter how excellent their business proposal is. Well, you might apply for a hard money loan. Learn more about how hard money loan financing can solve making your business idea come to life.

Why Choose Hard Money Loans

Those trying to start a flipping house business or need funds for a new startup might consider hard money loans. You don’t have to stop your efforts to provide financing for your business since you have this other option.

It’s easier to be granted a hard money loan than to get accepted by a bank or other traditional loan. As reported by the Senate Committee on Banking and Financial Institutions, “Hard money lenders typically lend to borrowers unable to obtain credit elsewhere, or to borrowers who need money more quickly than traditional lenders can fund a loan.”

Most traditional money lenders take too long approving your application. You might not want to waste a whole month waiting when you can start almost right away.

However, hard money loans are a lot quicker to get accepted. People usually have a higher success rate with this loan. Having a great business plan will go a long way in getting accepted faster.

Who Gives Out Hard Money Loans

Some people have to resort to other options to finance their new business like an individual or group of investors who lend out hard money loans. These loans might be your only option if you have an eye on an expensive property or a risky one. Having too much construction to work on or some other obstacle might make traditional lenders hesitate. These hard money investors are used to putting their money on the line on high-risk business situations.

Not all investors will seek those high-risk investments. What will really help get your application accepted faster is if you draw up the perfect business proposal. Organizing the best business idea that shows the least amount of risk for your investors will get you accepted more than a sloppy one. It needs to portray how you will make a quick profit, especially if you want to repay your loan on time.

You can compare different financing companies to get the best deal for you and your business. The lender and loan term can also play a factor in how much they will allow you to borrow. You should make sure you borrow enough money for construction and all the other expenses you haven’t thought of yet. This is where extensive research can help you figure out how much to ask for.

Does Your Credit Score Affect Your Approval?

You don’t need a good credit score to be approved for a hard money loan. As stated by Senate Committee on Banking and Financial Institutions, you don’t need a high score to get hard money loans. Therefore, this loan can be perfect for those who have an excellent business idea but don’t have the credit history to back it up.

Drawbacks of Hard Money Loans

What’s the catch? There are some drawbacks to getting a hard money loan. First, offering your property as collateral, whether it’s your house or another property you own. Something has to be at stake for them to accept your offer.

According to Senate Committee on Banking and Financial Institutions, hard money loans usually have higher interest rates and points added to your final loan. You also don’t have the luxury of a long loan length. You have to repay the lender within a smaller time frame than traditional loans.

It all depends on the particular deal you made with your money lender. So, be absolutely sure your new business venture is successful and will make the profits to pay your loan back.

Don’t Let Financing Stop You

Don’t let your business proposal gather dust when you keep getting denied. Instead, seek hard money lenders to help finance the business you’ve always wanted.  Go over the benefits and drawbacks of hard money loans and see if it works for you. Take action now by researching the best hard money lender today and applying for a loan that will change your life!

Sources: https://sbnk.senate.ca.gov/sites/sbnk.senate.ca.gov/files/final%20backgrounder.pdf

hard money overview

Hard Money Commercial Loan Overview

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There’s no denying real estate investment is an extremely profitable business in America right now. A quick look at housing development trends will back this up. According to the Department of Housing and Urban Development (HUD), 854,000 single-family housing units were started in the first quarter of 2019. This means many investors will be seeking a hard money commercial loan to get their projects off the ground.

Traditionally, commercial and residential real estate investors would get the capital they need by applying for a bank loan. Unfortunately, this comes with a number of limitations. If an investor’s credit history is unhealthy, there’s a good chance they’ll be denied the loan altogether.

In recent years, however, hard money commercial leaders have become an invaluable resource for large-scale commercial and residential investors. Let’s break down the basics of a hard money commercial loan to determine if it’s right for you.

Understanding a Hard Money Commercial Loan

It’s important to understand the distinction between a hard money loan and a traditional bank loan. This knowledge is key if you’re in the commercial real estate industry and need to make a quick decision to secure capital. Getting the wrong type of loan could result in a financial loss once repayment begins.

An important distinction between a hard money loan and a bank loan is the type of lender. Because hard money loans are provided by private lenders instead of financial institutions, the entire process is different. These differences can be a huge benefit for many investors.

When applying for a commercial hard money loan, the lender looks at the value of the property instead of your credit history. Let’s say you apply for a hard money loan so you can start a commercial development project. The lender will look at the scope of the project and the value of the completed property. This is done by calculating things like gross scheduled income, and net operating income. They’ll use the property as collateral against the loan. If you default, the lender can take the commercial building as repayment.

Why Investors Should Consider Hard Money Loans

It’s important to note that a commercial hard money loan doesn’t come without risks. You must ensure you can pay back the money or you could potentially lose your property. However, if the conditions are right, a hard money loan will prove advantageous.

Real estate investors must make quick decisions. The famous real estate entrepreneur Jeff Greene made a great point when he said, “In real estate, you make 10% of your money because you’re a genius and 90% because you catch a great wave.” When a great wave comes, you need to ride it.

A major benefit of a hard money commercial loan is you can get approved quickly. Because the lender doesn’t have to look into your financial history, the process is much faster.

Another advantage is that private lenders tend to be much more flexible than banks. You can negotiate repayment terms and interest rates. You can also work out deals where the lender recoups personal assets first if repayment terms aren’t met.

Things to Watch Out For

There are also a number of disadvantages attached to hard money commercial loans. You must analyze your financial situation, the scope of your project, and projected earnings before applying for one.

One of the biggest disadvantages of a hard money commercial loan is the interest rates. They tend to be much higher than traditional bank loans. This means you need to be certain you can pay it back fast. If you plan on making a big profit off your investment right away, this shouldn’t be a problem.

Another potential disadvantage is the shorter repayment period most hard money loans carry. Keep in mind that these loans are meant to allow investors to buy property or start development projects right away. These aren’t long-term mortgage loans. That being said, if you don’t feel like you can adhere to the repayment period, stay away from a hard money loan.

Is a Hard Money Loan Right for You?

When considering a hard commercial loan, a good rule of thumb is to determine when your property will become profitable. You need to have a solid business plan in place and know exactly how much time it will take to complete your project. If all these details are in order and you simply need the funding to get started, a hard money loan may be the perfect move.

Resources:  https://www.huduser.gov/portal/sites/default/files/pdf/NationalSummary_1Q19.pdf

https://www.wikihow.com/Evaluate-Commercial-Property

LendingHome Disrupts The Market Of Private Lending

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The fact that the world of hard money lending is growing is readily apparent. Exactly how much it is growing, however, has been somewhat of a surprise to many. In fact, the HousingWire Tech100 List has recently announced that lending is the new tech.

Applicants include heavy hitters and innovative disruptors…. But make no mistake, the name of the game in tech, these days, is lending, lending, lending.

The HousingWire Tech100 List looks at tech companies that have innovated the housing industry in this country. Usually, they recognize companies that create things such as smart devices for the home and green technologies. But now, they have recognized LendingHome as well, as the fastest-growing and largest online marketplace lender for mortgages in the country.

LendingHome is reimagining the mortgage process from the ground up by combining innovative technology with an experienced team. Our goal is to create a seamless, transparent process for homebuyers, real estate professionals, and investors.

One of the reasons why the private lender was recognized was because of its innovative automation and customer experience. They have created a loan process that is easier than ever to complete. In fact, 80% of applicants do not have to speak to LendingHome in person to have their loan processed. This means that people can finally apply for a mortgage in a way that is convenient to them without any interruptions, telephone calls, or meetings.

The founder and CEO of LendingHome had set forth a vision in that people should be able to have a roof over their head and live in their dream home without any difficulties. He expressed particular pride in his team and engineers, who have created a platform that has made it possible for the company’s vision to be turned into a reality. Having been recognized for this has been described as the icing on the cake.

Last year, LendingHome, based in San Francisco, California was recognized in 2017 by LendIt, who awarded CEO Matt Humphrey the title of ‘Executive of the Year’.

Given to the senior executive who has demonstrated outstanding leadership, integrity, performance and team-building within his or her company, while at the same time contributing to advancement of the industry.

The LendIt Fintech Industry Awards is a yearly competition and it has recognized LendingHome as part of their Top Real Estate Platform. This award showcased the company’s unique combination of responsiveness to stakeholders, product diversity, growth, volume, and performance.

LendingHome is also committed to continuing to innovate the market. They regularly participate in events that teach people about the fix and flip market. Mainly, however, co-founder Josh Stech has recognized that there is currently a degree of vulnerability in the world of private lending, and their company aimed to change this, something they have been committed to since 2013. Stech recognized that there is still a huge degree of fragmentation in the market and that the borrower experience, due to hidden fees and uncertain terms, is quite poor. Hence, LendingHome has developed a process in which technology and people are brought together to ensure borrowers have a more streamlined, secure, and user-friendly experience. Doing so has literally transformed the market as a whole.

LendingHome issued its first loan in the middle of 2014. Since then, they have funded over $2 billion mortgages. Their goal is to simplify the process and it seems they have been successful in doing this.

We’re on a mission to revolutionize the world of mortgages and put the power, and the keys, where they belong – in your hands.

The company uses a purpose-built, from scratch platform that no other lender in the country is currently able to offer.

Becoming A Hard Money Lender

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A hard money lender will never run out of fashion in spite of all the innovations in banking. Once in a while, people run into financial woes that their banks cannot sort as soon as they may need or their credit score does not just allow them to enjoy bank lending. When this happens, a hard money lender becomes the best option to work with.

Find a Borrower & Evaluate the Deal

You must have a way of reaching out to clients for your business. If you have enough money, go into advertising. If not, reach out to your investors and business people for leads on a deal you can fund. You have an upper hand if you belong to a local Real Investment Club. You can start pitching here. Talk to the club manager to allow you access to the members.

Size up the deal. Consider the money required and the collateral in question. Evaluate whether it makes financial sense to you.

Establish Equity

Once you have discussed the collateral, determine the borrower’s equity in the property. A hard money lender should be looking for at least 30% of the equity as a rule. So the borrower should not borrow more than 70% of the property value after repair.

Assume the purchase price of the property is $100,000.

$10,000 in repairs

$185,000 after repair value

So to give the borrower $100

Loan for $100,000 = LTV (loan to value) of 67%

Assess Borrower’s Credit

While you have been chosen because the customer does not want to deal with formal bank credit red tape, this does not stop you from checking the borrower’s moral standing. Check the reputation when it comes to making business deals. Have they ever been declared bankrupt? Is the first private lending deal? Do they make timely payments?

Remember you are interested in the borrower’s reputation. As for credit history, you do not have to worry, you have the property.

Negotiate

Ask the borrower about their expectations. Hard money loans take a short period between 6 months or a year. Some borrowers though may opt for multi-year loans such as 3 or 5 years. In this case, ask them to refinance or pay off your note prompt.

Interest rates will vary based on the risks, market rates, and duration of the loan. Be conversant with your local rates. Consider offering a small discount until you become an established hard money lender.

At this point, the borrower should have handed over the necessary documents. Understand why they chose you. Get a list of repairs needed alongside an inspection report including a termite and oil tank inspection.

Get a professional appraiser to do After Repair Value appraisal. Inspect the property to see the repairs for yourself. Ask for repair bids. The borrower must get a title and home insurance with your names.

Close the Deal

If this is your first transaction, use an experienced lawyer. Go through the loan documents and wire the hard cash to an escrow agent. Ensure that the terms are well stipulated and all exemption clauses are captured.

There are a number of ways that you can use to service the loan. You can either opt for a simple-interest loan only or hire a servicing agent if it is a complex loan. “Do a thorough research on the method that allows you maximum returns from the lending or the property.”

Secret Success Tips for A Hard Money Lender

Hard money lending business was innovated for convenience and faster access to cash. The protection of the lender is in the property offered as collateral. It is really important to ensure the documentation is clean, the title is valid and insurance is valid. To succeed in the business, you need these tips to ensure you take advantage of every good deal that comes your way.

– Liquidity

– Valuation of Collateral

– Borrowers Credit Valuation

– Proper documentation to ensure availability and authenticity of collateral such as insurance and private lender insurance

– Take Care of your Personal Wealth: do not put up everything up for borrowing.

Succeeding in this business is easy with good planning. Be careful about valuation and documentation. Ensure you stay liquid and do not jeopardize personal wealth while at it. If you need help on how to navigate the business, talk to us.

Source

Mckenna, Francine. How can you monitor a borrower without financial statements? https://review.chicagobooth.edu/magazine/summer-2014/how-can-you-monitor-a-borrower-without-financial-statements

 

 

Commercial Hard Money Loans, Sign Over Your Real estate

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Money… There just doesn’t seem to be enough of it. How many people in the U.S. have absolutely zero debt? It would only be fair to guess not that many because if you think about it, isn’t all money kind of borrowing? The US is currently 22 trillion dollars in debt, and it doesn’t look to be going down any time soon. Now, with all this said, unfortunately, according to society and laws and such, money is not endless and even though it is great to be able to borrow it, the day WILL come where it has to be returned. So where does that leave us? Maybe time to start looking into commercial hard money loans.

What is a Commercial Loan?

If you have bad credit, getting a loan can be almost impossible. That’s where this brilliant solution of a commercial hard money loan may be your new best friend. Okay, but what is a commercial hard money loan? Right. Basically, if you own any real estate that is worth a decent amount of money, the bank can decide that its enough to allow you to borrow some more money.

This can be a savior for people to get back on their feet by catching up on their bills. It works because the loan allows for one larger payment, lowering the amount of interest paid, and therefore saving money!

“For a commercial hard money loan, the lending decision is based on the “commercial asset” (Property) as opposed to relying heavily on a borrowers credit, financials, etc…  The loan is secured by a first mortgage.” (Fairview Lending)

What are the Drawbacks?

Now as great as this sounds, and as simple as it may be seeming thus far, there are drawbacks. This solution can be known as a last resort effort because it is very drastic. This works when you need money quickly, but don’t want to give up your real estate…understandable. It is borrowing based on the value of the real estate BUT a risk of losing it if the loan cannot be paid back in the set period of time.

Another reason this is risky is because of the market. Think back to 2008 when everything was crashing and burning and the economy was terrible. If this happens to happen while on a commercial hard money loan, and the value of your real estate plummets, it can be hard to recover.

What’s the Difference From a Regular Loan?

According to Fairview Lending, there are very specific ways that a commercial loan is different than a bank loan. For example, a bank loan requires you to have a credit score of at least 700 whereas a commercial loan requires no credit score.

A bank loan can take up to 2-3 months for it to be put through the entire process and improved for you to get the money. Commercial loans take up to 10 days! The only thing you need to be eligible for a commercial loan is real estate. Banks require much more documentation including income, credit scores, tax returns, and financials.

Where Do They Come From?

Hard money loans are typically issued through companies or private investors and interest rates tend to be somewhat higher starting at around 7%. This is because of a shorter loan duration and a much higher risk. Clearly, there are many pluses to a commercial hard money loan, but also some factors that must be taken into account as well!

If you are trying to decide if a commercial loan is the right direction for you, it is important to weigh all of your options and really evaluate how it will help improve the situation, not just put it off for longer.

You’re Not Alone

One of the worst things to do when it comes to money management is put off paying loans or debts. This only ruins chances of getting more loans and hurts you from being able to even begin to pay off what’s needed. It is an easy trap to fall into, but the best solution available to you is to figure out what will help you pay off the most money, in the shortest amount of time.

Like mentioned at the beginning, most of us have debts because they come so easily…college, a car payment, buying a house, starting a business, etc. There is no reason to feel bad about it, just be smart and don’t think you can act like it doesn’t exist forever.

Sources

https://www.npr.org/2019/02/13/694199256/u-s-national-debt-hits-22-trillion-a-new-record-thats-predicted-to-fall

https://en.wikipedia.org/wiki/Hard_money_loan

 

 

A Projection For Commercial Lending In 2019

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Commercial lenders have to look at what the future holds and how their business will continue. While it is important to be optimistic, it is equally important to be realistic and be ready for any worst-case scenario. Private lending companies such as Arixa Capital are currently in the process of releasing their projections for this year and how they will be able to continue their work.

“We were established to invest in niche asset classes and private markets such as short-term real estate loans. We strive to minimize risk, preserve principal, and generate strong returns and current cash flow to our investors. Arixa Capital specializes in private lending secured by real estate, and we have built a full-service lending and loan servicing platform to ensure a steady flow of investments for our funds.”

Projected Downturn in California

Arixa Capital is one of the first to have completed their assessment. They fear that there will be a significant downturn on California’s West Coast, in particular, for multifamily properties. Prices have become unaffordable even though the West Coast is known for its strong job market and high wages.

Companies like Arixa Capital try to find conservative borrowers whenever possible, which means they don’t have to leverage as much risk. However, if a downturn does happen, it could mean that there will suddenly be a massive influx of investors, particularly those interested in investing in apartments. The result is that hard money lenders are now preparing themselves for an influx of opportunistic investments, so that financing is available should there be a downturn. The verdict is still out, however, on whether and when the next recession will hit.

A decade after the global financial crisis, the United States is expanding at its fastest pace in more than two years, having experienced growth of 3 percent or more for two consecutive quarters. But a long period of U.S. economic growth could be interrupted in the coming years.

Characteristics of the West Coast

California’s West Coast is quite a unique area, however, and this is why experts believe that a downturn is more than likely to happen soon for this particular area. First of all, there has been a huge increase in rental rates. So much so, in fact, that these could become unsustainable. Secondly, lenders are competing to offer better loans, which means they are more than willing to take on higher risks. Should there be a downturn, this would put many borrowers at extreme risk.

The Mortgage Bankers Association (MBA) has recently released its forecasts for 2018, which appear to be strong.

MBA forecasts mortgage banker originations of just multifamily mortgages at $248 billion in 2018, with total multifamily lending at $271 billion. After strong growth in recent years, multifamily lending is expected to hold roughly steady in 2019.

MBA Forecasts

As the largest trade group for mortgages in the country, they surveyed some of the country’s greatest commercial lenders and found that:

  • 80% believe that commercial origination volume will rise in 2018.
  • 50% believe that there will be a 5% or more jump in their own origination volume.
  • 25% believe that there will be at least a 5% increase in origination volume over the market as a whole.

The MBA also released a forecast about multifamily and commercial origination volume, stating that there was a 5% increase between 2016 and 2017, ending at $515 billion. They feel that 2018 will see those levels hold. The analysts at the MBA are optimistic, therefore, and believe that this year will be an excellent year for the commercial real estate (CRE) market due to various fundamentals (delinquency, occupancy, and rental rates) that are strong in virtually every sector.

However, the CRE market is quite far within the cycle and that is a concern. Prices of assets have been rising throughout 2017 and they are now above their past peaks in some classes. This includes the multifamily assets and the office buildings. Yet, the volume of transactions is now not as high anymore.

Western Development

While Arixa Capital is preparing for the worst, Western Development, a different hard money lender, is somewhat more optimistic, while also being realistic about the future.

Western Development is your premier choice for hard money lending. Our company specializes in lending on land, residential and small commercial properties or other collateral. Currently, we fund loan requests in Maryland, Virginia, the District of Columbia and Delaware.

Based in Virginia, they have seen a significant number of people starting to work from home. They are realistic about the fact that this could cause some degree of difficulty for office properties. Additionally, there are some serious issues in the retail industry, shown, for instance, by the difficulties experienced by giants such as Sears.

The chain will shutter 64 Kmarts and 39 Sears stores across the U.S. by April. Sears has lost more than $10 billion in the past few years and weak earnings have caused executives to question the business’ sustainability.

At the same time, Western Development feels that there hasn’t yet been a bubble burst, with the market still favoring sellers in certain areas. While there is certainly a national trend going on, localities still have their own particularities. Hard money lenders that focus on specific geographical areas, therefore, may not struggle to remain in business so long as they are in positive localities.

Hard money lenders like Western Development emphasize smaller loans, which usually are required by risky borrowers. When a recession hits, banks stop agreeing to mortgages, which usually means hard money lenders do better. However, the current conditions are not as good for hard money lenders anymore. People seem to have unrealistic expectations in terms of the rates they can request from hard money lenders, not understanding that rates increase if they present a higher risk. What this means is that a lot of hard money lenders are currently standing by, watching people take on too much debt because the rates are low. History has shown that this inevitably leads to a recession, at which point everything will change once again.

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