There are a lot of opportunities to make money in commercial real estate. Many people who own property do not realize there are other kinds of funding besides going to a bank or other financial institution to get a traditional loan. People who are experts in this kind of investing know that the existence of hard money loans is one of the commercial real estate investing basics.
According to Realty Biz News, hard money lending has been a part of the commercial real estate investing world for a very long time. They note it has been one of the commercial real estate investing basics for decades. As is explained by their piece, hard money loans are useful in several instances. They are great when a deal is going to go through quickly and there is not the time to wait for traditional bank lending to come through. They are also great for people who may not have access to the more traditional lending sources. The interest rates are higher for secured short term loans but for people who might be looking to turn some commercial property around in a short amount of time, they can be just the thing to make the deal possible.
When hard money mortgage lenders look at real estate, they look at it differently than other financial institutions. People who are looking to get this kind of loan should be prepared to show the property to the hard money lender. Additionally, it is important to be able to show that lender that you are completely familiar with the real estate market in which your property is located. Many hard money lenders will invest in properties that are not in their area so, for those loans, it will not be possible to show them the property and the materials supplied to them about the project need to be really detailed.
Hard money lenders have their own underwriting process. When traditional financial institutions lend money, they look at the borrower’s income and credit score, this is one of the commercial real estate investing basics. The loans that they give amount to between 80 and 90% of the value of the property.
The credit worthiness of the borrower is not the focus for hard money lenders. They focus on the value of the property. Another difference is how they determine the value of the property. Hard money lenders tend to be a lot more conservative. Another one of the commercial real estate investing basics is that you need a professional appraisal of the property. You need that when dealing with hard money lenders but you need more than that.
People and companies who work in real estate secured lending want more than one valuation of a property. Typically, they want at least two and maybe even three. Many ask for the tax assessment but do not always see this as the most reliable way to find how much a property is worth. Another piece of information they look at is a “broker’s price opinion” or BPO. This is exactly what it sounds like, it is a broker’s opinion of a property. The only caveat in this assessment is that it is widely thought by many that broker’s tend to place a higher value on a property than it deserves.
The amount of money that has been spent to buy a piece of property is not related necessarily to the value a hard money lender will place on that real estate. They want to see what the market thinks of the property. At the end of the day, the hard money lenders take all the information in and make their decision.
Hard money lenders will not give loans that are worth as much as what traditional financial institutions give. These loans are only worth between 50 and 70% of the value they have placed on the property. When you are working out the price of the property, you should keep that in mind. It is important also to remember that hard money lenders know the business of rehabing and flipping properties very well so having a very detailed and thought out plan for your property will really help a lot.