Have a Winning Investment and No Cash? Use a Hard Money Lender to Get the Deal Done

If you're a commercial borrower that can't seem to secure traditional financing from a bank or loan institution for the purchase of your dream commercial real estate purchase, don't give up. You don't have to throw your dreams of owning commercial real estate down the drain simply because you need a quick closing or don't have A+ credit. Unlike traditional lenders, hard money lenders can help you regardless of your credit history. In this brief article, we'll discuss hard money lenders as well as the advantages and disadvantages of utilizing them to secure financing for your next commercial real estate property.

First of all, you may be wondering what exactly are hard money lenders. Hard money lenders are private individuals or local companies who make private loans to residential and commercial real estate customers. In essence, they are similar to banks in that they grant financing, however, unlike banks these individuals cater to riskier customers (individuals with poorer credit histories). To compensate for their added risks, they charge higher interest rates and points to obtain their loans. In fact, commercial money lenders typically charge 10-20% for their loans whereas traditional banks charge 6-7%. In addition, if you default on your commercial loan then you may be charged an even higher "Default Rate" which could go up as high as 28%. Lastly, hard money lenders limit borrowers' loan-to-value ratios so that they can still make a profit if you foreclose. For instance, they typically take between 60-70% of the value of the property as their loan to value ratios. So, if you default then they have already received a portion of their investment with the initial payments.

One way of looking at it is that hard money loans are similar to bridge loans in that they are both utilized to fund properties that are in transition or don't qualify for traditional financing. One main difference is that hard money loans are available for distressed financial situations whereas bridge loans are not. With bridge loans, you typically go through a traditional money lender and the loan is administered short term for a new property. With these types of loans, you pay a higher interest rate for a short period of time.

Most hard money lenders, they typically take a 1st-lien position which means that if you default or refuse to pay the agreed amount, they would be the first creditor to receive remuneration in the case of the default. That means that no other creditor would come before them in the case of a default.

Although many people consider hard money lenders like loan sharks, they are not. For instance, if you don't pay they don't shoot you or break your arm, instead they simply proceed with foreclosure proceedings and take back the property if you don't pay your loan obligations.

So, if you're a commercial real estate investor that wants to flip a house quickly and needs to sell it even quicker then you might consider a hard money lender or if your credit is not the best then a hard money lender can work for you. One tremendous benefit is that they don't insist upon as much bureaucratic red tape to get your money. Instead of worrying about underwriters and submitting and proving income and other documentation, you can get those improvements made and that commercial property sold quickly for the highest profit without worrying about traditional lenders.

Tips for finding hard money lenders and working with them.

1. Ask for referrals. Hard money lenders can be difficult to find. There are many unscrupulous hard money lenders that would love to prey on commercial real estate investors, so you must be diligent in your search. Your best bet to find a suitable one is to ask for referrals from people who have successfully utilized one in the past. 2. Evaluate lenders thoroughly. Once you find a suitable hard money lender, make sure you investigate to make sure that they are indeed reputable and are not up to any shady dealings. This can be done by checking references as well as checking to make sure that there have been no complaints filed with the Better Business Bureau. If you have any reservations at all, you should go elsewhere. 3. Compare hard money offers .Always make sure that you compare offers. Before you sign on the dotted line, make sure that you review and understand any offers. This will ensure that you stay away from a bad deal. With hard money lender deals, this is especially important because these types of loans are typically more expensive than tradition and if you don't review the terms, you could be in for a terrible surprise. 4. Review terms thoroughly. When you receive the contract, make sure that you review it carefully and ask questions. After all, you want to make sure that you understand it before you sign on the dotted line. 5. Seek the advice of a competent attorney. In addition to reviewing it yourself, make sure that you secure the services of a professional real estate attorney to review all documents as well. This will ensure that you are not being taken advantage of in this situation. For instance, some hard money lenders have been known to throw in unscrupulous clauses that enable them to charge default rates with only one missed payment. 6. Develop and sustain a good solid relationship with your hard money lender. Once you find a hard money lender that you trust, you should maintain a strong relationship with them by making timely payments and securing a solid history. Then, you can obtain their assistance with other commercial loan projects in the future.

In conclusion, if you're a commercial real estate investor that is looking for financing and have been turned away from traditional lenders or simply need a quick closing then you should consider a hard money lender. Although their rates are more expensive than traditional lenders, they can provide you with the financing you need in a pinch.

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