Questions continue to swirl regarding hard money commercial loans. What are they? How do they fit into the “new normal” in the real estate industry? What is so enticing about them that has caused them
to exponentially increase in popularity in recent years?
All of these questions have answers, and we’re here to give them to you! To better understand the importance of these secured loans, we must first understand what define a
hard money commercial lender:
Hard money firms are those that offer quick financing, often used to acquire distressed commercial properties. These organizations bring capital investors and buyers together, giving both the ability to generate revenue through the acquisition and sale of various property types. These loans are always secured, as the principle of the loan usually totals approximately 70% of the property’s value.
Additionally, interest is also added to the loan amount, though all of these details are prominently discussed PRIOR to the loan’s finalization.
Addressing the “New Normal”
Anytime people refer to the “new normal” in real estate, they are referring to the shift we have seen in pricing and lending. Because the large banks are still suffering from the crash years ago (and many are paying substantial fines for their involvement!), it has never been more difficult to secure funding for property acquisition. Even if lien is held by a bank, they are reluctant to offer up financing to liquidate the property. It’s a conundrum, really, as the industry cannot recover with funding, yet the marketplace hasn’t recovered enough to make lenders comfortable. Some would say it is the great “Catch 22” of our era.
This is where a hard money commercial lender begins solving problems. By offering “stated income” loans that do not require W-2s or proof of income, these groups give speculators the ability to pounce on commercial opportunities that won’t remain attractively priced for long. As we stated previously, they are able to expedite the loan application process because the loan is secured by the property itself! Everyone wins.
Hard Money is Here to Stay
The strict lending criteria currently being used by large banks hasn’t hindered the real estate market at all. Why? Simple – hard money. By continuing to pump capital into the industry, buyers are able to restore commercial properties back to functionality, and capital investors are enjoying nice profits in the process. This dynamic continues to fuel itself, meaning that the investors are ready to put their capital back into the industry and buyers continue to acquire locations with increased confidence. Nearly every major metropolitan marketplace has witnessed the rapid ascent of hard money lending.
Acquiring a hard money commercial loan isn’t difficult, as these lenders continue to educate borrowers on the proper usage of such arrangements. With increased professionalism and a steady influx of capital, buyers can continue to leverage these agencies as a means of recovering from one of the most devastating housing bubbles the industry has ever seen!