Utilizing commercial hard money lenders to finance the purchase of a new piece of real estate is becoming a common theme in Los Angeles. Because the lending practices are much less stringent than what banks often put you through, it can be beneficial to get access to the capital quickly, as opposed to jumping through a series of “hoops”. Real estate investors that are interested in a particular piece of commercial property can easily access capital through a lender, purchase the property, repay the loan, and turn a profit on the venture. While there are several details associated with these transactions, it is important to understand what is really occurring: the borrower is receiving a private loan without having to deal with the corporate paradigm associated with big banks!
To help readers better understand the process associated with hard money lending, we have outlined the process and highlighted the key points of interest that should be considered along the way:
Finding and Appraising the Property
While receiving a hard money loan may not be difficult, there is still an appraisal process that must occur. After all, the property will act as collateral should the borrower default, so the lender will want to know what it’s worth, and determine whether or not the loan makes sense. It should be noted that the average hard money commercial lender will offer 65-70% of the property’s true value. This shouldn’t be taken as a slight toward the borrower, but instead, is simply a common practice that helps to reduce the amount of risk associated with the loan allocation.
Going Over the Details
Now that the property has been appraised, it’s time to begin working out the loan details. Most lenders will charge a bit more than the banking industry average, but this is standard. Again, we must reiterate that this is a private loan, therefore the risk is much higher for the lender. Look over the information, determine whether or not you feel that the loan is a good fit, and then proceed. Once you have the financial details worked out, you can begin closing on the property!
Closing and Moving Toward Repayment
Because many hard money Los Angeles lending firms have a staff of appraisers and attorneys on hand, the closing process is quick! Once you have closed on the property, the repayment window will begin. Now, it is important to note that repaying the loan in a timely fashion is paramount! The property is the collateral, so if you default, the property is turned over to the lender. Always be certain that purchasing the property includes your plan for repayment. But, when things line up properly, you can have a great piece of commercial real estate, a tenant to help you cover the expense of ownership, and of course, another file for your portfolio! Given the current economic state, those that find a way to purchase property today will be tomorrow’s millionaires. Use this information as a guide, and begin your next venture!