Commercial Loans on Special Purpose Properties

Depending on the property, it can be difficult to find a commercial loan on those defined as “special purpose.” Here are what traditional lenders look for in these types of properties and why you may need to consider unconventional financing.

A special purpose property is usually built by the investor and constructed for specific, limited uses. These may include car washes, churches, self-storage facilities, gas stations, golf courses, hospitals, dormitories, nursing homes and theaters. It is a property that, once built, will require a large capital investment to convert it to another use. Because of this, most lenders consider this type of property a risky investment.

The Small Business Administration makes loans on these types of properties, but the commercial loan requirements are more stringent than their other loan programs. For instance, they will require at least a 15 to 20 percent down payment as well as credit scores above 680. Their 504-loan program consists of two separate loans—the first one made by a bank or finance company for up to 50 percent of the project cost and the second loan made by a local Community Development Corporation and secured by a 2^nd lien on the assets. Though SBA loans often offer the most competitive interest rate and the highest loan-to-value ratios, only prime borrowers are likely to qualify.

Traditional lenders for these types of properties usually fall into the 60 to 75 percent LTV range. So, if the property your considering investing in comes at a cost of $750,000, the bank will offer you anywhere from $450,000 to $562,500, leaving you needing to come up with a down payment that ranges from $187,000 to $300,000. They’ll also require a proven history of your success in managing this type of investment property. If this is a new construction project, expect to pay higher interest rates as this type of commercial loan is considered much riskier than a completed project. There are, however, lenders who specialize in special purpose properties as well as borrowers with limited credit history that need higher loan-to value (LTV) ratios than traditional commercial mortgages can offer.

Hard Money Lenders

Hard money lenders are one of those unconventional commercial loan lenders that investors often turn to when they have difficulty qualifying for a traditional loan or they do not have the time to wait for such a loan to be approved. This occurs when a hot property comes on the market and investors require capital in weeks instead of months. It’s very apparent to those in the CRE world that private money lenders are filling the gap created by tightening commercial underwriting standards. And this is good news for you, the investor.

Private hard money lenders provide funding for all types of CRE investments including special purpose properties, warehouse, industrial, multifamily and office.

At Level 4 Funding, we offer bridge loans, construction loans and loans with specific types of properties in mind. The truth is, because we work with over 200 private investors, there are very few types of projects that we don’t invest in. We offer up to 90 percent LTV with 3 to 60 months interest-only payments. If we sound like the right fit for you, call us for a complimentary no-obligation quote.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.