Developers and contractors use these types of loans to fund numerous projects including multifamily, industrial, office space, fix and flip, or buy and hold properties. In the present lending environment, underwriting standards are tightening and, when loans are approved, they are often for less than the total capital required to complete the project in its entirety. When developers opt to accept this type of funding, they are often left scrambling for additional capital part-way through the development. Not a good scenario.
Hard money commercial loans are different from traditional loans in that they are based on the hard-asset of the project, or other collateral, and can offer less stringent underwriting standards as well as increased loan-to-value ratios. Some hard money lenders will provide loans based on the after-repair-value, though these are more difficult to come by as the lender assumes greater risks. Some hard money lenders will even provide financing for the rehab costs, a practice that portends an even greater risk and therefore is also associated with a higher interest rate.
In order to obtain a hard money commercial loan, you need to have a plan, an exit strategy which shows how you intend to pay back the loan, and a bit of skin in the game. This ensures that you, as the developer, have something to lose as well and will, therefore, do all that you can to ensure the plans, building or renovation, go accordingly and to budget. There are always those surprises that almost every development faces, but even those are considered among experienced contractors.
Because most hard money commercial loans are funded by private investors or small groups, the time to funding varies dramatically. In most instances, funding is fairly rapid. Be sure to come equipped with your plans, budget and permits. If you are looking for funding for a fix and flip, demonstrate your knowledge in the market you’re choosing as well as construction and real estate protocol. If you have a weak spot in this area, it’s important that you show a lender that you have a team of experts to make up for any areas that you lack in experience. For instance, if you are not remodeling savvy, what construction company are you partnering with? If you are weak in defining markets and comps as well as marketing to potential buyers, who is the real estate agent that you are working with?
We offer interest-only payments and short term loans anywhere from 3 months to 5 years. We do not put as much emphasis on your credit report and can often say “Yes!” when banks have said “No.”
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.