The first thing a borrower must understand is exactly what a Arizona commercial hard money loan is. It is a non-conventional loan. There are many specific situations in where conventional lenders will not finance due to the strict government regulations. A hard money loan is an asset based loan that is secured by the equity of the property. It is called hard money because it is secured by a hard asset— real estate
There are so many situations where it makes great financial sense to purchase property, but either because of the government regulations or poor credit a traditional loan cannot be approved. For example; there is a fourplex and the asking purchase price is $200,000. It is in pretty bad shape and will require quite a bit of rehab. There are two units vacant; which makes the occupancy rate 50%. It has been appraised and after repairs the assessor firmly believes the value will increase to $400,000. However, a traditional lender will not approve this loan because the fourplex is not producing enough income. A hard money lender, however will view it very differently. A hard money lender will always take a pragmatic approach and ask themselves, “does this make sense?” If it makes financial sense the lender will finance the project and put little emphasis on the borrower’s financial history.
In this situation typically the hard money lender will finance between 60% to 70% of the purchase price and 100% of fees and rehab costs. Let’s take this $200,000 fourplex at 70% of the purchase price. The borrower will be approved for a minimum of $140,000 and 100% of any repairs and fees. This may leave the borrower needing additional financing through other sources or using their own cash. In this case the borrower would need approximately $60,000. Once the fourplex is completely rehabbed the borrower has choices: rent out the fourplex at 100% occupancy and stabilize the investment and find more conventional financing or sell the property making a nice profit.
Hard money is not suitable for long-term financing. Typically, an investor uses the funds to either flip the property or to stabilize the profit in the property and gain more traditional financing. Using a hard money lender aids an investor in obtaining the property because of the quick available financing.
Because of the rigid guidelines set on conventional lending institutions it is much harder to get approved for a conventional commercial loan. Hard money lenders have much more flexibility and do not have to adhere to all the strict regulations their conventional counterparts are required.
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis Dahlberg Broker/RI/CEO
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 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.