A recent article in National Real Estate Investor reported on what we, in the private money lending sector, already knew. The interest rates that were supposed to increase this year have fallen—particularly for multifamily properties. Real estate research firms such as CoStar are actually placing the odds of a U.S. Federal Reserve interest rate hike in December at a mere 33 percent. This means that it’s a good time for an acquisition of an apartment building with the intention of rehab and resell or to buy and hold. There is one glitch in this rosy scenario.
While interest rates in this sector of real estate are falling, underwriting appears to be tightening. Lenders are riding the fine line of knowing a rate hike will occur eventually, but not clear as to the time line. This leads to tightening underwriting standards which have increased over the last six months. While nothing like the post-subprime mortgage crisis, those borrower’s that were just barely getting approval due to issues such as credit history, self-employment or past taxes, may now find themselves facing some challenges when it comes to finding a commercial real estate loan.
Life Companies seem to be the dominant lender in this sector, yet they also have the strictest underwriting requirements. Many cap the loan amount to 65 percent of the value of a property and focus on high-quality apartment projects which may already have numerous commercial real estate loan options available. Banks provide the best terms but most work with borrowers that have high-net-worth, and developers that are finding banks willing to make a loan are finding decreasing amounts in relation to the cost of development. Investors and contractors are having to dig a little deeper in order to find lending options, but they are available if one is willing to search.
Private hard money lenders are not restricted by the many government rules and regulations that banks and other lenders must adhere to. Obtaining a commercial real estate loan from a private hard money lender is relatively easy in relation to the strict standards of other lenders. For this reason, investors that need quick access to cash in order to move on a particular property often rely on these types of lenders. A hard money loan can close in less than a week. Other investors who have less “skin to put in the game” can find higher loan amounts with private hard money lenders. These types of loans are shorter-term loans that offer time for a developer to obtain traditional funding or to rehab and sell a property.
Private hard money lenders can often fund larger amounts in a much shorter period. If you are looking for funding for a quick fix and flip, a commercial bridge loan may be a funding option.
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 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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