Hard Money has gotten a bad reputation amongst commercial lending circles due to the fact that they have lower standards and higher default rates. Yet, for borrowers who do not have the time for a lengthy loan process or might have had damage to their credit, these loans and commercial hard money lenders offer an opportunity to increase their revenue stream through commercial properties.

One of the nice things about hard money loans is that they are very flexible in the type of property that they can be applied for. This means that they are often the go to loan for virtually any purchase or project, if the borrower is looking for a quick turn around and can plan for an influx of cash flow with the loan to propel them forward. Commercial hard money lenders are always looking for opportunities to capitalize on excellent real estate properties.

Now that being said, there is actually one type of property that hard money cannot be used for: residential properties that are occupied by the owner. The reason for this is that there are many more regulations surrounding such a transaction and the added complication is not worth it to commercial hard money lenders.

When, then, are hard money loans a good option over traditional channels? One type of property that is a great suit for a hard money loan is a property that the borrower is intending to quickly fix up and turn around to sell. In this type of scenario, a hard money loan is excellent because the property will be improved and sold before the balloon payment of the loan becomes due. By doing this effectively, the borrower is essentially turning a profit with someone else’s money. Granted, the borrower will be paying the interest on the loan, but that will be minimal compared to the profit potential. There is inherent risk in this type of a venture, however, as there is no guarantee of a sale. To minimize their risk in these cases, commercial hard money lenders will use the property itself as security and will often occupy the first lien slot in case of default.

One of the greatest strengths of hard money loans is the speed at which they can be acquired. While a traditional lender can take a up to 6 weeks to get a loan funded (or longer, in some cases), a hard money loan happens in a matter of days. For projects that are time sensitive, this is a huge advantage, especially if the property that the borrower is pursuing has multiple bidders who are interested.

What is one thing that commercial hard money lenders wished that borrowers knew?

The one thing that many borrowers do not seem to understand about hard money loans is that the biggest factor determining the amount of the loan and the terms that will be offered is the property. Both the value of the property and the amount of equity that the borrower will have invested in it. Second to this is the plan for how the loan will be used for the property. If a borrower can show a solid plan for how they will increase revenue stream (and a lender hears this as being easily able to pay back the loan), it will be much easier to get approved. Commercial hard money lenders can be an excellent option for savvy real estate investors.

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.

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