The essence of commercial real estate hard money loan (HML) is based on the fact that they are short-term loans for real estate investors to purchase or rehabilitate investment properties that have real equity. substantial. Commercial real estate investors can make a lot of money investing in property using a hard money loan. For traditional financing, the value of the property is the lesser of the purchase price or the appraised value. This definition does not take into account distressed properties that may sell below market value and therefore have real equity compared to similar properties. This definition works for traditional loans as the best definition of value. It is impossible to determine the future value of property that may not be in good condition or have other assessed value issues that may prevent the property from being sold to a traditional consumer rather than an investor. The risks inherent to a property that needs to be reformed and does not comply with its highest or best use are greater.
Invest with hard money loans
Bridge Loans or HMLs are only made to real estate investors in commercial and residential properties that will only be used by the investor as an investment property (not owner-occupied). This is to stay in line with predatory lending and loan shark laws. Charging consumers higher fees and interest rates is illegal. Real estate investing is a business. Businesses must know enough to determine the risk and reward of an investment, and therefore have no “consumer protection” like predatory lending. Business owners can determine what course of financing they would pursue and whether the cost is justified by the potential reward. I would never finance my house or suggest anyone do it using an HML. There are situations where I would invest in a short sale property that I can buy for 30-50% below actual market value, even if it costs me 10% in fees and double the normal interest rate. So even assuming this adds 15% to the costs, you’d still be way ahead when you refinance or sell the property.
Credit Institutions
Many financial institutions are willing to accept less than what is owed on the sale of properties on which they have lent money to avoid adding another non-performing asset to their books. Nonperforming assets mean that federal regulators will judge a bank to make bad loans. This puts them at risk of being taken over or simply lowers their rating as a prudent bank. Banks are not in the business of real estate management or RE sales. Therefore, there is a limit to the amount of real estate they can own or manage. These are all reasons for accepting less (accepting a short sale) versus accepting nothing and carrying another non-performing asset on the balance sheet. This is not good for regulators or shareholders as it reduces the value of the financial institution.
Another reason banks agree to short sales is if they have to foreclose on a property which adds legal, real estate and maintenance costs while a property’s market value is greatly reduced when the occupant is evicted. and the building is empty. So who’s to say that the reduced amount the bank accepts as a short sale wouldn’t ultimately be more than they could have otherwise gotten from a deal through foreclosure and vacancy on a property?
Commercial bridging loans and the short sale.
For these reasons, the door for investors to purchase commercial real estate below market value using the short sale and use hard money loans to finance these deals is wide open. Real estate investors will have the benefit of putting up little or no money and even raising funds to rehab the building to make it more salable or qualify for conventional refinancing once it stabilizes. To properly employ creative financing, hard money lenders, and other strategies to purchase commercial investment property, seek the advice of competent, experienced, and creative lenders with integrity.