Financing for commercial real estate is a completely different game when compared to residential mortgage loans. It moves much faster and is much more flexible.
Commercial Real Estate Tips ? What Are Hard Money Loans?
There is one thing you should always prioritize before anything else when considering whether to pursue commercial real estate, and that would be financing. Although there are a variety of commercial real estate loans on the market, we are going to look at hard money loans in this article.
Hard money loans for commercial real estate are often a matter of last resort. During times when you are in a financial bind and need to get out quick, you may have no other choice but to bite the bullet. Most of these loans come with significant upfront costs and astronomical interest rates. But because they can get granted without much review and because they can save you from the possibility of losing your commercial property, you may find yourself thanking your lucky stars for them.
These type of loans are considered very risky and are issued by private financing groups, not banks or lenders. The loans tend to be only available as the primary loan on the property, which isn?t that rare a situation in commercial property.
Hard money loans basically deal with the potential sales price of commercial real estate property, which makes them differ from home loans. The appraised value of the property will not, in any case, be considered by the other party mulling over your loan request. What would pique their curiosity and what would need to be reviewed would be the potential value of the commercial real estate property if it was to be sold, say, a few months following the loan?s approval. Different types of property would have different potential values depending on the condition, but usually the figure would be about one half to three fourths the appraised value of the property.
To summarize, a hard money loan serves its purpose by helping you get past those unexpected and urgent surprises. You should not misconstrue this as the final solution when trying to finance commercial property, and this should be your last line of defense. If it?s any consolation, this buys you time, but this is time that could cost a fortune. If you are in a tight spot and can resolve the problem with a few extra months time, a hard money loan may be the answer.
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