Are You an Aspiring Businessman Who is Just Starting a Career in Real Estate Investing?
Maybe you are interested in house flipping for profit, but you aren’t sure if traditional lenders such as banks or credit unions might offer you financing. The chances are that you may have heard about hard money loans, which professional real estate investors most often use. Fortunately, even as a new real estate investor, you can secure a hard money loan from a reputable lender such as RTI Bridge Loans.
RTI Bridge Loans is primarily a direct portfolio lender with over 30 years of experience offering bridge loans, hard money loans, private money loans, and fix and flips loans to real estate investors across California, Nevada, and Colorado. Before starting, it is essential to understand the benefits of commercial hard money loans.
Table of Contents
- Top Seven Benefits of Commercial Hard Money Loans
- Bottom Line
Top Seven Benefits of Commercial Hard Money Loans
Let’s learn more about the many advantages of hard money loans for commercial real estate.
1. Quick Loan Approval
Fast approvals are one of the top advantages of getting a hard money loan.
Since speed is critical in the real estate business, hard money loans provide a fast, flexible, and convenient way to finance commercial real estate ventures.
Getting a commercial hard money loan is generally much quicker than applying for a traditional bank loan. It is possible because the lender is primarily concerned about your posted collateral rather than about bankruptcies, foreclosures, and bad credit.
The requirements that a hard money lender is going to consider include :
- The valuation of the property
- The amount of money the investor will raise
- The down payment of the borrower
- The borrower’s experience
- The exit strategy
If you have met these and a few more basic requirements, the approval for the hard money loan can take place in a single day. Once the loan is approved, the funds can be available in three to five days, while traditional banks take around thirty days.
2. Flexible Terms
Did you know that most hard money lenders don’t have a standard underwriting process in place?
Hard money lenders don’t have to conform to stringent government regulations like traditional banks. Therefore, they are free to offer tailored loans to different real estate investors, which translates to more wiggle room for negotiation as they review each deal individually.
As a result, you may have the freedom to negotiate the loan terms and revise repayment schedules or the loan’s duration. Not only that, the more you work with a hard-money lender and honor the contract terms, the more the lender enjoys working with you. Perhaps, this might result in even better loan terms for future deals.
3. Approval Amount
A massive perk of commercial hard money loans is that the lender will approve you for as much as the commercial property is worth.
What this means is that the value of the property determines the loan amount that you may receive. A hard money loan is different from traditional loans, where you need to prequalify for a specific loan amount and then look for properties based on pre-approval.
4. Minimal Requirements, Unlike Traditional Loans
Has your bank turned down your loan request at the last moment just because you don’t meet a particular condition? Hard money loans might be the best solution to your fit. One of the biggest pros of hard money loans for commercial real estate is that lenders don’t base the financing on creditworthiness.
Since the hard money lender is mainly concerned about the value of your collateral, you get to skip the lengthy application process, which often requires spotless bank statements and tax forms.
In many cases, lenders offer hard money loans without verifying personal income or cash flow. In such cases, the lender usually decides based on credit score, loan to value, or the borrower’s experience.
5. Shorter Terms
A big perk of hard money loans for commercial real estate is that real estate investors can get a loan on a short-term basis. The repayment time for these loans usually lasts somewhere between several months and a few years.
Short-term loans are considered less risky for both the borrower and the lender than long-term loans. If you think of it, short-term loans have a shorter maturity date, and your ability to repay a loan is unlikely to change significantly over a short period. So, if you’re looking to fix and flip a home, it would be better to get a quick and straightforward short-term hard money loan and avoid a lengthy mortgage note.
However, some hard money lenders offer long-term fixed interest rates on some types of investment real estate, such as apartment buildings.
6. You can Fund Projects that Conventional Lenders can’t Finance
Hard money loans come in handy as they would help you save a great deal that you would have otherwise lost. Hard money lenders are flexible regarding the types of projects they finance. They may provide loans that conventional lenders would rather not, for example, fix and flip loans.
What do you do if the commercial property you are interested in has a plumbing or electrical issue that won’t allow you to get financing from a traditional bank loan? You could get a hard-money loan and make the necessary repairs so that the property can qualify for a conventional bank loan. You can then refinance at a much lower interest rate for a longer loan term with a bank.
7. Future Value Assessment
Traditional lenders such as banks offer you a mortgage based on the property’s market value. The reason for this is because short-term loans, such as fix and flip loans, don’t work with a bank’s business model.
In contrast, hard money lenders base the amount on the expected future value of a property. By getting a loan amount higher than the actual price of the property, there will be enough money left over for renovation, making hard money loans an excellent choice for real estate investors and realtors interested in flipping houses and renovating rentals.
Real estate investing is an expensive endeavor, and to many investors, hard money loans are a lifesaver.
To build wealth, you need to use leverage wisely, and that’s what hard money loans do. They give investors the power to finance even bigger deals and build successful commercial real estate ventures.
Want more information about hard money loans? Contact our team at RTI Bridge Loans today!