By Sylvia K Delin
Comercial Real Estate: Are you facing a possible foreclosure on your real estate investment? It does not have to happen. Your viable alternative to undergoing the trauma of a foreclosure is a hard money loan.
Reasoning Behind Hard Money Loans
Often referred to as a bridge loan, a hard money loan can be used beneficially in many real property situations:
Holding onto your assets – Real estate acquisition, development and construction can be effectuated through a short-term loan, without the necessity of utilizing your personal or corporate assets.
Purchasing real property in the absence of a showing of creditworthiness – The determination for granting a hard money loan is based on the value of the property, rather than the credit history of the borrower. You can expect that the estimated After Repair Value (ARV) will be used as the factor evaluating your property. The real estate you are purchasing acts as collateral for the loan.
Preventing a foreclosure – When a quick payment is essential in order to save your real estate investment from foreclosure, and you do not have sufficient cash on hand to cover that payment, a short-term hard money loan is a way to prevent the foreclosure from occurring.
Taking advantage of a good real estate deal – An immediately-available advantageous real property investment can be yours through a hard money loan, even if you do not have the ready cash needed to close. As to obtaining a mortgage, given the parameters of the Dodd-Frank Act, a mortgage loan may take months to acquire, often preventing you from capitalizing on a profitable real estate purchase.
Higher Rates/Shorter Repayment Period
When researching a short-term loan, be sure to focus on interest rate, fees and repayment period. Expect to pay a higher rate of interest, along with increased fees and closing costs. However, due to the short-term nature of hard money loans, the total amount of interest that you will pay on your bridge loan will be less than the interest paid on a conventional mortgage.
Be sure to have a clear understanding of the turnover time as to the expected receipt of profit, either in terms of a sale of the developed real estate or regarding the commencement of income produced by the property. Your goal is to experience an optimum Return on Investment (ROI).
Commercial Real Estate (CRE)
Commercial real estate is comprised of income-producing property, such as apartment buildings, malls and office complexes. Amortized loans requiring equal installment payments over a period of time, define the repayment plans in mortgages and hard money loans.
Bridge loans on commercial real estate typically cover a short period such as five years, and are based on a 30-year amortization timeframe. At the conclusion of the hard money loan period, a balloon payment is required. This is the reason that it is important for you to correctly estimate the time within which your real property will become profitable. A short-term loan through an independent lender, affords the flexibility to coordinate the loan period with the expected time of initial profit.
Hard money loans present a viable option for financing your real estate investments. Timely loans are available through private lenders such as Century Capital to prevent the hazard of foreclosures, as well as facilitate the direct purchase of real property.