Hard Money and Bridge Loans for Investors

What is the Credit Crunch?

During these economic times hard money loans have flourished. All Dominion Mortgage has been successful in helping investors meet their real estate investment goals because we know how investors can make money in commercial and residential investment real estate using hard money or bridge loans. While sub prime lending has all but gone away hard money loans have gathered more steam. The reason is that banks and other financial institutions the offer conventional financing have suffered record losses and many of them have gone out of business. This is primarily due to the fact that they were lending at or near 100% value of the property. When there is no equity in a property there are limited options during a down turn in value and ultimately banks and people lose. The more that banks and investors in the financial markets loss, the tighter financing became. This tight financing reduces the profits for lending institutions because they make money originating loans which is not happening now. This then leads to more tightening and ultimately the credit crunch.

Hard Money Loans.

The private investors that lend these equity loans work on different criteria. First, these loans are short term in nature. The commercial and residential real estate investors who use bridge loans to finance the acquisition and rehab of their properties generally go into the loan with an exit strategy. With most bridge loans being only six months to three years in length the borrowers are prepared to refinance or sell the properties moving them from the books of the hard money lenders. Secondly, the key to bridge loan lending is the after rehab value. If the lenders are only lending from 50% to 70% of the after rehab value then if there is a problem there is plenty of room for a quick sale to other real estate investors and the lenders do not lose money. At these equity points even the real estate investor is protected because they have options they would not have if they were doing a high loan to value loan.

Credit Crunch and Hard Money Loans.

So whether you are financing commercial real estate investments or residential real estate investments the low or no money down bridge loans for investors are a viable option for you. Those deals that may have been financed through conventional lenders are being turned away because of limit funds and tighter credit policies, the hard money lenders are thriving. Many people believe these equity loans are only for people who are not of the highest quality, but that is furthest from the truth, especially during tight credit times. The bridge loans are based on the equity of the properties and the ability of the borrower to complete their project within a reasonable budget and stated time. When those keys are in place, regardless of credit, the properties become viable investments for hard money lenders.

For all of your real estate investment financing needs contact All Dominion Mortgage and Financial Services today. Email us at louisj@alldominionmortgage.com or leave a comment below.

No Money Down Loans.

Many Real Estate Investors find opportunities to buy property below market value and rehabilitate them to bring them into code and make the property leaseable or saleable. In those instances when you can acquire a property below value and increase its value to true market value creating true equity in the property there maybe no money down loans available to you. The conventional residential investor or conventional commercial real estate guidelines require that the borrower and the property qualifies based on convention mortgage guidelines. These guidelines do not allow for these no money down loans for real estate investors.

Hard Money or Bridge Loans.

Hard Money or Bridge loans are generally based on the after rehab value of the property. Lenders for this type of mortgage are usually private investors who make their own guidelines versus having them based on conventional real estate guidelines. One such conventional guideline views the value of the property as the lessor of the purchase price or the appraised value. Furthermore, the appraised value would not be considered as the true market value for financing purposes until it has been seasoned for one year. Seasoning in this case is the length of time the property has had its current ownership. Therefore, the appraised value becomes the market value after it has been owned for one year by its current owner. This seasoning requirement for conventional financing is not an issue with hard money or bridge loan lenders.  By using the after rehab value we create opportunities for no money down loans for real estate investors.

After Rehab Value.

To qualify for these real estate investment opportunities most lenders will lend between fifty per cent to seventy per cent of the after rehab value. The determining factors are different from lender to lender depending on the other loan criteria. If the lender is just looking at the property and does not qualify the borrower then the loan to value would be sixty five per cent or less. When the lender considers the borrower the loan to value may increase to seventy per cent, again based on the lenders criteria.

Finally.

The key to these no money down loans for real estate investors is their costs. These hard money or bridge loans have high fees and high interest rates. They make sense only as short term loans to real estate investors who can sale or refinance them quickly based on the value of a newly renovated property. Who wouldn’t pay higher fees and rates to make a substantial return when they do not have to even have a down payment to realize a substantial return on the real estate investment opportunity.