Hard Money Loans.
The Essence of hard money loans is that they are short term loans made to real estate investors so they may purchase, rehab or purchase and rehab commercial and residential investment property with lots of real equity. For traditional financing the value of the property is the lesser of the purchase price or the appraised value. That definition does not account for distressed property that for any number of reasons can be sold below market and therefore has real equity when properly compared to similar properties. Truly the years have shown that for traditional lending that is the best definition of value. For it is too hard to determine true value and or future value of property that may not be in good condition or may have other appraisal value issues that may stop the property from being sold on the to a prudent consumer.
Hard Money Loans.
Hard money loans are only made to real estate investors and are only made on commercial and residential properties that will not be used by the investor as an owner occupied property. This is to keep in line with the laws of usuary and predatory lending. To charge higher fees and interest rates to consumers is illegal. But, Real Estate Investing is a business and business are theoretically astute enough to determine the risk and reward. Business owners can determine which course of financing they would pursue and if the cost are justified by the potential reward. I would never finance my home using a hard money loan, but I would invest in a short sale property that I can purchase at 30% to 50% of value even if it costs me 10% in fees and double the normal investor interest rate. So even assuming this adds 15% to the costs I would still be way ahead when I refinance or sell the property.
The Short Sale.
In today’s market many financial institutions are willing to accept less than what is owed to them on the sale of a property that they have lent money on to avoid having another none preforming asset on their books. Non performing assets mean that a bank will be judged by federal regulators based on the percentage of non performing assets in the portfolio. If you truly have a book of account receivables that no one is paying you on the value is not there anyway. Banks are not in the real estate management and sales business. Therefore, there is a limit to the amount of properties they can own and manage. All these are reasons to accept less or accept a short sale so that the money you do get will go to work for you right away.
The Short Sale.
Another reason banks accept short sales is that if they have to foreclose on a property that adds costs and the value of the asset reduces greatly if the occupant is evicted. So who is to say the amount the bank accepts as a short sale would not ultimately be more than they may have otherwise gotten off of a deal.
Hard Money Loans and The Short Sale.
That opens the door for investors to purchase homes that they can buy below market value employing the short sale and use hard money loans to finance these deals. The hard money loans will have the benefit of putting little or no money down and potentially, getting funds to rehab the property to make them more saleable or qualify for normal refinancing.
If you have a potential investment opportunity and can use money to purchase and or rehab commercial or residential investment property contact me at louisj@alldominionmortgage.com or leave a private comment below and I will follow up with you to discuss the viability of your financing needs.
Hard Money Loans.
As a real estate investor hard money loans can help you become very successful and wealthy because you can leverage your opportunities with Millions of dollars of private investor financing to seize investment opportunities that may not have been previously available to you. The key to successful investing, whether it is real estate or anything is to be prepared to take advantage of your opportunities. That is the purpose of these private bridge loans, provide short term financing to real estate investors. On type of Hard Money Loan is Transactional Financing.
Transaction Financing Defined.
Transactional Financing is the shortest term hard money loan. This is a bridge loan for one day. This loan is made specifically for investors who were doing flips and can no longer do double closings. Simultaneous closings are no longer acceptable and transactional funding makes simultaneous closings possible. The private bridge funding investor provides funds for one day. The funds are necessary for the real estate investor to take actual ownership of the property by financing it and immediately selling the property to someone who will pay cash or have their financing in place.
How to Use Transactional Financing.
As a real estate investor you want to identify properties and then identify a buyer to sell the property too before you take ownership. The properties you identify are generally distressed properties below market value tied up until you can find a buyer to take it off of your hands. This is what would separate you from most other investors, because you must begin to develop a number of ready buyers before you acquire the properties. These buyers need to have a source of funding already in place to facilitate a quick turn for you and them. In essence you could be a super investor providing below market deals that you will own and take a profit as part of the simultaneous closing.
Hard Money Loans for Transactional Financing.
In short transactional financing is short term funding from private investors that will facilitate simultaneous closings for your deals. To you the real estate investor, you pay lower fees and have a lower risk because you do not get stuck with any deals that will not close. You make a quick profit just by immediately flipping properties. I know flipping properties and double closings are dirty words in today’s market, but transactional financing helps you legally close these loans and make a handsome profit doing so.
All Dominion Mortgage
As a hard money lender All Dominion Mortgage has private investors who are anxious to do transactional financing deals. If you have projects or scenarios to discuss email us at louisj@alldominionmortgage.com or leave a comment below and we will address contact you immediately.
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.
