Commercial Real Estate Hard Money and Personal Loans (VIDEO)
Hard money is something you cannot get at a bank; hard money comes from personal investors. There are three major differences between the traditional bank lending process and hard money. You need to be aware that this method is known for fraudulent uses to launder money and convert it into clean money, in this article we will show you how to steer away from this.
You found a great commercial property that’s in distress, but you don’t have the money to buy it, how do you buy it? How do you capitalize from it? The professionals at the Local Records Office created three different ways to get commercial real estate hard money.
How To Get A Commercial Hard Money Loan?
If the commercial property was neglected by the owner and banks will not give you a loan because it’s too much of a risk you will need to get your hands on hard money loans.
From your research, you know that the property is sitting in a great location, next to a highway and has a lot of potentials but at it needs is some good renovation, what do you do?
Here is some reason the bank will consider the commercial property to be too risky for a traditional bank loan.
- High vacancy
- Financial distress
- Subnational repairs
- Liens and judgments
- Poor credit
- Closing needs to be closed in 7 days
What is Hard Money?
Hard money is a non-bankable loan; even traditional loaners will not give you a hard money loan. It is also an asset-based loan secured by the property’s equity. The term ‘hard’ comes from the loan backed by a hard asset.
Here is an example of a hard money loan:
- An 8-unit apartment building is selling for $400,000 because the inside of the building has been neglected over the years and it’s in distress.
- Only four out of eight units are vacant
- City housing fines are over $15,000
- Over $10,000 in delinquent property taxes
- Needs over $25,000 in repairs
- Apartments buildings in the same area are selling for $650,000
A conventional lender will tell you no on this deal, the risks are too high and the profits are too low, there are too many things that a lender wouldn’t like on this particular deal.
5 Categories of Conventional Hard Loan
- Interest rates
- Upfront costs
- Loan term
- Borrower credit
- Closing time
Interest rates – In a traditional conventional loan the interest rates will be really low, but with a hard money loan the interest rates will be as high as 8-14% that’s a big difference.
Upfront costs – Conventional loans will cost as little as 1% but a hard loan will be as high as 2-5%
Loan term – Conventional loan term can have you pay back the loan in 5 years to 30 years but a hard loan will have to be paid between 6-12 months.
Borrower credit – This consists of the credit score of the person who is borrowing the loan, in a conventional loan the credit score is important but for a hard loan, it’s not as important.
Closing time – The amount of time to close a deal in a conventional deal will take 30-60 days but with a hard loan, you need to get the deal closed in 7 days.