4 Reasons Why CRE Investors Should Use A Hard Money Loan
Commercial real estate investors know that while there is usually a need to get extra financing to buy properties, very few banks will approve loans for CRE investors. Sometimes, this is because the investor’s credit rating is less-than-stellar, or maybe the most current tax statement isn’t available. Most often, the reason is that banks have much more stringent CRE lending guidelines than they did five or ten years ago. Whatever the reason, CRE investors are looking to hard money loans in order to get the financing they need buy properties and make a profit.
A hard money loan can be arranged quickly
Whereas a bank loan can take weeks to process, without a guaranteed approval – a hard money loan can be arranged quickly, so a commercial real estate investor can access funding for time-sensitive property purchases. It should be noted that the interest rates on a hard money loan are somewhat higher than usual, but that is simply because of the risk involved in real estate, plus the urgency of the need for capital. However, property sales or rentals, closing fees, and everything else should still keep a CRE investor in the back, after paying back a hard money loan.
A hard money loan is not just for flipping houses
In the past, a hard money loan was used to purchase real estate, and it was repaid once the house was sold, with money left over for the CRE investor. A hard money loan can also be used to purchase and rehabilitate multifamily dwelling, corporate office buildings, healthcare facilities, and everything in between. The hard money loan can be structured so that the loan is paid off from the revenue of the occupants who are renting space in those buildings.
A hard money loan requires assets
In many cases, people who take out hard money loans put up “hard assets” as collateral – cars, credit cards, etc. For the CRE investor, the collateral used for a hard money loan is real estate. This means that if you already have a commercial property in your portfolio (or our own home, if you are just starting out), that can be used to secure financing through a hard money loan, and the existing revenue can be used to pay off the loan while you acquire new real estate.
A hard money loan is easy to get
So far, we have discussed how a CRE investor needs assets, but not necessarily a good credit rating in order to get a hard money loan – but one of the big concerns for a lender is that they are not assuming all of the risk. Assets help, but having a personal stake in buying a property also assures the lender about the risk involved. Having savings, or other financing tied up in a real estate investment goes a long way in building trust and securing a hard money loan. Considering (like almost any other form of financing) a hard money loan is not guaranteed to cover 100% of the property costs, knowing that a CRE investor is at least going to make up part of the difference can impact how much funding you receive.