Best For Commercial Property: Lendio
Why We Chose It: We chose Lendio as our best for commercial property loans because their marketplace platform is the easiest way for an investor to fill out one application and receive offers from multiple competing lenders.
Wide variety of financing options and lenders
Personalized guidance and expertise to help you interpret your loan offers
High interest rates on some loans
You have to fill out their online application to see loan terms
Lendio is a free online service for investors where users receive potential commercial loan offers within minutes from the company’s marketplace of more than 75 lenders. Over 300,000 loans have been funded through Lendio, giving it a good reputation for success.
A marketplace like Lendio is great for commercial property investors because they can quickly and efficiently shop for the best terms. Unlike other commercial property options, they make the process simple with one application to shop rates.
Lendio lenders underwrite residential, multi-unit, and commercial real estate loans, as well as an array of business loans too. Down payments can be as low as 3.5% if you qualify for one of the agency loans, like FHA. Otherwise, traditional commercial property loan programs require 25% to 30% down.
Interest rates start at 4.25% on the Lendio platform for commercial property loans. Terms range from 20 to 25 years and take a minimum of 45 days to fund. Commercial property loan amounts range from $250,000 to $5 million.
Multifamily Hard Money Loans
Multifamily financing is available for various property types including apartment buildings, duplex, triplex, fourplex, and larger multiplex property. North Coast Financial is also able to provide multifamily financing to real estate investors who intend on occupying one of the units within the multifamily property.
How Does Trust Deed Investing Relate To Hard Money Lenders
Trust deed investing and hard money lending are closely related. Trust deed investors are one of the sources of capital for the private money loans made by hard money lenders. Brokers work with trust deed investors to fund hard money loans for borrowers. In the case of funds that make private money loans, the funds can be said to be making trust deed investments when they fund a loan. For more information about trust deed investing, please see our Trust Deed Investing FAQ.
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Who Uses Private Lending For Real Estate Investments
Typically, you apply for hard money loans when you fail to obtain approval for traditional, conforming bank mortgages. As an investor, you may also seek private funding when you need to buy fast to secure an investment quickly. Thats because traditional real estate funds usually take much longer to process.
Why Are So Many Hard Money Lenders Based In California
California is home to many leading hard money/bridge lenders, including those listed in the prior paragraph. California has a tradition of private money borrowing and investing it is a large state with huge numbers of properties and developers and it is a non-judicial foreclosure state. This means that if borrower defaults, the lender can get control of the underlying property fairly quickly to get repaid . In contrast, some states with a judicial foreclosure process are less appealing for private lenders, because the foreclosure process can be very long and arduous.
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How Hard Money Loans Work
Hard money loans, sometimes referred to as bridge loans, are short-term lending instruments that real estate investors can use to finance an investment project. This type of loan is often a tool for house flippers or real estate developers whose goal is to renovate or develop a property, then sell it for a profit. Hard money loans are issued by private lenders rather than mainstream financial institutions such as banks.
Unlike traditional bank loans, the ability to obtain hard money financing isnt determined by the borrower’s . Instead, hard money lenders use the value of the property itself in determining whether to make the loan. Specifically, lenders focus on the after repair value, or ARV, which is an estimate of what the property will be worth once the renovation or development phase is complete.
Why Are Bank Loan Interest Rates So Much Lower Than Hard Money Lenders Interest Rates
Banks can offer lower interest rates than hard money lenders because banks can fund loans via retail deposits on which they pay minimal interest rates. Hard money lenders fund loans via private capital which has higher expectations. For example, in early 2013 most bank depositors earn 1% or less on their deposits while most investors in private money loans expect 7% or more, to compensate for the greater risk of loss of principal.
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Using Private Money Lenders And Hard Money Loans For Rentals
In this scenario, I use the hard money upfront, funding all or nearly all of the upfront costs of the rehab. This way, I control the house and get the rehab done with little or no money out of my pocket. Once the rehab is done and the house is ready to rent or already rented , I let the back-end lender know I am ready.
One of the private money lenders I use looks at a comparative market analysis and wants the basic rent of the area, a workup of the property, and its projected cash flow after all expenses. Another one knows the area pretty well and wants to know what we are all in for and what the after-repair value is, and thats pretty much it.
Some private money lenders want to see a full or drive-by appraisal of the property. Each lender is a bit different just know what they are looking for and prepare your property, wallet, and efforts for whatever they are asking for.
Lets say the back-end lender funds up to 65% LTV, and our ARV is $70,000. That means the lender will loan up to $45,500. Lets say we are all in our property for $48,000, including our hard money costs, so we would need to bring the closing costs of the second transaction , plus the difference of the hard money loan.
$48,000 $45,500 = $2,500
In this scenario, for an asset worth $70,000, with $45,500 financed, I would be out of pocket $2,500, and the investment would rent for $800$900 monthly.
Can you say hello #CashOnCashReturn?
What Are Some Disadvantages Of Hard Money Lenders
Disadvantages of seeking a hard money loan may include:
- Hard money loans are more expensive than bank loans, with higher interest rates and origination fees
- The quality of hard money lenders varies substantially from one lender to another some are unscrupulous and may be seeking to have the borrower default in order to foreclose on underlying real estate as a business strategy
- Some lenders may collect non-refundable deposits without having the capital required to make the loan they may either hope to find the capital once the loan is tied up or in rare cases, they may simply aim to collect the deposit with no intention of funding the loan.
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Best For Rehab Loans: Lendingone
Why We Chose It: LendingOne earns our nod for best rehab lender because they are one of the very few commercial lenders that make it easy to get a pre-approval letter, they finance up to 90% loan-to-cost and provide lower rates and fees than their competition.
Pre-approval/proof of funds available online within minutes
Founded by investors to improve upon traditional lenders limitations
$150 charge for each draw
Only available for one- to four-unit properties, no commercial
In 2014, Bill Green and Matthew Neisser founded LendingOne in response to their frustrations felt toward the difficult lending environment from rigid bank criteria and the easier, though more expensive, hard money alternatives.
As a direct private real estate lender, LendingOne has become the best rehab lender in the industry because they help investors get what had been missing in the market, such as pre-approval letters and proof of funds, higher leverage, and lower rates and fees.
LendingOne offers fix-and-flip and rehab-to-rent loan products. Down payments range from 10% to 20%. For rehab to rent, they have a 30-year fixed-rate loan as well as 5/1 and 7/1 ARM loans. Their fix-and-flip loans can finance up to 90% of your repair costs. Two years of interest only payments are an option on the fix-and-flip loans too. LendingOne loans on two- to four-unit properties only, including condos and townhouses.
Mortgage Vs Hard Money Loans For Rental Property
Buying rental properties is not cheap, and most real estate investors simply cannot afford paying huge amounts of money at a time. Due to this fact, investors apply for a mortgage loan. Basically, you can choose between a local and a national bank when considering applying for a mortgage. Depending on the type of bank you go to, you will be charged with different mortgage rates and down payments. However, you need to know that hard money lenders for rental properties charge higher rates in comparison to banks. Moreover, the path from applying for a mortgage and actually receiving the money is not as fast as you wish. So, when you deal with the bank, get ready that your credit history, bank statements, and everything bank related is going to be checked. Any small concern may leave you without the so desired mortgage. Consequently, you may not be able to start making money with investing in rental properties. If you were to be approved for a mortgage, it may take weeks or even months before you get the money. Usually, banks prefer if you to put at least 20% of the property price for a down payment. If the down payment is lower than 20%, you will often have to buy a mortgage insurance. In contrast, when you apply for hard money loans for rental property, you may receive the full amount without any down payment.
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Houston Fix & Flip Loans
After Hurricane Harvey, many homes needed rehab. Houston Real Estate Investors get Houston Fix & Flip Loans to buy and repair the properties. This type of Houston home loan is based on the value of the property. Usually Houston Hard Money Lenders will lend money to buy the property and rehab funds. The Investor sets up an LLC to buy the property. Loans cannot be used for buying a Primary Residence. Only non-Owner occupied.
How Are Hard Money Loans Different From Bank Loans
The main difference between a hard money loan and a typical bank loan is the lender itself. Hard money loans are almost always given by a private lender, whether that’s an individual or a private lending company.
Since these loans are used for non-owner occupied real estate, they aren’t regulated like consumer mortgages. This means hard money lenders can charge higher interest rates and fees and get away with terms that wouldn’t be allowed with traditional loans.
Even though the Truth in Lending Act and the Real Estate Settlement Procedures Act don’t typically apply to commercial mortgages, there are still regulations that traditional financial institutions have to follow. Federally insured banks are still regulated by the Federal Deposit Insurance Corporation and credit unions by the National Credit Union Administration . Hard money lenders don’t have any regulations placed on them.
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Using Hard Money Loans For Real Estate Investments
Investing in real estate can be a lucrative avenue for building wealth, and its an effective way to diversify your portfolio. Real estate investment trusts and real estate crowdfunding allow you to invest passively, but some investors may prefer to own property directly.
If youre not comfortable parting with a substantial amount of cash upfront to purchase real estate, a hard money loan may be the answer. While this type of loan has advantages over traditional financing, it does have potential downsides. A certain capital buffer is still required.
You Want To Minimize Your Risk
Put simply, well keep you out of bad deals. Our 2-step evaluation process starts with a Desktop Evaluation. A member of our team will pull up property details, pictures, the neighborhood, and good comps. Theyll determine a likely after repair value for your property.
If the numbers make sense, well send your deal over to a local, 3rd party expert who knows the area to put together an ARV as well.
All of this means that if the deal is a bad one, its unlikely to get through our rigorous screening process. That means less time and money lost on bad deals and more resources you can put towards the good ones.
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Real Estate Investor Financing
The main requirement for obtaining real estate investor financing is having sufficient funds for a down payment or equity in an existing property. A down payment of at least 25-30% is generally required for real estate investment financing. For refinancing existing real estate investments, the borrower will need to maintain equity of at least 30% If the borrower does not have enough down payment there may be other options. It is very common for hard money lenders to help borrowers get cash out of their other properties. If the borrower has enough equity in one or more of their other properties, taking cash out to make up the shortfall of the down payment is a great option. Doing so will allow them to capitalize on the new rental property purchase.
What Is Hard Money Lending
Many investors looking for alternative financing that doesnt involve their local bank may have heard the term hard money. They may have even asked themselves a simple follow-up question: what is hard money lending?
Hard money lending is a short-term loan obtained from private investors or individuals at terms that may be more strict than a traditional loan. Though the terms of this creative financing option may be stricter, this form of private financing for real estate generally has more lenient criteria.
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What Is A California Hard Money Mortgage Lender
A California Hard Money Mortgage lender can offer a larger library of the different types of hard money loan programs, providing unlimited opportunities for prospective borrowers.
Hard Money Lenders work with mortgage products that are more forgiving of borrowers due to the structure of the loan program. These type of loans are asset based loans and require no income verification – making it an ideal solution for real estate investors with fluctuating income, damaged credit, due to their self-employed status.
Borrowers choose Hard Money Mortgage Lenders for their investment properties because conventional financing who work with traditional loans, have stricter guidelines, lending criteria, and less options.
Unlike conventional loan programs with traditional lenders, hard money loans are for California investment properties only and no income verification regardless of the borrowers credit score, experience, and cash flow.
Found an investment property and interested in applying for a loan?
What Risks Do Borrowers Face When Working With A Hard Money Lender
Borrowers that secure a hard money / private money loan face the following risks:
Risk of lost time if a lender does not perform
- Risk of lost deposit if a deposit is required, and the lender does not ultimately make the loan
- Risk of associating with a less than reputable lender
- Risk that the lender fails to come up with the loan amount in a timely manner, possibly endangering a deal .
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How Do I Get A Hard Money Loan
The best way to secure a hard money loan is to know or be referred to a reputable hard money lender. The prospective borrower can simply call and describe the nature of the project for which capital is desired. When presenting a project to a lender, the borrower should be prepared to provide the following information:
Deadlines and dates which are critical to the transaction
- The specific property address
- Whether the loan is for a property acquisition or refinancing of an existing loan
- The purchase price of the property
- The intended renovation budget
- The intended asking price for the property
Alternatives To Hard Money Loans
Hard money loans are not the only form of financing with approval requirements that differ from a traditional home loan. In fact, numerous alternatives may help you buy your next property:
Home Equity Loans: If you are trying to finance your second property consider tapping into your existing equity with a home equity loan. The approval requirements are largely based on the value of the property and the amount of equity you have built up. These loans are also associated with lower interest rates when compared to hard money loans.
FHA Loans: Federal Housing Administration loans are an option for borrowers who do not meet the traditional criteria. FHA loans have lower approval requirements and do not consider past financial challenges during the application process. Read our guide to FHA loans to learn more.
VA Loans: Loans by the Department of Veterans Affairs require no down payment and have much lower approval standards. These loans are only provided to qualified veterans, active duty service members, and their spouses. The interest rates and application requirements are often much more favorable if you do qualify.
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