Commercial property owners need capital for a variety of reasons, including acquisition and renovation. In an ideal world, property owners will seek out traditional lenders such as banks and credit unions because they would most likely provide the best rates. Traditional funding may not be available to the borrower, or the borrower may choose not to use personal funds to finance the project. Click this site Priority Investor Loans – Houston hard money loan
Traditional lenders are unable to meet all of the needs of commercial borrowers in today’s increasingly diverse borrowing setting. These borrowers often turn to Private Lenders to help them complete their ventures. On the surface, one would wonder why a borrower would be willing to pay far higher interest rates to Private Lenders (Hard Money Lenders) rather than postpone their project until conventional funding could be secured.
As opposed to conventional financing, hard money loans are usually short-term and come with higher interest rates and fees. For borrowers, the study focuses on their end target and the anticipated benefit from the project’s completion. In the commercial real estate world, hard money loans are becoming increasingly relevant. Hard Money Loans can make sense for borrowers in the following situations.
Improvements to the property
If a property requires capital improvements, upgrades, or renovations that, if completed, will increase the property’s value from both a valuation and/or rental income perspective, a borrower may consider taking out a shorter-term, higher-interest loan to make the improvements. When the work is finished and the increased valuation and/or rental income is realised, the borrowers will look for more conventional funding, pay off the Hard Money Lender, and replace the loan with a lower cost loan. Alternatively, they could sell the property for a profit and move on to the next project.
If a borrower owns raw land and wants to build from the ground up, Hard Money Loans can be a source of funding that they can’t find in the conventional market. When determining the credit worthiness of a project, lenders will consider a number of factors, including the borrower’s construction experience, collateral, timeline, borrower equity in the project, project presentation, and the borrower’s financial reserves. If one or more of these factors are weak, a conventional lender can refuse to finance the project.
The same considerations will be considered by hard money lenders, but they will be weighed differently when making their final decision. Construction loans from traditional lenders are often capped as a percentage of the overall development costs. Hard Money Lenders, on the other hand, can lend up to 100% (or more) of the construction costs if the project’s analysis warrants it. In other words, where traditional lenders are constrained in the types of loans they are willing to make, Hard Money Lenders with construction expertise may consider the overall project’s attractiveness in making their determination and final decision.