Private Hard Money Lender in California, Texas and Arizona: 2017

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Monday, December 11, 2017

Unsecured vs Secured Commercial Loans: The Differences

1aupload8.5x11bugAll commercial loans take on one of two forms. They are either secured or unsecured. Learn the important differences between the two types and the particular benefits of secured loans.

Unsecured loans do not involve a pledge of collateral or personal assets in order to pay back the loan in the case of default. Meaning the lender will not be able to automatically seize personal property in order to pay off the outstanding loan balance. Without collateral to fall back on, lenders are particularly wary about to whom they offer unsecured loans. Lenders deem unsecured loans as high risk and only offer them to the most credit worthy borrowers. Businesses seeking an unsecured loan should have a solid history of profits going back at least two years and an excellent business credit score. While unsecured loans do not put business owner’s personal assets at risk, they usually come with exorbitant interest rates. These interest rates can be higher than those charged on a regular business credit card. Unsecured loans are often short term as lenders will want these loans paid off as soon as possible.

A secured loan is the opposite of an unsecured loan. These loans are secured by some asset and require the borrower to pledge some property up front. In the case of a business loan this can be the property from which the business operates, or the owner’s personal property such as their primary residence or any property which can be liquidated in case of default. Secured loans are ideal for businesses without an established track record or without a solid business credit score. Having property available to pay off the loan puts lenders minds at ease.

Why would anyone want a secured commercial loan in the first place?

Secured loans put the borrower’s personal property at risk. With so much to lose why would anyone want a secured loan in the first place? Secured loans are much easier to qualify for and may be the only option for some borrowers. In addition secured loans are offered at lower interest rates, for larger amounts and come with longer terms than unsecured loans. Business owners with a secured loan can pledge their primary residence as collateral. Business owners who borrow against their house can therefore write-off interest payments on a secured loan. Unsecured loans don't offer these tax benefits for borrowers, because no property is ever collateralized.

Even with these benefits there are some dangers involved in with secured commercial loans.

When a borrower pledges property as collateral they should perform their due diligence and get a thorough appraisal of the property being pledged. Lenders will often markdown the value of underlying assets when it comes to secured loans. When assets are repossessed a lender will often sell off these assets at a discount. If a borrower over estimates the value of the property they are pledging, the sale of this property may not cover the cost of the outstanding loan and therefore put more of the borrower’s personal assets at risk.

Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
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About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

The Differences between residential and commercial real estate loan terms

Banner_imgCommercial real estate loan terms differ in some important ways from residential loan terms. This is because commercial properties are financed by groups, come with different payment schedules and have different property valuations.

A major difference between the two types of mortgages is who actually takes out the loan. Residential mortgages are almost always made to individuals. Commercial mortgages on the other hand are usually lent to entities like corporations, trusts or similar groups. The groups themselves may or may not have an established financial history. A commercial lender will therefore look closely at the finances of the groups individual owners and may require them to individually pledge their personal property as collateral before any loan is approved. This is known as recourse, or secured loan. With residential mortgages the value of the home is usually enough in terms of collateral and the bank only considers the credit history of individual borrowers.

A traditional residential mortgage is often amortized. This entails the borrower making fixed payments over the course of the loan which goes toward both the loan interest and the principle. This means most residential mortgages are paid in full once the loan matures. Commercial mortgages usually entail balloon payments were a borrower makes monthly payments for a period of time. However once the loan expires the borrower must repay the remaining loan balance in full. Commercial mortgages also usually come with pre-payment penalties built in. A simple prepayment penalty entails the borrower repaying the outstanding loan balance multiplied by a given number. There are also interest guarantees, where the lender is entitled to a certain amount of interest even if the principle is paid off in full. Some commercial mortgages may simply have lock out periods, in which the borrower can’t make any extra payments towards the loans principle for a given period. Since the recession, very few residential mortgages are structured around balloon payments and very few come with pre-payment penalties.

Commercial real estate loan terms for commercial properties, are evaluated based on a debt service coverage ratio.

A debt service coverage ratio (DSCR) is the amount of income a property generates when compared to the owners debt obligations. Such a calculation does not apply to residential mortgages, as residential properties don't generate income (however a residential borrower’s income may be compared with their outstanding debts). For example if a property generates 140,000 in income annually and the outstanding mortgage is for 100,000 dollars then the DSCR is 1.4. A DSCR helps lenders evaluate how much debt a commercial borrower can carry. A DSCR less than 1 indicates that the property doesn't generate enough revenue to meet outstanding mortgage obligations. Lenders usually require commercial properties to have a DSCR of at least 1.25 before any mortgage can be approved.

Commercial mortgages are usually made for a smaller share of the properties current value

Something all lenders consider is the value of a loan compared the value of the property being financed; this figure is known as an LTV. This indicates how much equity an owner has at stake in the property being financed and in the case of residential and commercial mortgages the lower and LTV the better. Due to government programs some residential borrowers can qualify for mortgages approaching 100 percent of their properties market value. Commercial borrowers very rarely get loans exceeding 80 percent of a properties market value. This means commercial mortgages usually come with significant down payments.

In summary, the terms of a commercial mortgage are different because borrowers are usually groups of investors. Commercial mortgages often come with balloon payments and pre-payment penalties which are uncommon among residential mortgages. Commercial properties are also valued differently and this greatly impacts the terms of a commercial mortgages and how much money a borrower can receive.

Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
clip_image002clip_image004clip_image006clip_image008
About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Business Loans: Things borrowers should consider.

4page_img8-bigThere are many different types of business loans, but every borrower should understand whether their loan is secured or unsecured and how their loan is structured.

Every business owner should understand whether their loan is a secured or an unsecured loan. Unsecured loans are not secured by collateral. Collateral can be a borrower’s personal property, real estate or equipment. Most business owners won’t qualify for an unsecured loan. Unsecured loans require exceptional credit and an extensive track record of financial success. Therefore most business loans will be secured by collateral. The borrower must pledge some property up front in order to cover the cost of the loan in case of default. Secured loans are common when a lender perceives risk, when a loan is made on a long term basis or if a loan is used for new investments like equipment or real estate.

Every business owner should also understand how their loan is structured. Most commercial loans are issued as “balloon loans.” During the course of these loans a degree of principle may or may not be paid down, but once the loan matures the remaining balance in terms of principle and interest must be paid back. Some lenders will even allow borrowers to offset interest payments, but that means a higher amount of money will be needed once the loan expires. Prior to taking on a business loan, the borrower should understand to what extent their monthly payments will apply to the principle of the loan and whether these payments will pay for the full loan amount once it matures.

The most common type of business loan is a business line of credit. These loans don’t usually require collateral and are rarely structured around balloon payments.

Credit lines are flexible short term loans and help many business owners cover their expenses should their cash flow stall. With a business line of credit a lender extends a fixed amount to the borrower. The borrower then makes withdraws from these funds in order to cover unforeseen expenses or routine costs. The advantage with a business line of credit is that the borrower only pays interest on the amount of money they actually withdraw instead of paying interest on the full loan amount. Interest is usually paid every month and the principle is paid off at the borrower’s convenience. While a line of credit is a flexible arrangement, these loans are intended to purchase inventory or to help a business cover basic expenses. A line of credit should not be used to make a long term investment.

If a business owner is worried about the risk of a balloon payment type business loan, they may seek an installment loan in order to make long term investments.

An installment loan can take on many forms. However an installment loan always entails a fixed monthly payment that covers both the principle and interest of the loan. This helps borrowers avoid the looming deadline of a massive balloon payment. The terms of an installment loan always correlate to its use. A short term installment loan (or a business cycle loan); can have terms of four months to seven years. Installment loans for longer term investments, like equipment or real estate, usually can come with terms up to 21 years. Most importantly installment loans are fully amortizing, making less risky for most business owners.

Business owners should be aware of the differences between a secured and unsecured loan and know whether or not their loan is fully amortizing. To avoid the risk of balloon payment business owners should seek out a line of credit or a simple installment loan in order to cover routine costs or make long term investments.

Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
clip_image002clip_image004clip_image006clip_image008
About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Friday, December 8, 2017

Commercial Building Loans: Understanding the process

250px_callCenter3Commercial building loans are highly nuanced, with unique loan structures, underwriting standards and complex closing procedures. Learn about some of the challenges involved in acquiring a commercial building loan.

Most construction loans come from local or regional banks. These groups have greater knowledge of market conditions and often have a better understanding of each project potential. There are some specialty lenders, national banks and life insurance companies that offer construction loans, but in these cases borrowers may find it difficult to qualify. Construction loans are considered risky by many lenders and larger groups may be unwilling to underwrite these loans for the majority of borrowers.

Construction loans are usually issued in two parts, both to finance the cost of development and provide the borrower with a long term mortgage. The first short term part of these a construction loan pays for a projects construction and lease out phase. The longer term loan pays off the short term loan and is issued once the project reaches a specific point, either in terms of occupancy or in terms of income generated. Some construction lenders combine these two types of financing, in a form called mini-perm loans. The long term portion of these loans is given for a shorter period. This helps the lender evaluate a projects performance before the borrower can refinance to a long term mortgage.

The underwriting process for a construction loan is unique. New developments do not have a financial history for a lender to evaluate. The lenders understanding of the projects potential comes entirely from the borrowers assumptions. This means before any construction loan is approved lenders will closely scrutinize the experience of the developer, the contractors involved and the prevailing market conditions. Borrowers will need to provide detailed tax returns, financial statements, details about their outstanding debt obligations and above all a detailed pro forma. This document should detail specifically how the construction loan will be used, come with detailed cost estimates and explain any assumptions about a projects potential income. These documents will take some time for the lender to review, but if a construction is approved the lender will issue a binding commitment letter which outlines the terms of the loan in specific detail.

Even after a commercial building loan is approved, closing is a complex process.

On both sides of the agreement, both borrower and lender will likely need to rely on legal experts in order to sort through the procedures and to gather the documentation needed for a construction loan to finally close. In many cases commitment letters also come with a “closing checklist,” which details specific steps the borrower must take before any funds can be dispersed.

Further steps are needed to secure funding even after a commercial building loan closes.

Construction loans are distributed in “waves of funding.” The full loan amount is not received up front. The first wave of initial funding is meant to cover the initial costs needed to get the project off the ground. Further funds are distributed on a monthly basis to cover the regular costs of construction. However should a borrower encounter any unexpected expenses during this time they must submit a “draw request” to their lender. These costs must be approved and verified by the lender before any additional funds can be dispersed.

Navigating the process of securing a construction loan can be complex. Borrowers should seek out local banks, expect a lengthy approval process and expect further complications even after the loan closes.

Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
clip_image002clip_image004clip_image006clip_image008
About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Wall of Commercial Mortgage Backed Securities comes due

4page_img3-bigLax underwriting standards prior to the recession led to an unprecedented number of commercial mortgage backed securities being issued. This year many of these property owners will need to refinance, but this presents unique challenges as the lending environment has changed over the last ten years.

An unprecedented number of CMBS securities were minted prior to the recession. In 2007 alone 230 billion in CMBS mortgages were originated. According to Trepp, 41.7 billion of these mortgages will need to close or refinance by November of this year. These mortgages were issued at extremely high loan to value ratios, with terms which would be impossible to secure today. Unfortunately for borrowers who took on these loans, many will need to refinance this year and will likely incur large out of pocket expenses as a result. Today’s strict underwriting standards mean that refinancing may be very difficult or very expensive for some of these commercial property owners.

The owners of these properties, who took out mortgages in the run up to the recession, will likely need to refinance by the end of the year. In the best case scenario a borrower could get a new mortgage at 80 percent of their properties current market value. Their initial mortgage might have been made at up to 96 percent of their properties value. With stricter underwriting standards, some borrowers could find refinancing a very expensive proposition. For example, a borrower might have gotten a 3.6 million dollar CMBS loan on their 4 million dollar property in 2007. With today’s underwriting standards, in the best case the owner would only get a mortgage for 3.2 million. Meaning in order to refinance the owner would have to pay 400,000 dollars out of pocket.

Commercial mortgage borrowers could avoid the expense of refinancing by selling their property, but this result in its own challenges.

With so many pre crisis CMBS loans currently maturing, borrowers may need to sell off their properties quickly. Simply put the sale must go through before the loan fully matures. This is difficult in consideration of just long it can take to sell a property. Selling any property can take at least 6 months and the sale of real estate usually involves a great deal of negotiation between buyers and sellers. The longer it takes to sell the property, the greater the chance of default. If a sale can’t be secured before a loan matures, the borrower will need an extension or their loan may become delinquent. The holders of these pre crisis CMBS loans also need to ensure that the value of their property is sufficient to pay off their outstanding mortgage.

Even in the face of these many challenges borrowers holding these commercial mortgages have been defaulting at a lower rate.

Since March of 2016 and June of this year, as many analysts expected delinquencies on pre-crisis CMBS loans climbed to new heights. These numbers rose at least 13 times over this period. The height delinquencies came in July of 2012, when 10.34 percent of outstanding CMBS loans were in default. In September the number of CMBS mortgages in default was still 62 basis points higher than at the same time last year. However these numbers show some improvement according to analysts and have declined by some 4 basis points since August. “After more than two years, the ‘wave of maturities’ has been reduced to a mere ripple,” according to Manus Clancy, Senior Managing Director at Trepp. “The volume of maturing debt coming due every month has already begun to wane, meaning the rate of delinquent loans should hold steady or recede in the coming months.” The data indicates borrowers have resolved some of the challenges of refinancing or selling their properties. How this situation will play out for the rest of the year remains uncertain.

Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
clip_image002clip_image004clip_image006clip_image008
About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Finding the Right Help from Banks When it comes to Commercial Mortgages

Arizona-Home-Loan-Mortgage-BrokerIn the wake of the Great Recession, traditional banks have raised borrower standards. This is especially true when it comes to commercial mortgages. But traditional banks still offer the least expensive loans with the longest terms. How can you maximize your chances of qualifying for a conventional mortgage from a traditional bank?

A good first step is to work with a bank where you are already a customer. Banks are willing to offer the best terms to those they are already in business with. Therefore it is a good idea to have a large savings account at any bank you seek a loan from. If you don't have substantial savings on hand, one strategy is to refinance your home and deposit the money at the bank where you want to apply for your loan. Small banks in particular are always eager to compete for new depositors and banks prefer borrowers with a lot of cash on hand. Having money on hand will make any bank more eager to offer good terms on a mortgage, as they will want to compete for your business.

It is also a good idea to find a bank close to the property you want to finance. Banks generally prefer to issue commercial loans in their immediate area. Above all match the size of your loan to the size of the bank where you apply. Big banks do not consider small loans profitable and small banks obviously cannot finance multi-million dollar mortgages.

Be prepared to submit your loan application many times over and keep your initial proposal short and no longer than four pages. Your proposal should consist of an executive summary, a pro forma operating statement and a title for the project you want to finance. Your proposal may also include graphics and pictures related to the project and the subject property. Be sure your proposal can be easily submitted to as many banks as possible. Convert your proposal into a digital format such as a PDF. The conventional mortgage process is long and arduous. By taking the first step at as many lending groups as possible, you can help ensure your mortgage will be approved in the shortest amount time.

Even if you qualify for a conventional commercial mortgage, the loan amount offered by the bank might still not be enough to purchase the property.

Even the best borrowers may struggle to obtain mortgages higher than 80 percent of their properties total value (loan to value ratio or LTV). In these cases you might want to consider a government sponsored lending program such as an SBA loan. With SBA loans 90 percent of the loan amount is guaranteed by the government. With an SBA loan banks can therefore issue a loan up to 90 percent of the total property value. However SBA loans are not useful for investment purposes as they require 51 percent of the subject property to be occupied by the borrowers business. A potential alternative to the SBA program is the USDA’s Business and Industries Loan Program. These loans have a similar structure to an SBA loan, but are only offered for properties located in rural areas. However a USDA B/I loan doesn't require the owner to occupy the majority of the property, so these loans can be used for investment in commercial real estate.

Considering the difficulty why would you even go to a traditional bank for a commercial mortgage?

Conventional banks still offer the cheapest loans with the longest terms. Go to your local bank, have a well thought out proposal that can be submitted many times over and consider government sponsored lending programs. These steps will help you qualify for a conventional mortgage with the best terms. Still in some cases your investment idea may be considered too risky for a conventional bank. If this is the case you may want to consider a hard money lender, or other alternative financing.

Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
clip_image002clip_image004clip_image006clip_image008
About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Thursday, December 7, 2017

What is hard money?

4page_img2-big

Hard money is a catch all term for asset based loans issued by private groups or individuals. This article discusses some of the advantages and potential drawbacks involved with this type of lending.

Most commercial lending requires a tedious approval process. A borrower’s credit history is carefully reviewed, their income is verified and in many cases a substantial down payment is needed to qualify for a regular commercial loan.

Hard money is different. Hard money is a general term for loans that are secured by the collateral i.e. the property being borrowed against. These types of loans are issued by private groups or lenders, who consider the value of a subject property as being of greater importance than a borrower’s financial situation. Should a borrower default, the hard money lender simply resells the property at a profit to make up for the outstanding loan. As a rule, hard money loans are short term and often come with double digit interest rates.

While hard money may seem expensive it is still a sensible option in certain cases. Hard money is an excellent option for immediate investment opportunities that need to be taken advantage of quickly and which cannot be deferred by the traditional loan approval process. Fix and Flip real estate investors will find hard money particularly useful. This type of borrower can use hard money to purchase a property, quickly improve its value, sell the property for a profit and then quickly pay off outstanding loan. Hard money can also serve as a bridge loan to other types of more conventional financing. Borrowers can purchase a property with a hard money loan and then refinance once their credit situation improves.

Considering its expense what are the main benefits to hard money?

Hard money is above all a much faster method of financing than traditional lending. A hard money lender won’t spend many hours combing through potential borrowers financial records. Instead they will look mainly at the potential value of the subject property. This greatly speeds up the approval process. Borrowers with an outstanding relationship with a hard money lender can see the process move even faster. Hard money lenders are private groups or individuals and can offer more flexible terms when compared to traditional banks.
Traditional banks have a strict, highly formalized underwriting process which restricts their ability to offer better terms to borrowers. Hard money lenders can look at each deal on a case by case basis. If an investment opportunity is particularly attractive, a hard money lender can potentially offer lower interest rates and better repayment schedules to borrowers which would be impossible to get at a regular bank.

Hard money is easier to qualify for, but there are some drawbacks.

Because the value of the subject property is more important to hard money lenders than a borrower’s credit history, unqualified borrowers can still be approved for a hard money loan. However because of this risk hard money lenders often limit the amount of the loans that they issue. Hard money loans are usually offered at between 50 to 70 percent of the value of the subject property. Borrowers should therefore have substantial assets on hand to make up the difference. Borrowers can also be expecting to pay several percentage points of the total loan amount in origination fees.

The first step to finding a hard money lender is to connect with the local real estate investment community or to look for collateral based lenders in your area. Borrowers should strive to develop a good relationship with any hard money lender they approach in order to secure the best terms on their loan.

Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
clip_image002clip_image004clip_image006clip_image008
About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Commercial real estate loan rates what borrowers need to know

Attending a conferenceInvestors need to be aware of how their commercial real estate loan rates can change over time and how their loans are structured. However the type of lender will have the biggest impact on the loan rate.

Something every borrower should consider is how loan rates can change over time. A real estate loan can come at a fixed or a variable rate. A fixed rate loan remains at the initial interest rate over the entire course of the loan. Borrowers will make the same payment every month over a given period. Few borrowers can qualify for a fixed rate commercial loan.

Variable rate loans are more common when it comes to commercial real estate. The interest payments on variable rate loans can change over the course of the loan. Any increase or decrease in interest is usually tied to the prime (or market) rate. Prime rates generally change every 1 to 5 years and many variable rate loans are offered as the prime rate plus a certain percentage of interest. For example, if the current prime rate is 4 percent, a bank could offer a loan as prime plus 3.5 percent so the initial interest on the loan will be 7.5 percent. However the interest on this loan will fluctuate and will rise or fall according to the prime rate.

Interest rates are not the only thing borrowers should be aware of, as the structure of a commercial loan is equally important. Some loans are fully amortizing which means that the interest payments and the principle of the loan are fully paid off once the loan expires. Some loans are also structured with variable rates that reset after a given period. Like any variable rate loan you pay a given interest rate for an initial period. After this initial period the interest rate will reset and the borrower will pay at the new rate until the next reset period or until the loan matures. However balloon payment type loans account for the majority of commercial mortgages. In technical terms balloon loans have longer terms than their amortization periods. This means a certain amount of interest and principle will need to be paid off once the loan expires. Borrowers with this type of loan will need to plan ahead and calculate what the balloon payment will be when the loan matures, or make plans to refinance ahead of time. With a balloon loan an unprepared borrower could easily default.

The biggest factor in when it comes to commercial real estate loan rates is the type of commercial loan a borrower takes out.

Government backed loans and conventional bank loans usually offer the lowest interest rates. SBA 504 and 7a loans offer the lowest interest rates overall. The government guarantees a certain percentage of these loans and the risk for the mortgage provider is alleviated, which results in lower interest rates. 7a loans are easier to qualify for and are usually for smaller amounts than 504 loans. The interest on a 7a loan can be variable, but usually ranges from 6.5 to 9 percent. SBA 504 loans are intended for loans over one million dollars and are usually issued in “stacks.” 50 percent of the loan comes from the bank, 40 percent from an SBA provider and 10 percent of the loan is the borrowers down payment. The bank issued portion on a 504 loan is usually variable while the SBA backed portion being offered at a fixed rate. The average rate on a 504 loan currently ranges between 3.96-4.43 percent, making 504 loans the cheapest type of commercial loan. Banks also offer conventional loans that are not backed by the government. Borrowers seeking a commercial loan from a conventional bank should have a good credit profile, expect to pay a higher variable rate over an SBA loan and have at least a 20 percent down payment on hand. However some borrowers may not qualify for a low rate SBA or a conventional bank loan

Many borrowers won’t meet SBA or conventional bank requirements. Hard money lenders may be a reasonable option.

Hard money lenders usually charge the highest interest rate when compared to other commercial mortgage providers. The average interest on a hard money loan is usually 10 to 18 percent. These high rates reflect the additional risk involved with hard money lending. Hard money lenders consider the value of the asset being borrowed against over a borrower’s credit profile. Hard money loans are generally short term, with repayment schedules averaging between 6 and 12 months. In spite of their expense a hard money loan may be a good option for commercial real estate investors without a good credit profile and who need a “bridge loan” to more conventional financing.

Borrowers should know whether their loan is fixed rate or variable and whether their loan is fully amortized. A borrower’s credit score will determine whether they qualify for a lower rate SBA or conventional bank loan, or whether they should seek out a hard money lender.

Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
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About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Commercial Lender Barclays struggles to assure investors

1page_img3-bigThe commercial lenders share price has tumbled this year. Barclay’s stock has performed worse than the notably troubled Deutsche Bank. The group is clearly struggling to assure its investors.

While the majority of Barclays European peers have seen their share prices rise by an average of 11 percent, the groups own share price is down by some 13 percentage points. Clearly Barclays has missed the mark for potential investors so far this year. The group is highly concentrated in the volatile UK retail banking sector, and has also expanded credit card loans in the US. Above all Barclays has been focused on expanding its investment banking activities this year. Investment banking has struggled to achieve greater profits in recently and many speculate whether Barclays should reduce lending in this area.

Barclays as a UK based bank has deep ties to that countries retail banking sector. Many investors are considerably wary. UK retail banking has been expanding at rates that many consider unsustainable. Unsecured consumer credit in the UK has grown by 10 percent every year, 5 times faster than borrower incomes. In the UK, many people are finding it difficult to secure more hours at work. Borrower incomes could therefore decline without borrowers becoming officially unemployed. These conditions in the labor market have left many investors uncertain about the stability of consumer lending in the UK. While consumer loans do not account for a massive share of the countries household debt, these loans default at a rate 10 times greater than other loans whenever the country faces a downturn. Bre-exit will only compound investor uncertainty about the UKs economy and Barclay’s exposure to consumer credit.

Here in the US Barclays has been rapidly expanding credit card lending, another sector where the rate of lending is apparently outpacing borrower incomes. Barclays has been expanding its credit card lending efforts in the US by 25 percent since 2013. Many major credit card providers have seen a spike in delinquencies this year. Capital One saw credit card loans that were delinquent for more than 30 days rise by half a percentage point between April and August of this year. This has surprised analysts in view of the strong labor market in the US. Capitol One CEO Richard Fairbank points out that these delinquencies are again the result of lending out pacing growth in borrowers incomes. The rise in credit card defaults may not be dramatic, but it will only add to uncertainty on the part of Barclays shareholders.

Commercial lenders have been struggling to increase investment banking profits, Barclays is no exception.

Historically low interest rates over the past few years have made investment banking far less profitable than it once was. As a result, aggressive lending to less than qualified borrowers has become the norm in this sector. As interest rates rise in the near future cheap investment loans with loose terms will become far too risky to issue. Making it harder for Barclays to achieve a profit from investment banking in the near term.

Still the commercial lender seems to be committed to recapturing investment banking profits.

Tim Throsby, Barclay’s head of investment banking claims that even a moderate rise in revenues in this area would provide a significant boost to the banks’ profits. The bank has since been targeting only investors who can offer substantial business to the bank in the long term. Other financial institutions have adopted a similar strategy and few have found it useful to boost investment banking profits. Still Barclays seems committed to this course of action. The group recently reduced dividends to shareholders in order to expand available credit for investment banking. Considering its tepid share price, the bank may want to consider scaling back these efforts and returning this capitol to its investors.

Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
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About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Wednesday, December 6, 2017

Commercial loan financing: Methods for becoming a commercial real estate investor

Handsome young man looking confidentlyInvestors with deep pockets could always buy a piece of commercial property outright, but commercial loan financing can help investors diversify. This article will illuminate some common methods of commercial financing.

Most investors will readily understand conventional mortgages. Even if an investor has enough money up front to purchase a property, a mortgage is usually a better option. An investor can take advantage of multiple investment opportunities and achieve greater returns by spreading their savings between multiple down payments. Some mortgage providers resell their loans to a government entity like Fannie Mae or Freddie Mac. This resale to a government entity restricts the mortgage terms these lenders can offer. Portfolio lenders can offer borrowers more flexible terms on a conventional mortgage. Portfolio lenders finance loans directly from their own funds. Without the involvement of a government group, portfolio lenders can offer better terms to borrowers in some cases.

Any mortgage for an investment property usually requires a down payment of 25 to 30 percent. First time real estate investors may not have the savings to afford such a substantial down payment .These investors could borrow against the value of their home in order to raise the money needed for a down payment. Home equity lending offers both tax benefits and considerably lower interest rates than other types of financing. The lender will consider the borrowers home rather than the property being invested in, which can smooth out the approval process. The purchase of the investment property will also be easier, as sellers prefer buyers who can offer money up front.

Still some borrowers won’t qualify for a conventional mortgage. Hard money or private investment may be the only commercial loan financing method available.

Hard money is offered by professional lenders and private money usually comes from individual investors. Hard money providers do not closely scrutinize a borrowers credit references and instead consider the value of the property being borrowed against. While hard money is expensive it may be only option in some cases. This is especially true for particularly distressed properties that an ordinary bank won’t finance. Unlike hard money lenders, private lenders do not regularly issue loans. Private lenders are individuals with savings on hand and an established relationship with a borrower. Private lenders give borrower cash in exchange for repayment at a specific interest rate. There are no hard and fast rules when it comes to private lenders and the terms on private loans will vary on a case by case basis. The personal relationships of an individual investor will most often determine the terms of any private loan.

One type of commercial loan financing isn't actually a loan at all, these are equity partnerships. Partners get a fixed amount of profit from the investment rather than earning a specific interest rate.

A lender is referred to as an equity partner when they buy a share of ownership in a property. These partners can finance the entire purchase price or the down payment on an investment property. The terms of a partnership are usually defined in an operating agreement or in a promissory note. Like private loans the terms of partnership can vary on a case by case basis. The main difference between a partner and private lender is that a partner receives a specific share of the income generated by the property rather than regular interest payments.

Conventional mortgages, hard or private money lenders and equity partners are the most common way to finance the purchase of a commercial property. Crowd funding is another option. Any first time real estate investor should consider their personal contacts and their credit profile. A private loan or an equity partnership may be a better option than a conventional mortgage or a hard money loan.

Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
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About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage