Perhaps a traditional mortgage is not what you are looking for with your commercial investment, or maybe through the pre-qualification process, your lender has helped you determine that your needs are better served by a hard money loan. In either case, the process for a commercial mortgage in Texas is slightly different with this type of loan.
Typically, a hard money loan is a very short-term loan that will enable to borrower to quickly turn a profit and pay back the loan. If you are developing a property or are looking for a long-term building extension or business development of a commercial area, then this is not the type of loan that you are looking for. Many real estate developers use this type of commercial mortgage to quickly turn around a property and immediately put it back up for sale to turn a quick profit on the improvements made.
This is often referred to as a “fix and flip” loan and has been made famous by shows like “Property Brothers” and “Flip This House.” Often times, from a commercial standpoint, these properties are in depressed areas and often include multi-family housing units. With the recent devastation of Hurricane Harvey, this is actually going to be a growing area of need in Texas markets.
The tricky part of a hard money commercial loan is that it is based on the property appraisal that will be realized after the completion of the project. This is commonly termed as the After Repair Value or ARV.
Because of this unique factor, the application process of a commercial mortgage of this type begins with the assessment of what the property will be worth after the repairs are implemented. This means that the borrower will have to do a good deal of leg work before even knowing if the loan will be approved. Detailed specifications and an excellent business plan are necessary components for a hard money loan, as the entire value of the loan is going to be based on what the borrower intends to do with the property.
Once the plan has been approved and the ARV has been provided to a potential lender, the application process truly begins. Another element that a borrower can expect to encounter in this process is having to provide a detailed budget of how the repairs are going to be completed and their associated costs. This can usually be done by getting quotes from contractors who have worked on such projects before. In any case, this is critical step to help outline exactly how the loan is going to be used and to ensure that it is for the proper amount.
With the recent crisis in Texas, how can I use a commercial mortgage to my advantage?
Multi-family housing units in depressed and affected areas, especially in Houston, are going to be in high demand and investors are going to be needed to quickly turn those properties into buildings that are livable. Having the access to quick funds and experience developing properties with hard money will most certainly help you to make a commercial mortgage work in your favor.
Dennis Dahlberg
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
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.
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