If you plan on buying a commercial investment property, your first inclination may be to finance your purchase through a traditional loan. It’s not unusual for newer investors to consider a standard loan because it’s what they are familiar with. However, owning real estate is different from owning a home, and investors can usually benefit from the perks that come with hard money loans.
Let’s take a closer look at the differences between hard money loans and traditional loans, and why contacting a hard money lender may be the right step for you!
Traditional vs. Commercial Hard Money Loans
Traditional and commercial hard money loans have the same purpose but come with different terms and conditions. In the case of conventional mortgages, funding comes from lenders who then sell the loans to banks and investors. Hard money loans are funded largely by individual lenders and are not sold to anyone. Because of this, private lenders also have more flexible terms.
When investing in commercial real estate, hard money loans have many advantages. You can close quickly, you don’t need a perfect credit score and the property is used as collateral. Bank loans, on the other hand, require extensive paperwork, tough requirements, and slow close times.
Why Hard Money Loans are Necessary for Commercial Investors
What many people don’t realize is that traditional bank loans are not used to fund investment properties. Investors need capital to fund their purchase, but the banks look at what the property is worth at the time. If your property needs repairs, it won’t be worth much in the bank’s eyes.
Even if the bank does approve the loan, it probably won’t be enough to cover the purchase of the property and the repairs it needs. The after repair value (ARV) is a better indicator, but banks only consider the property’s current condition. Aside from convenience, this is the biggest reason why investors need hard money lenders as well as traditional lenders.
Being a real estate owner can be a rewarding and lucrative experience. However, it all starts with choosing the right financing so that you can fix up the property and generate income from tenants. With First Equity Funding, you can start your journey as soon as today with flexible terms, competitive rates, and fast turnaround times.