The Different Approach Hard Lenders Take to Real Estate Values
Commercial real estate investing can be a great way to make money. For many people, the best way to make these investments is to talk to hard money lenders and get a different kind of loan. Hard money loans make it possible for some people to get access to the money they need to make the deals they want to make.
According to Reality Biz News, part of understanding private hard money lenders is understanding the way they view real estate values. There are a lot of ways to invest in real estate. Hard money lenders have working with investors for a long time. They provide loans when more traditional ones are not an option. Hard money loans are also looked to when the turnaround time needs to be short. When people go for hard money loans, they can typically get access to the funding within seven to 14 days. When you compare that to traditional loans from banks and other financial institutions, it is almost lightening quick. Hard money loan rates are higher than for traditional loans but if your deal needs funding quickly, this may be the way to do it.
When you look to hard money lenders, it is important to understand the way they look at the value of real estate. If you try to take the metrics that are used by most real estate professionals or how traditional lenders look at it, you will muss the mark. When you approach these private lenders, you need to know everything there is to know about your market. You need to inspect your property and know what it is worth.
Most of the time, when you talk to hard money lenders, you will be dealing with people and organizations that are not local to you. They may not be able to come look at the property into which you want to invest. They will look to you to explain the local real estate market.
As a consequence of all of this, hard money lenders do not look to the same methods and processes that are used by banks and other traditional financial institutions. The latter look to a borrower’s credit score. They look at the person’s income and debts to see if they will lend them money. When a person gets a home loan, it will cover between 80% to 90% of the value of the property.
By contrast, the focus for hard money lenders is how much the property is worth. The security for these lenders rests squarely with the property and they are usually more conservative in the way they appraise it. They will use more than one tool to see how much a property is worth. In fact, they often look to two methods for valuation or even three. They may ask about the tax assessments but never consider this to be the best way to assign a value to a piece of property.
It is important to remember that the price tag that is on the property will have no impact on the value that hard money lenders place on that land and building. They want to see what the market thinks of the property. A hard money lender will expect a lot of information about a piece of property because they want to be totally sure that should the market completely fall apart, they will recoup what they give you.
Another way these hard money lenders protect themselves from loss is to lend less of the property value. Whereas the traditional loan covers between 80% and 90%, the hard money loans will only cover between 50% and 70% of the property value. If you are investing in a property, you should keep this in mind as you work out the price. If you can arrange additional financing, that can also be helpful. If you are looking to flip a property, it is important to remember that this is an area where hard money lenders are experts. You will need to give them your detailed plans for that.
The good news about hard money loans is that when a bank turns you down, they can provide the funds you need.