Rehab Loans for Commercial Real Estate Investors

Get a Real Estate Investor Rehab Loan.

There are great opportunities for real estate investors today. This may be the best market for real estate investing in our lifetime. But unfortunately traditional financing is not so readily available. There are creative options for financing purchase and rehab income producing real estate projects for investors. Whether you are investing in commercial multifamily housing or mixed use investment properties there are lenders to finance purchase or refinance these rehab projects, even with little or no down payment. Since there is no secondary market for these types of projects your deals will fall into one of two categories. Your deal will either be a non conforming investor rehab loan or a hard money rehab loan.

Non Conforming Real Estate Investor Rehab Loan.

There is no such thing as conforming investor rehab loans. Conforming means there is a secondary market that your loan conforms to the guidelines and can therefore packaged with other similar loans and sold in bulk to institutional investors on wall street. The secondary market would the have established guidelines that all projects would have to conform to. Since this market does not exist the first category of loans are considered non conforming or portfolio loans. Any rehab loan funded in this category will meet guidelines that are similar to conforming mortgages. These loans would meet the general guidelines as all other loans except they require substantial rehab and are investment properties. This means the borrower, real estate investor, would need good credit, verifiable income and assets, an ability to repay the loan, acceptable down payment and reserves, and employ licensed bonded contractors to do the rehab. The advantage to the portfolio real estate investor rehab loans versus the hard money loans is that the rate and fees are usually substantially lower.  The disadvantage is there are many more qualification criteria and it takes longer to fund a deal. But, if you qualify and have the time and money for the down payment it is to your advantage to utilize this loan versus a private investor rehab loan.

Hard Money Loans.

Though the rates are much higher ( 10% to 15%) and the fees will be from 4% to 10% hard money loans could actually be more profitable to real estate investors than non conforming financing. First of all these loans generally fund in 2 to 4 weeks. Secondly, the qualifications are less stringent and therefore you can do more deals. Truly you may qualify for a hard money loan when you will not for a non conforming loan. As such you may have no other option.

Qualifications of Non Conforming and Hard Money Investor Loans.

Both programs require you to purchase property where the after rehab value is 65% or less. Both programs require you to have an acceptable exit strategy. Non Conforming programs will always require a down payment of 20% to 35% of the purchase and rehab costs. Hard money loan programs may or may not require the down payment at all. Both programs will make sure the contractor has the experience and licensing to complete the renovation. So if you have the experience, property with substantial equity, exit strategy and assets you can make lots of money by purchasing and renovating investment property.


Choosing Investment Property – Financing it with Hard Money

Hard Money Loan.

A loan from a hard money lender is a short term financing arrangement made to a real estate investor who usually want to purchase and rehab a commercial or residential property. The interest rates and fees on these loans are much higher than conventional financing. They are attractive to real estate investors because most of these loans are made based on the value of the property after rehab with no seasoning requirements. The collateral is the most important qualifying criteria for these loans private lenders. The collateral is also be the crucial criteria to savvy real estate investors. The collateral is the investment and successful investing is buying low and selling high with minimum risk while investing as little money as possible. This also works for the investor who wants to keep the property for long term cash flow and appreciation. Understanding this basic investment philosophy and having a tight focus on your own real estate investment strategies will help you choose the properties.

Personal Investment Strategy.

Once you decide to invest in real estate the first choice you need to make is to determine the type of property and the location or area you want to invest in. Do you want to invest in residential or commercial property. If you choose to buy residential property do you prefer single family homes or 2, 3 or 4 unit properties. These decisions may be guided by the property available as well as financing options. Today there are many more creative financing options available to those who choose commercial real estate over residential properties. Historically it has been easier to finance single family residences. Since all financing has gotten tighter financing larger units may be a better option in todays market. In the past commercial lending required a larger down payment than investing in residential property. The reality is that in todays market there are more financing sources for commercial properties than there are for residential investment properties.

Criteria for Financing a Property with a Hard Money Loan.

A simple strategy I employ when investing in real estate, whether residential or commercial is to not invest in more than 50% of the after rehab value. That means the total acquisition costs (including financing and soft costs) plus the rehabilitation costs will be equal to or less than 50% of the After Rehab Value. Your acquisition costs include any costs associated with the purchase of the property. This includes title charges, attorneys, taxes, transfer, insurance, inspections, appraisals, and financing costs. Your rehabilitation costs are labor, materials, permits and inspections. The total of your acquisition and rehabilitation costs should not exceed 50% of the the after rehab value because you need a solid exit strategy to refinance or sell the property after your investment property has been stabalized.

Exit Strategy.

When you invest property by using a hard money loan all lenders require a solid exit strategy. Remember your interest rate is much higher than you would pay for conventional financing and your loan is only for a short term as a requirement of the hard money lender and in your best financial interest you should have a solid exit strategy. A solid exit strategy is not selling the property, if you do not already have an approved buyer in place. A solid exit strategy is not refinancing the property if you can not qualify for the refinance loan. So ultimately, you should have an approved buyer in place or you yourself can qualify and have been approved to refinance the property. This is why when you choose an investment property the after rehab value should never be greater than 50% of the acquisition and rehab costs. These properties are easier to finance and easier to sell for a profit. You could even sell to another investor, pay off your hard money loan and make a profit.

Return On Your Investment.

Though the costs of a hard money loan may seem obsene at times, where can you invest little or no money in an asset that doubles in value in less than 6 months. You can investing in real estate. A hard money lender can make you a fortune if you understand leverage and choose the right properties with a solid exit strategy.