Today’s real estate markets consist of the residential and commercial segments. The residential side of the real estate market has begun a recuperation from the “bubble” period since approximately 2005. The commercial side of the real estate market, however, has continued a steady slide in value as the economy impacts small business. More banks will be impacted as the commercial slide continues because commercial loans are relatively shorter term loans with renewals generally between 5 to 7 years, compared to residential properties from 15 to 30 and sometimes even 40 years. Current market conditions have created unprecedented opportunity for both residential and commercial rehab hard money lenders to enter the financial area and fill the void for real estate investors that banks have not been able to fill. As the economy falters, banks have generally tightened credit requirements for all small businesses and real estate investing. This has caused real estate investors to seek other avenues of investing such as hard money lender financial backing and those avenues have enabled the investors to have many options and opportunities for bank owned property .
Will the market recover in the next few years ? It is anticipated that residential will continue a steady improvement. Signs of real estate market recovery are already flourishing in California and Texas. It is also spreading to other former markets that were hit hard when the real estate bubble “burst”. It is expected that home prices will slowly continue to rise and some areas will begin to show even significant appreciation. This will create a substantial opportunity for the real estate investor who is currently acquiring investment property, either by cash purchase or hard money loans. Private rehab hard money lenders will continue to lead the way, seeking above average returns for their funding investments .
Usually a transaction in today’s environment begins with a real estate investor placing an REO property under contract. An REO property is currently owned, by either a bank, government agency or some other type of financial institution. The investment property is then purchased upright from the bank at a advantageously discounted price which could be 50% or less than the actual market value of the property. Once the contract is in place to purchase the property, the loan package is submitted to a private rehab hard money lender who then finances the purchase for the investor inside 24 to 72 hours. The entire transaction can be realised in a day or so, and it is possible to fund and close even within hours .
Real estate investors and rehabbers are using private hard money lenders for financing because of less stringent lending requirments. For example, because the private hard money lenders is an “asset based lender”, the most authoritative part of the loan package is the LTV, or loan-to-value for the investment property being financed. The private lender is reducing risk by staying in first position on the property and having a sufficient amount of equity to be able to recover the loan amount in the event of a default, by “prompt sale” of the residential or commercial property to another party .
Real estate investors do not need to have good credit to qualify for loans with private hard money lenders. Even prior bankruptcy and foreclosure items do not of necessity necessarily cause an investors loan from getting funded for an investment property loan. The private lender ears a substantially higher interest rate in the transaction but also may offer the investor, interest-only payrments and even no-payments for the life of the loan, which usually ranges from 3 to 9 months, with provisions for extensions.
