Many California investors use hard money loans when they purchase commercial real estate properties. While there are other options on the market that provide financing for real estate investments, this method has both benefits and drawbacks.
For investors who want to purchase commercial, non-owner occupied properties, paying for them with hard cash is a great way to obtain the property quickly. While expensive interest rates and large upfront costs generally accompany hard money loans, this method is convenient for investors who need instant cash to buy a commercial property that is in danger of being sold to another buyer, for example.
Hard money loans are principally used for commercial real estate and are provided by private groups instead of traditional lenders or banking institutions. Those who offer hard money loans focus on the commercial property's potential sales price if it will be resold in several months after the loan is issued. Therefore, instead of the lender using the property's appraised value, it generally bases the figure on an amount between 50 and 75 percent of the property's appraised value.
In addition, hard loans are equity-based, which comes in handy for those who do not have very good credit scores necessary to obtain a traditional loan. Hard money loans are usually closed in less than two weeks but must be paid off in 12 to 36 months.
Selling and purchasing commercial real estate property can be complicated and full of surprises such as title and zoning issues, nuisance disputes and construction delays. To be prepared to meet unexpected circumstances, real estate investors might want to contact an experienced real estate attorney for legal advice.
Source: Inglewood Today, "Investing In Commercial Real Estate, Part 3", Glenda Brass, Aug. 26, 2016