Real estate investing depends on the speed of the transaction. As a highly competitive industry, it can often feel like the search for worthwhile commercial properties is a race to secure the best opportunities for significant profits. Because speed has a lot to do with securing investment properties, commercial hard money loans, like those offered through HML Solutions, have become a staple in the real estate market.
Commercial hard money lenders strip away all of the complicated and redundant rules of conventional lenders to get to the heart of what clients need: funds to close on properties, profit from investments, and even fund rental or office spaces. Working with a hard money specialist will ensure you get a loan that suits your project’s financial needs.
Commercial real estate is the new gold rush, except with real financial rewards. However, to capitalize on the limited potential, you must learn to move fast, and part of moving fast is to find commercial hard money lenders you can trust, those with experience in the commercial niche.
If you are curious about how you can use hard money loans on your next commercial investment, continue reading. There are at least three ways you can use funds, but first, it is crucial to define a commercial hard money loan.
Defining Commercial Hard Money Loans
The primary thing to understand about commercial hard money loans is they are asset-based. Unlike conventional loans that are strongly credit-based, a hard money lender focuses on the investment’s property value. While some lenders will focus strictly on the current value, others will consider the after-repair value to determine overall loan value.
Due to the speed of commercial real estate transactions, hard money vehicles are an essential tool for property investors. However, the key to the effective use of such loans is understanding when they provide the most value. Whether you are looking to fix-and-flip properties or want a fast and flexible option for your next rental, understanding the primary uses of hard money loans will ensure you always get the most value from the experience.
Understanding Why Hard Money Loans are so Valuable To Investors
Conventional loans take time to process and approve, and the borrower often feels assessed and judged because they essentially are. Commercial hard money lenders take less interest in the person borrowing the money because the loan is asset-based, meaning it is secure, presenting limited risks to the lender.
Because a hard money lender cares less about the creditworthiness of the borrower and more about property value, the approval process can happen in as little as a few hours. Often, a borrower can receive funds within one week or less.
Most commercial real estate investors use hard money loans in specific ways. Some examples include:
- Multi-family units
- Office buildings
- Retail facilities
Using a Hard Money Loan for Investments and Rental Properties
There is no secret formula for making more money. You need to increase revenue streams and continue adding to them to increase earnings. In real estate investing, the primary way to increase revenue is through rental properties. The more properties you own, the more income you have coming in, hopefully contributing to your net profits.
Many first-time investors start by purchasing single-family homes or duplexes, but the real profit and opportunity lie in multifamily properties. A multifamily property consists of four to five family dwellings in one building. According to the National Multifamily Housing Council, nearly 63% of all existing rental properties are multifamily units, meaning there is plenty of investment and ownership opportunity in the marketplace.
While some investors might feel motivated to purchase single-family homes for rental opportunities, there are drawbacks to such decisions. First, while rental income looks promising on a single-family home with less risk of tenant turnover, greater profit exists in multifamily properties.
Consider a single-family home will rent for $2,000 per month. That is the extent of your profit. From that, you need to cover expenses from maintenance and property and business upkeep. Now consider you have a multifamily unit with five dwellings, each renting for $800 per month, bringing the total rental potential to $4,000 per month. Because the multifamily unit is still within a single property, maintenance costs and other expenses will remain similar to a single-family home, meaning profit potential is significantly greater with a multifamily unit.
Due to the availability and competitive nature of real estate investing, a quality multifamily property will not sit on the market for long, meaning that securing funding quickly is a priority. Out of all loan options available, no lender is quicker than a hard money lender.
Besides the transaction speed, an experienced hard money lender like HML Solutions can provide insight into the current real estate market. Our experts might be able to offer suggestions for improving your investment opportunity, ensuring that everyone is happy with the arrangement.
Finding the Value in Commercial Property Investment
It is no secret that investing in commercial real estate – or any real estate for that matter – is a risk. However, the potential benefits are the reasons so many real estate investors are drawn to the commercial market:
- Appreciating value
- Low maintenance
- Long-term tenants
- Long-term revenue streams
Working with an experienced lending partner is crucial to ensuring your venture’s success, especially if you are not familiar with the industry or area of your investment. An experienced hard money lender like HML Solutions can help guide your project, keeping you focused on the future tenant rather than personal preference.
The Draw To Commercial Hard Money Lenders Over Banks and Other Conventional Institutions
Some people, especially amateur investors, might feel a little uncomfortable working with a private lender rather than a more conventional institution, like a bank. While it is true that hard money lenders offer loans with higher than average interest rates, the overall approval and funding process is significantly faster than traditional financial institutions.
Conventional lenders require extensive underwriting and paperwork. They also require background checks, credit scores, investment plans, and several other things that slow down the process. By the time a bank finishes making borrowers jump through hoops, the investment opportunity might be long gone.
Commercial hard money lenders can take greater risks and have more freedom when it comes to the approval process because they are private lenders, and loans are asset-based, meaning less interest is placed on the creditworthiness of the borrower. Hard money loans often require higher interest rates because of the shorter terms on the loans, but if term lengths are flexible, depending on the project, sum, and refinance options.
Understanding the Three Uses for Commercial Hard Money Loans
Thus far, we have discussed hard money loans for multifamily investments and commercial real estate. The third use of hard money loans is as a bridge loan to fund the gaps between the sale of one property and the purchase of the next.
Bridge loans are fairly common in commercial real estate investment. Using a bridge loan, an investor can refinance one property and use the funds to purchase another. However, more often, a bridge loan is used in one of three ways:
- Finishing a project
- Getting the property ready for the next stage in the investment
- Preventing foreclosure
Sometimes a bridge loan is used to purchase foreclosures at auction. An investor uses a cash-out refinance on one of their existing properties, providing them with the capital necessary to make a cash offer during an auction. While you might think it would be easier just to get a loan for the prospective property, that is not how foreclosure auctions work.
Auctions require cashier’s checks to place bids. A hard money lender will not offer a loan and is not permitted to provide a loan for such bids. A lender needs title insurance and escrow to secure their bottom line in a transaction, and an auction does not provide either.
Hard money loans make it easier to invest in commercial real estate. Lenders provide fast and flexible loans to accommodate quick-moving deals. There are at least three ways to use a hard money loan:
- Investing in multifamily properties
- Investing in commercial facilities
- Bridging a funding gap
Why Choose HML Solutions for Your Hard Money Lender
When you are looking for a custom lending solution to secure a fast commercial real estate investment, you need to work with an experienced lender. HML Solutions is a trusted name in the industry, and our lending experts have the expertise to customize a funding solution that works for you. Better still, they can work with you to secure approval and funding within a week, in most circumstances.
We know that your project should mean more than your credit score, and we are prepared to look beyond most issues. We care most about the potential of your project and the value of the existing property. Why work with a conventional lender when a hard money option gets you the approval you need fast with little hassle. Contact an HML Solutions representative and ask them about our loan programs and how we can help make your investment goals a reality.