During the 1840s and 1850s, men flooded to California to find their wealth in gold mining. Many men struck gold and became millionaires overnight throughout the California gold rush. Eventually though, all good things must come to an end. By the end of the 1850s, there wasn’t much gold left to find, and we went on to look for new ways to make ourselves wealthy.
Today’s version of the California gold rush is commercial real estate investing. If you can get your name on the deed to a piece of commercial real estate, you can renovate it and make big bucks when you resale it, or create a steady income for yourself by leasing it. Or you can lease it for a while, and then sell it for an exponential amount above and beyond what you bought if for and win, win, win!
We know what you’re thinking. If there are so many great reasons to invest in commercial real estate, why doesn’t everyone do it? Well just like gold mining in the 1840s, commercial property investing is not without its challenges. One such challenge is rounding up the funding you need to purchase a piece of commercial real estate. Great commercial real estate deals tend to move fast, and unless you have a huge chunk of change laying around, sometimes it’s next to impossible to investment property mortgage lenders before it gets snatched up by some other lucky shmuck. This is why a lot of modern day gold miners are finding good fortune through real estate secured lending, or “hard money mortgage lenders” as they’re sometimes called. If this is news to you, stay tuned for our quick guide to real estate secured lending, below:
Frequently Asked Questions About Real Estate Secured Lending
- What is real estate secured lending?
Fantastic question. Real estate secured lending is a process of getting funding for a commercial real estate purchase through private parties rather than the traditional bank route. This might be from a single private investor, or a group of investors who pooled their money together, or a broker who pieces together the investment you need through several private lenders. Since the process is outside of the traditional bank mortgage process, it is a less time-insensitive process, allowing borrowers to get the money they need in time to get in on a hot deal. - What other advantages are there to using real estate secured lending?
In addition to the much faster timeline for getting funding through hard money loans, many borrowers approach real estate secured lending when their credit worthiness makes it impossible to get funding through a traditional bank. Many times, real estate investors have a lot of money out at a single time, which hurts their credit score and makes it difficult to get more money they need to rehab their commercial real estate to turn it into a money maker.
Meanwhile, rather than using a credit score alone to determine a borrower’s risk, hard money lenders use the property itself as collateral to extend a loan on. If the borrower were unable to repay the loan, the property could be used to fulfill the debt. In this way, people who can’t get funding through traditional means because of their credit scores have much better luck with hard money loans. - Why do hard money lenders take on the extra risk?
When approaching hard money lenders, it’s completely natural to wonder what the catch is. If it sounds too good to be true, it’s natural to be suspicious. Why would a lender put a huge amount of money on the line for a borrower who doesn’t have the credit to back it up. In reality, there are advantages to this type of lending for investment mortgage lenders. Hard money loans are repaid much faster than traditional loans, allowing investors to make money on their investment much faster than they might be able to through other investment types. Additionally, hard money loans generally come with higher finance charges than traditional loans, allowing investors to make more money than they could otherwise.
However, like any financial deal, not all hard money lenders are created equally. You should always do your due diligence before entering into a financial agreement.
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