There might come a time in your investing career that you will need to use commercial hard money lenders. Hard money is used when you need to get quick short-term financing. The rates are usually high and the LTV’s very low (to account for the risk involved in these types of loans). These loans are usually tied directly to the property value (however, lenders also look at the borrower’s credit history, personal financial statement, etc–they use this information on determine your rates and allowable LTV). Some people are scared to even think about getting a hard money loan because the rates are so high– but that shouldn’t stop you if the numbers make sense.

The commercial hard money industry is full of reputable lenders as well as sharks. And it would surprise you to find out who the sharks are! They are the ones with all of the slick advertising that promise you everything but never deliver (but they do manage to keep a nice chunk of your money!).

I have heard a lot of horror stories, from not closing on time to losing hundreds of thousands of dollars.

So how do you avoid being a casualty on this battlefield of commercial hard money lenders? Read on and I will share with you tips from past clients as well as my own personal experience. » Read more: Don’t Get Burned By Commercial Hard Money Lenders!

If you are looking to become a landlord you need to understand apartment building mortgages. These are considered commercial real estate investment and as income generating property a commercial mortgage is required instead of a standard real estate mortgage.

A commercial real estate mortgage can have an adjustable or fixed rate of interest. If interest rates are expected to decrease over time than an adjustable rate mortgage is beneficial, otherwise a fixed rate of interest rate is better. Apartment financing is generally amortized with payments over a period of 15 to 25 years and a balloon payment will be due to pay off the loan. Commercial mortgage brokers can help you to do the research necessary to find the best loan for your needs.

Apartment building mortgages have different requirement than residential real estate mortgages. Instead of looking at your income and length of time you have been employed, underwriting for multifamily loans requires debt service coverage ratio. Debt service coverage ratio calculated by dividing the monthly mortgage payment by the net cash flow or the income the property produces. The standard debt service coverage ratio is 1:1 – 1:4. In addition, a 20% upfront payment is often required.

Other possible cons of a commercial investment real estate mortgage are that the closing costs have to be paid upfront and they are not always easy to refinance. Apartment financing can be obtained through private lenders as well as banks, and sometimes private companies can offer a better rate than banks. » Read more: Apartment Building Mortgages, a Different Type of Real Estate Commercial Loans

Property owners, investors and developers have choices when it comes to commercial mortgage loans. National and regional banks, Wall Street firms and all major insurance companies offer, fully underwritten, full documentation conventional mortgage loans.
Wealthy individual investors and privately owned lenders offer a wide variety of private, often called hard money, commercial mortgage platforms.

Both private and institutional loans have their place; each offers separate benefits and each have their own drawbacks.

Transparency

Federally chartered banks, public Wall Street investment houses, finance arms of public corporations and insurance companies are all highly regulated and have strict disclosure and reporting standards. It’s easy to know when you’re dealing with a legitimate firm. All the companies’ financials and business information is public and easily accessed by borrowers wishing to check them out.

Private mortgage lenders, on-the-other-hand, are, by definition, private; it’s often difficult to check them out and confirm their claims. It is imperative that borrowers make sure they are dealing with a bonafide lender with a reputation for funding deals. This can be accomplished by using the services of a professional commercial mortgage broker or intermediary. A good loan agent knows who’s for real and who’s not. They don’t get paid on loans that don’t fund so they won’t waste time submitting files to questionable lenders.

Speed

Conventional loans are made by regulated institutions and will require full documentation and adherence to strict underwriting parameters. The process takes time, especially if a borrower is trying to take advantage of a Government loan guarantee, such as those offered by the Small Business Administration (SBA) or the Veterans Administration (VA). Institutionally funded conventional loans typically take 30-60 days to close. Loans affiliated with Government Agencies (SBA) have more requirements and take between 60-180 days to complete. » Read more: Commercial Mortgage Loans, Conventional Vs Hard Money