Hard money for Apartment Complex

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Hard Money Funding/Bridge Loans
Posted by: Newcomer Aug 29 2004, 04:56 PM
I have a question that may seem obvious.

I’m considering purchasing income producing real estate, specifically Appartment complexes. I’d like to start with a loan amount of 1.2MM. I’ve been speaking with a friend who is a mortgate broker. We are trying to find a way around coming up with the normal 25% down that conventional commercial loans require I.E, the bank.

Is there any advantage to working with a hard money lender? I know intrest rates and points will be sky high, so I’m considering having them finance just the down payment portion – 25% or roughly 300k worth. Then we go to the bank with the down payment. After we obtain bank financing, we let the property appreciate for 1-3 years and simply cash out refinance and pay off the hard money loan.

Is this possible? This dosent seem possible in my mind, but my broker friend seems to think it is. Keep in mind that the property would be income producing have at least 2 years cash flow records.

In closing I’d like to speak for everyone on this board when I say we appreciate the time you take to address our questions. Opinions from individuals in your field of work come highly valued.

Your thoughts?

Posted by: Commercial Lender Aug 29 2004, 09:42 PM
You can get up to 80% ltv (w/min FICO of 680). Is the seller willing to hold a 2nd? There are a few options you have the last of which should be hard money. Hard money loans are typically 1-2 year interest only. Problem with hard money is that no hardmoney lender will ever (atleast in my opinion) take a 2nd position lien on a property and ofcourse a bank will never settle for anything but a 1st position. Avoid hardmoney, get a standard loan (watch the prepayment penalties) and see if you can get the seller to work with you and hold a 2nd. That would be the best route. A loan with limited prepayment penalties may be expensive in the short term loan but you will be able to cashout quicker. Give me a buzz at the number listed in my signature if you have any questions of if would like explore any options further. Naj.
Posted by: loanuniverse Aug 29 2004, 10:17 PM
My perception of “hard money” lenders is that they are really collateral lenders. Being in junior position with little possibility of seeing their money in case of something going wrong is not where a collateral lender wants to be.

As mentioned before, getting the seller to keep a 2nd mortgage sounds more doable.
Posted by: Newcomer Aug 30 2004, 12:06 PM
Thanks for your input guys, it makes perfect sense. Have either of you ever seen owners carry a 2nd on a major real estate deal? It would seem to me that as a seller I’d think the buyer wasnt financially stable enough to finance the entire note, so why loan him MY money?

I agree with the methodology, but wondering how often this can be applied in real life. I appreciate the options this board gives us. It’s a very good tool to interact hands-on with lenders and fianciers.

Your thoughts?

Posted by: Commercial Lender Aug 30 2004, 12:34 PM
Seller 2nd’s happen ALL the time. Sellers usually are selling property that has appreciated so they are recouping their initial investment + a little more, and if the want to get rid of the property, most dont mind waiting a year or two for 10% of the selling price.
Author: Commercial Loan Underwriter