When looking to purchase real estate for business, investment, or personal reasons a number of factors come into consideration from the moment a determination is made. These different issues can vary from time frame to legal aspects or analysis but most importantly the funding and monetary backing behind any such transaction carries the most significant amount of weight. In the absence of proper funding, no deal will ever be finalized.
Money is the key to any deal or agreement as cash is repeatedly considered king. A legitimate funding source must be secured in order to move forward with any deal and especially one involving a potential investment opportunity. If the real estate is being purchased for the sole purpose of investing and thus making money, understanding the current market and projecting the future value is vital to creating the most beneficial and opportunistic setting. If these factors are aligned then a deal should be considered concrete, but not finding a coherent funding source will immediately pull the plug on most every transaction.
Before moving forward and seeking to secure the right money for a project, investors and those involved in the process should take into account the source or from where the money will come. Usually this involves looking at one of two major funding sources. The first, some type of generic or prototypical bank normally involves numerous amounts of hurdles to clear and paperwork to complete. Underwriters, those involved with executing only proper financial dealings within the best interest of their company, closely examine the factors behind a transaction and pass along potential specifics which could impede a deal being completed.
Another funding possibility revolves around hard money lending propositions. These loans are mostly short-term, secured by real estate, and backed from private or a fund of investors. Everything you need to get started on hard money loans includes applying these to the appropriate type of situation, including: Fix and Flips, Land Loans, Construction Loans, Credit Issues, and Quick Turnaround or Timetable.
Other factors can also make generic banks shy away from real estate investment opportunities creating a path solely for the execution of a hard money loan in order to bring a deal to conclusion. Some of these issues involve each of the following.
No Certificate of Occupancy
A Certificate of Occupancy (CO) is a legal document executed by a governing agency or building department stating a building’s compliance with regulatory codes and other laws making it suitable for occupancy. The lack of a CO or one which has been only partially completed, regularly kills any deal associated with a banking institution.
If interested in potentially flipping a property, the upgrades and improvements made to allow for a substantial investment opportunity may also complete the CO requirements but a bank will not fund the initial action due to there being no CO available. For this reason, a hard money loan is the best option.
Bad Borrower Credit / Lack of Income
Another issues giving banks pause is a lack of income from a borrower or detriments to their credit. Obviously, credit scores – a numerical representation of an individual’s credit worthiness play a significant role in a person’s ability to receive money from a banking institution.
Hard money lenders can often fall back on the real estate and therefore are more forgiving in terms of a borrower’s bad credit history. By lending based on the property and not an individual, hard money loans can be established for almost any circumstance and reach a larger audience instead of being restricted to only those who have impeccable credit records.
Other Mitigating Factors
A few other less bothersome factors may also cause hesitation when dealing with banks in hopes of receiving funding for real estate investment purposes. These typically include issues within the property or previous damage applied to the real estate in question.
When inspecting a building, sometimes damage caused by mold, water, or fire may be revealed. Again, these immediately fly red flags for traditional lending sources where hard money lenders can work around such issues more freely. By investing in the property, hard money applications allow for the end result in a quick turnaround as opposed to piling money into an empty promise, or seeing the deal fizzle due to a bank raised issue when already into the process.
One other factor which can be alleviated by seeking a hard money loan includes foreign national borrowers. Similar to credit history which a bank may turn away a potential client, a foreign national hoping to secure funding may also be rejected due to logistical issues associated with the process.
Foreign national borrowers are those individuals who are attempting to borrow money but may not be citizens of the country in which they currently reside. Especially in America, often considered a melting pot providing opportunities for anyone to achieve their dreams, individuals who are not United States citizens but looking to begin a business and acquire real estate can find sources through hard money lending as opposed to more traditional methods.
These lesser concerns when compared to bad credit or not possessing a CO are still not rejected by a hard money lender. When faced with any of these issues and hoping to move forward with completing a transaction, remember to think outside the box. Hard money lenders do exactly that, by providing funding sources in a non-traditional but just, if not more, effective method of execution.
Come see the experts at COHI Capital Private Equity Lending who can help you determine your needs and set up a beneficial plan immediately. They will decide what type of loan will work best for you after finding successful funding needs for over a decade. . A full detailed review of your situation can be completed in addition to resolution issues and monetary considerations. Request some additional information by contacting COHI today. Call 970-922-3277 or contact us for a decision. Often these are made the same day and can be addressed depending on client needs and schedule.
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