The COVID-19 crisis has been an ongoing issue, impacting industries across the board. The finance industry has not been exempt. While rates for 30 year fixed loans that fit with Fannie/Freddie are at historic lows, finding funding for out of the box transactions can be difficult. Right now our Los Angeles County hard money loans and alternative funding options can help fill this gap.
One of the harder hit areas of finance has been the non QM segment. While this funding has been coming back, many programs look very different today than they did in early 2020. Loan to values, rates and qualifications have changed. One reason for this is that the secondary market for these loans has changed.
Commercial lending is another area where the secondary markets - and even primary markets - have really changed. Getting funding for commercial properties, even mixed use or multi-family residential, can be difficult. Land, office, strip malls, etc. are tough to finance. Many banks we have relationships with who specialize in and portfolio these types of loans have tightened up so much that even good looking files are getting turned down.
In these situations, hard money loans are a viable alternative.
Hard money loans are funded from different pools of money than most of the loans mentioned above. Most are funded by individuals, groups of individuals or private pools. These sources operate independently of the larger secondary markets, and as such have not felt the same impact that other financing options have.
While liquidity is available to get transactions funded, the cost is also higher. The trade off, however, should be looked at as an opportunity cost. Being able to access capital for real estate investments, or even business purposes, allows investors to take advantage of opportunities today rather than needing to wait until the more traditional financing markets expand again.
These alternative loans are typically shorter term - 1-5 years - and interest only. The upside to this is that investors are not locked into long prepayment penalties. Additionally, the interest only payments allow monthly outflow to remain in check, even though the rates are typically higher than what a bank may provide.
Our investors and funding sources span the whole state of California. We have a high concentration of available capital, however, in the local Los Angeles County area. For Los Angeles County hard money loans, we have many investors within driving distance who can make quick decisions and perform in a matter of days or weeks. These options can be a great tool for investors, Realtors, sellers, even current business owners.
The main underwriting concern is the loan to value ratio. In todays environment, this can help investors acquire property that may not cash flow due to discounted rents - or even no rents. It can help existing owners access capital even if the property is not currently generating enough cash flow to qualify for more traditional lending. For Realtors who have listings of distressed properties or hard to finance deals, we can work with unique situations such as seller carry backs.
While this type of financing may not be appropriate for every borrower or transaction, it is a great tool to have in your financial tool box. Feel free to call direct anytime to discuss a transaction. We specialize in out of the box solutions. When others have told you no, we are available to work on a solution.