Hard Money Arizona. 

Your resource to learning about Hard Money and Bridge Loans in Arizona.

What is a hard money loan?

A hard money loan is a type of real estate loan collateralized against the value of the property for which the loann is made. Most lenders fund in the first lien position, meaning that in the event of a default, they are the first creditor to recieve remuneration.

Hard money lenders structure loans based on a percentage of the quick-sale value of the subject proeprty. This is called the loann-to-value or LTV ratio and typically hovers between 60-70% of the market value of the property. For the pupose of determing an LTV, the word "value" is definied as "today's purchase price." This is the amount a lender could resaonably expect to realize from the sale of the property in the event that the loan defaults and the property must be sold in a one to four month timeframe. This value differs from a market value appraisal, which assumes an arms length transaction in which netiehr buyer nor seller is acting under duress. *

Below is an example of how a commercial real estate purchase might be structures by a hard money lender.

65% Hard Money - Conforming Loan

30% Borrwer Equity (cash or additional collateralized real estate)

5% Seller carryback loan or other subordinated (mezzanine loan)

Why use hard money?

There are a few reasons why borrowers utilize hard money or bridge loans in today's market. The most common reason is timeframe. Conventional commercial reat estate loans take typically 60 - 120 days to close. Therefore if a borrower needs money quickly to capture an opportunity in the marketplace, a short term hard money loan will allow them to refinance their current property to pull out cash or simply acquire another property in the needed timeframe.

Hard money can also be used to bridge a gap. For example, if a borrower wishes to purchase a property but has a tenant with limited operating history, a hard money loan can bridge the gap until conventional financing can be utlized.


What type of Terms / Fees should I expect?

A hard money lender will typically charge 12 - 15% and 3 - 5 points. The reason for the increased interest rate is due to the added risk the lender takes on by providing a quicker loan process with less red tape.

Commercial lending industry regulations?

Thanks to freedom from regulation, the commercial lending industry operates with particular speed and responsiveness, making it an attractive option for those seeking quick funding. However, this has also created a highly predatory lending environment where many companies refer loans to one another (brokering), increasing the price and loan points with each referral.*

There is also great concern about the practivces of some lending companies in the industry who require large up front payments. Although most commercial real estate lenders, conventional and private, require some fund up front (typically $5,000 - $10,000). Borrowers are not advised to work with hard money lenders who require exorbinant upfront fees, i.e. $25,000 - $100,000, to reduce this risk.

How to find a Hard Money Company in Arizona?

There are number of hard money companies that operate in Arizona. For Example, MJM Capital Group www.mjmprivatefunding.com is a hard money / bridge lender that offers commercial real estate hard money / bridge loans in Arizona.

Other resources

*www.Wikipedia.com
www.investopedia.com
www.digg.com
www.stubledupon.com