Many investors are looking toward buying depressed properties and fixing them up to resell or lease. While this is not a bad idea if the price is right and the cost of repairs will increase the property’s marketability enough to make it profitable, most traditional lenders are not interested in depressed properties unless they are in an area that is part of a block project or federal grant. This leaves the average investor with the need to seek hard money lenders in NY.
Using Hard Money Loans as Bridge Loans
When it comes to depressed properties or any property that is not up to standard, it is unlikely traditional lenders will be interested in loaning money for its rehabilitation. This leaves investors with the choice of finding other types of funding in order to bring their properties up to standard or simple making them useable (or inhabitable). The most common type of loan for this purpose is a bridge loan for a hard money lender. Depending on the price of the property and the potential value on completion it is possible the investor will not need to put up any of his own money.
How Bridge Loans Work
Unlike an ordinary loan, bridge loans do not usually require monthly payments, but this is something borrower and lender negotiate. However, it is a perfect solution for investors interested in properties that sell below market value that will not interest traditional lenders. Since most hard money lenders in NY will only finance about 60-70 percent of the property’s value, it might appear to reflect negatively on those properties worth less than the traditional market value in the area. While traditional lenders focus on the appraised value of a property, hard money lenders focus on the future value when they undertake a rehab project. What this means for the borrower/investor is they can borrow 60-70 percent of what the property will be worth when renovations or other things that must be completed are accomplished. Depending on how these requirements affect the market price, an investor may be able to avoid putting up any of his own money.
Finding the Right Property
Finding the right property is just as important as finding the right loan. Hard money lenders in NY are not going to provide loans for projects in which they do not have faith. For instance, if you are interested in a commercial property that is substandard and has been vacant for some time it is quite possible even hard money lenders will not be interested. Just like traditional lenders, hard money lenders are interested in choosing deals that will make money for them. The difference is they take more risks in that area, but they are not fools by any means. If they don’t see any future potential for a particular property, they will not provide the funding for an investor to rehabilitate that property. Unless you want to put up a lot of your own money you want to choose a property that has obvious potential: one that is in need of repairs and/or renovations or needs permits but has not been vacant for a long time.