Real Estate Lending – The Trump Effect

The Expected Effects Of the Election On Real Estate Financing

Donald Trump and Economic ImpactWhen in July 2016 the U.S. Census Bureau reported the lowest rate of homeownership in 51 years, not a few people were alarmed including then Presidential contestant, Donald Trump.

Private home ownership has also been seen as the major indicator of having achieved “the American dream.” It turned out that that decline was due to more young people coming together to form households in multi-tenanted rental properties so there wasn’t that much to fear after all. For Reference {}

The Presidential election that followed a few months later was full of surprises and a few scandalous revelations. The air of uncertainty among the American people and globally was palpable. You could feel it and as expected, the financial markets responded sharply and accordingly. But how did the real estate market fare? Well, real estate translates to big money and big money spenders are usually reluctant to make decisions that will commit them to long-term financing during election years. They will usually postpone major projects till the elections are done. Obviously, this tends to create a lull in business activity but so far data from the commercial real estate market has not shown evidence of that.

Though it’s hard to discern exactly what will happen, here’s how we see the real estate market responding to the fallout of one of the most contentious U.S. elections we have seen so far.

If you were to say the November 2016 U.S. election was the most contentious ever, you wouldn’t be mistaken. But while the electronic and social media were busy magnifying the political differences of both parties, they failed to notice one thing; both candidates had a lot in common regarding their business outlook.

They both agreed on the need to support current infrastructure by improving the nation’s sea and airports, bridges, road networks, and power lines and also create more jobs, as a way to kick-start U.S. economic growth. They showed open support for Janet Yellen’s push for a low-interest rate policy. She still occupies the post of Chairwoman of the Federal Reserve till date.

These points all mean well for the real estate market because lowering interest rates will keep the cost of commercial real estate financing down. While increased jobs coupled with better infrastructure will enhance activity in both commercial and residential real estate.

Opposing Views on Business Tax Policies

Building up to the final Election Day, both candidates had differing tax proposals.

Clinton’s tax proposal was directed at encouraging business incentives. She planned to offer benefits for corporations that share profits with employees or establish apprenticeship programs. She was very vocal about discouraging American-based companies from moving their operations overseas as this would lead to more job losses. She planned to impose tougher restrictions on those companies that leave American soil. Interestingly, Donald Trump had the same view on the matter.

Though immediate past President, Barack Obama, had planned on cutting corporate tax rates, Hillary Clinton did not specifically address that topic.

Trump’s tax proposal then was a sharp cut in corporate tax rate from the nominal rate of 39.1% to 15%. Such a significant cut has the potential to stimulate economic activity. The commercial real estate market will not be left out as businesses expand as a result of this cut.

The Issue Of Immigrant Housing

Will Trump’s controversial immigration policies make this country become so unbearable that even immigrants and minorities that are not deported outright would choose to leave on their own, taking their money away with them and leaving many once occupied homes behind and empty? This issue is still under observation. But we can say that his immigration policies could deter foreign investment in U.S. real estate. The multiplier effect would be limited price growth and possibly a reduction in the demand for housing.

Uncertainty Will Continue Even After The Elections Have Ended

The last elections presented us with a choice between two candidates with very different backgrounds and personal orientations.

The Democratic nominee, Hillary Clinton is no newcomer to politics but it was surprising to see a possible indictment due to issues surrounding an FBI investigation questioning her use of a private email server.

Donald Trump on his part did not come up through political, or military ranks. This was evident in his interaction with the arms of Government including the FBI, the Senate, and Congress and so on both during and after the elections.

We can’t say exactly how it’s going to play out but we’ll safely say the uncertainties will continue for a while yet.

Uncertainties May Slow Real Estate Price Increases

During the elections, though both candidates offered proposals aimed at supporting business and that would eventually boost real estate prices, the prevailing tendency has been that asset prices in the real sector rise much slower in election years. This is largely due to the sense of uncertainty that most presidential elections create. It’s more evident when you have a 2-term President vacating the seat. Coupled with the earlier discussed point on immigrant housing, you can expect property price increase to be slow for a while yet.

What Can We Expect In The Commercial Real Estate Sector Going Forward?

It’s not all doom and gloom. Despite the surprising election result, there are still many positives that could boost the performance of the commercial real estate market.

Majorly, when you consider the Federal Reserve’s commitment to keeping a low-interest policy, it’s clear there will be many advantages for both borrowers and lenders in commercial real estate financing.

Investors should remember that real estate investment remains a rock solid avenue to put their money in. If they can just stay focused on the big picture and ignore many of the short term volatility and naysayers, they could find themselves reaping from the ripple effect of the low interest rates throughout 2017.

How Commercial Hard Money Loans Can Work for You

private money commerical lendingAs the funding terrain in the real estate investment sector continues to evolve, both beginner and experienced commercial real estate investors find that they have many more options available to them than in past years.

They can now confidently secure commercial real estate loans faster and with fewer complexities than they would experience when approaching traditional commercial lenders like banks and other conventional lending institutions. Who wants to go through the disheartening back and forth, stringent lending guidelines and endless paperwork of the older lending brigade when they could achieve the same result faster through hard money lenders? Certainly not you, we bet.

Commercial hard money lending continues to grow in popularity and the trend is not slowing down anytime soon. Why should it? As more and more individual borrowers notice that they can quickly get funds for their hard-to-place real estate deals through us even when other commercial lenders won’t help, our customer base continues to grow.

We are convinced that the more people that come to know about hard money lending and how it works, the better. Our years of experience in this field has allowed us to see the positive impact on the lives and businesses of our clients. Working with us could be one of the best and most important decisions you’ll ever make.

Below you’ll find the information you need on hard money loans, how they work and a few tips to help you make an informed decision.

What Does Commercial Hard Money Loan Mean?

Without wasting too much of your time on technicalities, we’ll boil it down to the major thing you need to know. The difference between commercial hard money lenders and traditional commercial bank loans is in the way they mitigate risk. They both use depositors/investors’ money to fund your real estate projects so they need to have their back covered if “things go south.” It doesn’t matter the type of loan, as long as money is changing hands, the lender must have a strategy in place to recover their money in case of default.

Traditional Commercial Loans

The age-old strategy of private banking institutions is pretty straight forward. They focus on the borrower’s credit performance, basically, their financial position and ability to ability to make payments when due. That’s why they’ll ask you for information like your credit history and payroll proof to make an informed decision on whether or not to approve the requested loan.

The major weakness of the banks is that as interest rates inevitably rise, they will keep turning down even more loan applications making the whole qualification process more difficult.

Hard Money Commercial Loans

The commercial hard money lending concerns have an asset based risk mitigation strategy.

The loan they’ll offer you will be a “safe” percentage of the estimated value of the property you offer as a collateral. That way, even borrowers with a poor credit rating can get funds here. In cases of default, the collateral obviously will be liquidated to recover the lenders money.

How Commercial Hard Money Lending Can Work For You

Step 1 – Identify the lender you want to work with. There are many ways to find reputable hard money lenders but we’ll advise you read online reviews or ask around for referrals. Discuss with them and make sure all your questions are answered and you are handled in a professional manner before you go ahead.

Note that not every lender will be the right fit or will offer you the kind of services you want.

Step 2 – Prepare and present your collateral. As mentioned before, this kind of lending is real asset based. Preferably, you should offer properties like industrial property, non-owner occupied family properties registered in a corporate or LLC name, retail property, office buildings and apartment buildings.

Step 3 – Getting an accurate estimate of the properties worth. Properly assessing the project’s final price is vital to the success of the loan application so the lender will at this point request a BPO. Once that is done, you will get a loan advance rate offer based on a percentage of the value of the asset.

Step 4 – Funding. If you’re okay with the amount offered and everything else checks out, the funds will be released to you.

Why Is Hard Money Lending So Popular?

commercial-hard-money-loansWe did mention that we have noticed an increase in patronage. Here’s why so many people are opting to go this route:

  • No stress about credit rating. We are primarily concerned with the value of your asset collateral. Though a good rating score won’t hurt, it’s not really our focus.
  • If for some reason you can’t get a standard mortgage, this could be a suitable alternative for you.
  • Our loans are faster to access. House flippers, in particular, stand a better chance of getting the needed money quickly through us. If you were to go the traditional banking route, you can expect to wait many weeks or months before getting the funds.
  • The conditions and interest rates are different from conventional lenders. Standard mortgage loans run from ten to forty years and come with low-interest rates. Hard money commercial loans run from one up to three years but with a higher interest rate. They are ideal for experienced real estate traders who want access to quick funds. The potential profits of the venture will more than make up for the higher interest rate.

In conclusion, if you’ve never considered approaching a hard money lender, you seriously need to think about it. Whether you’ve already been turned down by the bank or not is inconsequential when you are looking for a quick real estate transaction.

Why try running a race track with an 8-wheeler (the banks) when you can use a Ferrari (us)?

Making the Brokers Price Opinion (BPO) Work for You

commerical project hard money loansThere are many reasons why you would need to estimate the value of a property. Typical reasons include estimating the value before purchase or sale, getting the accurate collateral value in the case of a loan application, for buying out a partner’s interest and so on.

For commercial investment purposes, both the borrower and the lender would protect their interests by understanding the value of the subject property. That value is the basis or foundation on which the loan amount will be calculated. For this reason, property valuation remains a vital first step for any commercial mortgage whether a soft money or hard money loan.

You may already be familiar with the more common traditional real estate appraisal. Estate appraisals are carried out by a third party. They are very comprehensive and are not biased in their estimate of market value.

The Brokers Price Opinion or BPO is another well-known option for estimating property value with some distinct characteristics to the Real Estate Appraisal.

What is the Brokers Price Opinion(BPO)?

Though many instruments for accurate commercial property valuation exist, for illustration purposes, we’ll compare the BPO with Real Estate Appraisal as many people already have a good understanding of how the appraisal work.

The major differences between BPO and appraisals are the cost of execution and the comprehensiveness of the finished report. BPOs are a fraction of the cost of appraisals because they are far less comprehensive. Appraisals require detailed and extensive examination of the target property.

Mortgage companies and lenders will use BPOs where they feel the complexity of an appraisal are unnecessary.

BPOs are also typically performed for divorce proceedings, foreclosure proceedings, short sale approvals, private estate valuations or where the broker has an intention to buy the property so the motives are quite different from that of a full appraisal.

Note that BPOs may be inadmissible in some instances like for making a tax appeal. The regulations regarding BPOs vary from state to state so check with a lawyer before ordering a BPO.

Types Of Brokers Price Opinions

There are two major types of BPOs: the Drive-By BPO and Internal BPO.

1. The Drive-By BPO

In a Drive-By BPO, the aim is not to alarm or disturb the residents of the house (usually the borrower). It is less intrusive. Typically, the house is still occupied by the borrower but the lender wants to have a good idea of the condition of the property if they need to foreclose in the near future.

hard money loan borrowersThe Drive-By BPO allows the appointed broker estimate the value without entering into an antagonistic situation with the borrower. But don’t be fooled by the name, the information collected in this type of BPO is not casual at all and will include things like; visual condition of the exterior, estimated room count, estimated square feet, conformity to neighborhood and zoning, etc. It’s a very tentative kind of valuation and a sort of discovery mission for the lender.

2. Internal BPOs

An internal BPO can happen when the lender has permission to enter the building or they know for a fact that the commercial property is vacant. A key prerequisite for an Internal BPO is that the building must be unoccupied or if occupied, they have been given permission for the visit.

This kind of BPO is a more similar to an appraisal since the broker is able to enter the property in question. In addition to the information collected in the Drive-By BPO, an Internal BPO will ask for accurate figures in things like room count and square footage rather than an estimate. The broker will also have to take pictures of the interior spaces and rooms in the house especially in an impending foreclosure situation. The risk is high that they will be some internal damage because of borrower’s tearing out fixtures since they know they are losing the property.

Since commercial real estate units are usually much larger than residential units, a more thorough BPO is desirable and beneficial and will give a more accurate property valuation figure. Though they cost more than the Drive-By BPO, the benefits are tipped in favor of using the Internal BPO.

commerical hard money loansHow Does The Broker Arrive At A Final Opinion?

Many variables will affect the final estimated value of the property. The broker will consider things like the type and condition of the structure, wear and tear, parking space, room sizes and uses. He may also make a comparison with similar properties in the same neighborhood as a kind of benchmark when fixing the value. Any foreseen renovation costs are calculated and noted.

As you can see, except for the most experienced brokers, a Drive-By BPO may just be comparable to shooting in the dark when you consider all the information that is lost.

Using BPOs To Get Commercial Hard Money Loans

BPOs are becoming a popular choice for commercial hard money lenders and it’s easy to see why. The major attraction to borrowers is the benefit of closing the loan fast especially when they’re purchasing or refinancing a commercial property. Appraisals cost money and time but a fast BPO assessment will give the value of the property on which the loan figure will be based all within a shorter timeframe.

If you’re shopping for a commercial hard money loan, you can reduce the stress involved in the process by opting for a Brokers Price Opinion as it will do just fine in most instances. Your loan will be ready in record time making it possible for you to move on to other things.