Rate or Leverage?
Lending options for real estate borrowers have increased dramatically in recent times. There are a large number of non-bank real estate lenders, or real estate funds, that have entered the market giving borrowers more options than ever before.
Institutional and private capital investors have been attracted to real estate debt funds due to the interest yield these funds offer. The bond market and Treasuries offer little return at the moment, and for some the stock market might be too volatile for their capital. Real Estate offers a less volatile and more secure source of income. Therefore Real Estate Debt Funds have benefited from investors seeking this more stable income, and as a result their Debt Funds have ballooned.
With all this extra capital on hand, Debt Funds have become more competitive in their lending options to real estate developers and investors. Typically real estate investors think of their local bank as the best source for their loan financing, or perhaps a local private lender, or “hard-money” lender, if they need to close quickly or if there are some issues with the transaction.
The most competitive lenders today still tend to be banks, agency debt (Fannie & Freddie), and insurance companies. For speed and ease of process the local hard-money lender is still your best bet. However, the non-bank lenders also have some great offerings with competitive pricing and very flexible terms. They tend to underwrite the property expenses with minimal costs, typically just RE Taxes & insurance, their Debt Service Coverage Ratio (DSCR) requirements can be less, and the Loan To Value (LTV) can often be higher. This can mean a real estate investor can acquire a property with less cash-down, or refinance a property and take more cash-out.
For real estate developers, the down-payment requirements are also very appealing. A property can be acquired with as little as 10% down-payment, and 100% of hard costs. A bank would be a cheaper source of financing, but they would require a larger down-payment. The local hard-money lender is also a great source for construction financing, but will be more expensive, however they will also be the most flexible on using additional collateral and speed of execution.
I have recently presented clients with loan options on their property from banks, non-bank debt funds, and hard-money lenders. The range of terms offered on the same transaction have been quite varied, and the lowest interest rate is not always the first choice. Depending on your need and investment strategy a slightly more expensive loan that gives you a large cash-out, or a construction loan that requires less money down, can be more important.
Please let me know if you would like a review of the multiple funding options available to you on your next real estate transaction. I would be happy to crunch the numbers.
New Real Estate Loans
Please contact me if you are in need of real estate financing for an acquisition, refinance, or development project. I’m happy to go through your options and run the numbers.
Call or email me if you would like assistance making your next real estate transaction as profitable as possible.
https://www.mulcahycapital.com
+1-617-861-2042
Mulcahy Capital for Hassle-Free Real Estate Loans.
We provide busy real estate developers, frustrated with financing, better loans in less time, so they make more money.