Maximizing Your Commercial Real Estate Investment with a Hard Money Loan

Diversifying your portfolio to include commercial real estate investment is a smart way to incorporate non-correlated assets and generate passive income. Whether you invest in office space, warehouses, retail stores, or another sector, getting all the elements of the deal right is essential for optimizing returns. This includes the sale price, tenant improvements, income potential, and financing. 

A hard money loan could be a key piece of the puzzle for your next commercial real estate investment.

The Need for Speed

When purchasing commercial real estate, be prepared to move quickly, especially if you’re in a competitive sector or location. Having readily available financing is essential for getting your offer to the top of the list.

Build relationships with your local banks so you know who to go to for loan pre-approvals and financing questions. It’s also a good idea to understand what your bank is unable or unwilling to do, so you can be prepared with alternate financing options. In fact, even when a conventional bank is willing to lend to you for a specific project, they may not be able to move quickly enough for you to win the deal.

Working with a hard money lender is a great way to gain faster access to funding. You can get quick approval and close in a matter of days rather than weeks or months.

How to Use Hard Money

Strategic uses for hard money when investing in commercial real estate include the initial purchase, renovations, and commercial tenant improvements. When it comes to commercial real estate investment, turning a profit on tenant improvements and other types of renovations depends on the timing. Rent-paying tenants rely on having a viable space, and your rental income hinges on having businesses in the building.

If you find the perfect investment property and need to move fast, hard money can help you be more competitive. If a commercial property you own or are considering buying needs improvements, a hard money loan can help cover the costs so you can get the property ready for tenants.

Hard money loans are also ideal for commercial real estate investors who have poor credit or atypical income streams that prevent them from obtaining a conventional loan. The condition of the property is also a factor in commercial lending decisions. Hard money lenders can be more flexible than traditional lenders, so keep this option in your pocket. 

Additionally, commercial owner-users who face difficulty obtaining a loan due to building vacancy, poor financial showings from tax write-offs, and lengthy approval timelines can benefit from hard money loans. 

Getting the Most from Your Loan

Maximizing your loan depends on underwriting and metrics such as the loan-to-value ratio, anticipated net operating income, and capitalization rate. The better prepared you are to demonstrate your approach to reducing risk, experience with real estate investing, and game plan for the property, the easier it will be for a lender to set more favorable terms and pricing.

Plan for the Endgame

Exit strategies for hard money loans can vary. If you plan to keep the property to generate rental income, you can convert to a conventional loan after it has been improved and stabilized. If you plan to fix and flip a commercial property, you can simply pay off the loan after the sale closes.

Regardless of your strategy, time is an important factor. Be prepared to execute your plan as quickly as possible after the loan closes so you can achieve the best return on investment. Wise commercial real estate investors have more than one plan at the ready because markets are subject to change, so be sure to have a plan B in case you need it.

Hard Money Loans with Socotra Capital

Whether you’re new to commercial real estate investment or building on an existing portfolio, Socotra Capital offers a range of financing options. Our team is experienced in underwriting loans for commercial tenant improvements, fix-and-flip properties, and other types of commercial real estate projects.

Unlike conventional lenders, we can get to closing in a matter of days, not weeks or months. As a hard money lender, we can also be more flexible regarding the property’s condition and your credit history.

If you have a project in mind, we want to hear about it! Apply for a loan today using our quick form.