Avatar's Blog
» Equity and Value in Commercial Real Estate Lending
When buying commercial real estate, remember that a hard money loan will be made based on the actual purchase price you are paying for the property. If you require a loan based on the retail appraised value and are looking for hard money, there are a few investor funded lenders who may be able to assist you. But be prepared to pay substantially higher rates and many points to get the funding accomplished. Points and fees are based on risk factors. The higher the LTV, the more you will pay.
If you are buying a property for $1,000,000 and want a loan for $1,000,000 or more, you are looking for construction or rehab money - even if the property's recent MAI appraisal indicates a higher value. "Value" is defined as "today's purchase price". It is the price for which a piece of real estate will change between willing partners. That number is what you are paying for it today - elsewise, the seller would have held out for a higher price. In the event that your loan goes sour, the lender must sell the property quickly. In that event, it is likely that the property will sell for the same sum you are buying it for - today's street value.
