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What are the requirements for a commercial construction loan?

What are the requirements for a commercial construction loan?

A construction loan is a type of short-term financing to fund a new construction project. If you’re planning to construct a multi-family home, apartment building, high-rise, commercial office building, or another type of large project, you will probably consider obtaining a commercial construction loan.

Commercial construction loans are different from other loans. Most loans are structured so the borrower receives the full amount they are requesting upfront. Then, once the loan is received, the borrower makes payments over a set period of time.

However, with construction loans, the borrower does not receive the full amount upfront. Instead, you’ll work with the lender to create what is known as a draw schedule. This means that you will receive payments from the lender as your project hits new milestones. For example, the first draw might be used for the clearing and developing the land. The next draw you receive may be provided when the foundation is poured and another when the framing is complete, and so on.

construction loan

Typically, a lender will require a confirmation from an inspector that your project has hit each new milestone before releasing the next draw. This process will continue until all milestones have been completed and you have received the full amount.

When you take out a construction loan, you will only pay interest on the portion of the loan proceeds that you have received. Therefore, if the total loan amount is $600,000, but the lender has only lent you $150,000, you will pay interest on the $150,000.

Once the project is done and the full amount is due, what should you do next? Instead of making one large payment, you can look into a commercial mortgage. The property will likely serve as collateral for the mortgage, and you can use the lump sum from the mortgage to pay off the commercial construction loan.

Commercial construction loan process

1. Connect with a lender
Contact a hard money lender or traditional lender to discuss your project and find out what financing guidelines and solutions they have.

2. Commercial construction loan underwriting
After you submit your loan application, the lender will quickly evaluate the application internally to make a decision on whether or not to proceed. During this review, the lender is looking at the project cost, summary projections, underlying assumptions, and background of the developers. If the project is one the lender would like to move forward with, they will sometimes provide you with a loan term sheet. The term sheet typically outlines the terms and conditions of the loan, provided all the information that was provided is accurate and reasonable. Once the term sheet has been reviewed and accepted, the lender will move to full underwriting and approval of the proposed loan.

During the underwriting process, the lender compiles more detailed information about the project. Expect the lender to request building plans, general contractors’ bids, cost projections, construction timelines, etc. It’s also typical for a lender to ask for the borrowers’ tax returns, financial statements, and any other documents that can support the loan request.

One of the biggest differences between a commercial construction loan and investment real estate loan, from an underwriting standpoint, is that a construction loan has no operating history to underwrite. Therefore, the valuation of the property is only based on the real estate pro forma. As for the credit approval process, it’s similar to other commercial loans, but due to the extra risks involved, the development team, general contractor, and market conditions are all reviewed in more depth.

After the loan has been approved, the lender will provide a commitment letter. This is similar to the term sheet but is a legally binding contract, whereas the term sheet is non-binding.

3. Loan agreement and closing
Once you’ve committed, you’ll be provided with a closing checklist which outlines in detail what needs to be completed prior to the loan closing and funding to begin. As mentioned, additional funds are distributed on based on a draw schedule for the costs incurred in each stage.

Typical construction loan rates and requirements

Interest rates and fees vary greatly but generally increase as a direct correlation to leverage or risk. The higher the leverage or risk to the lender, the higher the cost to the borrower. Factors such as borrower creditworthiness, liquidity, and experience, also play into the cost of capital.

  • Conventional Lenders:
    • 3 – 6% interest
    • Fund 50 – 75% of project cost (“Loan-to-cost” or “LTC”)
    • 60 – 90-days to fund, typically
    • Strict financial, experience, and credit requirements, underwrite covenants, and prepayment penalties
    • Usually have additional deposit requirements and concentration limits for markets and asset classes, or for particular borrowers
    • Modifying or changing construction loan terms mid-way through with a traditional lender can be difficult or impossible
  • Private and hard money lenders:
    • 7 – 14% interest
    • 75 – 90%+ LTC, requiring much less cash at closing (“down payments”) to fund than conventional lenders
      • Broadmark Realty Capital, for example, will typically fund between 80 – 90% of project costs and can use the land as equity
    • Much more relaxed liquidity, net worth, experience, and credit requirements
    • 15 – 60-days to fund, typically
      • Broadmark Realty Capital, for example, is able to close within 1-2 weeks on most project types from the time appraisal is received (larger loans may take longer)
    • No deposit requirements and will rarely have covenants
      • Broadmark Realty Capital, for example, rarely underwrites covenants or prepayment penalties and has no deposit requirements

While conventional lenders may have lower interest rates, they also have lower leverage (requiring you to have more cash and equity), more difficult and longer approval and closing processes, and strings attached. Private and hard money lenders have higher interest rates but lend more towards the project’s costs, requiring you to contribute less cash upfront, making loans easier to qualify, faster to close, and have fewer strings attached.

Types of commercial construction loans

There are a few different scenarios in which developers and investors can use commercial construction financing solutions. These include land development, vertical construction, and acquisition and development projects.

Conclusion

Commercial construction loans can become complex and tough to secure. However, understanding how they are evaluated by lenders can help clarify the funding process. Broadmark Realty Capital has specialized in commercial construction loans and real estate development loans since 2010. Whether you’re looking for financing or have questions, call one of our loan specialists today!

A Glossary of Hard Money Lending Terms

After rehab value (ARV): The market value that the investment property is expected to have after it has been improved or renovated.

Appraisal: A professional estimate of how much the property is currently valued or will be worth after updates.

As-is value: The property value as it exists, as of the appraisal date.

Bridge loan: A short-term loan used to bridge the gap between one obligation and the next. Bridge loans are a great way to move from one investment to another.

Capitalization rate: A real estate valuation measure used to compare different real estate investments. It represents the ratio between the net operating income produced by an asset and the original capital cost or its current market value.

Commercial use: A property with no residential component that is only used for a business.

Cross-collateralize: A lending technique in which collateral for one loan is also used as collateral for another loan.

Default: The failure, for longer than 30 days, to meet the legal obligations of a loan.

Distressed properties: Properties that are in poor condition or near foreclosure.

Draw schedule: A detailed payment plan for construction projects. This schedule helps hard money lenders determine when they need to provide funding to borrowers based on the work completed.

Escrow account: An account run by a third party that disburses payments based on the loan agreement. The money is typically used to cover property taxes and homeowner’s insurance.

Exit strategy: A real estate exit strategy is how the borrower plans to pay off the loan and reduce liability. It is a plan for how to exit one situation for a better one. Tip: have three exit strategies in mind – a best-case scenario, back-up, and “last-ditch” plans. Here are four common exit strategies.

Foreclosure: The process through which the lender legally takes control of the property due to the borrower missing loan payments.

Guarantor: The person who promises to pay a borrower’s debt if the borrower defaults on their loan.

Hard costs: Direct costs relating to the construction or improvement of a building or structure.

Hard money loan: Also called a private equity loan or a private money loan, a hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by real estate property.

Holdback: The portion of a hard money loan that is not paid until the project reaches a certain stage, such as completion of the framing.

Holding costs:  Costs associated with owning a property for a period. This includes insurance, taxes, and utilities.

HUD-1: A form that lists all the transaction cash flows between the property’s buyer, seller, and lender.

Interest Rate: A percentage of the principal loan amount charged by the lender for use of money.

Lien: A legal form filed by a lender showing possession of property belonging to a borrower until the debt is paid off.

Liquidity: How quickly an individual or firm can purchase or sell a property due to having cash on-hand.

Loan broker: See: real estate broker below.

Loan officer: Person who evaluates, authorizes, or recommends the approval of loan applications.

Loan points: An origination fee. One point is equal to one percent of the loan’s principal amount. Two points on a $100,000 loan would be $2,000. Most private money/hard money loans fall between 2 and 5 points.

Loan to Cost (LTC) Ratio: Compares the financing amount of a commercial real estate project to its costs. It is calculated by taking the loan amount and dividing it by the construction cost.

Loan to Value (LTV) Ratio: Compares the proposed loan amount to the appraised value of the completed project.  (Loan amount divided by appraised value)

Maturity: The date the final payment of a loan is due.

Private lenders: Individuals or companies that lend to real estate investors and developers. Finding the right private lender can be tough – here are five qualities to look for in a private lender.

Proof of funds: A document or bank statement proving that a person has the financial ability to perform a transaction.

Real estate broker: Someone who acts as an intermediary to facilitate real estate transactions. In the case of a hard money loan transaction, they gather important information from the borrower such as income, employment documentation, and credit reports to assess how much the borrower can afford.

Real estate investor: Someone who purchases properties with the goal of making a profit, either through renting or reselling.

Refinance: Replacing an old loan with a new one. Typically, people refinance to take advantage of a lower interest rate, but can also refinance when an old loan becomes due.

Scope of Work: An outline of all the renovations scheduled to be completed before the property is sold, including their estimated costs.

Short Sale: A situation when a seller is selling their property for less than they owe on their loan. A bank or lender must approve the sale at the lower price.

Soft costs: Non-construction costs such as legal, financing, architects, etc. required for the project.

Title: Proof of ownership on a real estate investment property.

Turnaround time: The amount of time from when an investment property is purchased to when it is sold.

Underwriting: The assessment of how much risk a lender will take on for an investment property. Underwriters will verify the borrower’s income, assets, debt, and property details before approving a loan. Hard money and private money underwriters are typically more concerned with the property’s value than the borrower’s credit history.

4 Ways to Ensure Your Hard Money Loan Closes Quickly

4 Ways to Ensure Your Hard Money Loan Closes Quickly

A hard money loan can be a good option for a variety of reasons. For example, if you’re having trouble getting a loan from a bank with the terms you need, you need quick approvals and/or funding, you’re looking for tailored loan solutions, and/or you don’t want to bring in an equity partner.

Now, let’s talk about what you should know before looking for a hard money loan, and ways you can ensure a quick and easy loan process.

Quick loan application for construction funding

Know which loan type is right for you.

You can get a hard money loan on most property types, including single-family homes, multi-family, commercial, land, and industrial.

Some lenders specialize in just one or two loan categories; therefore, we recommend asking lenders upfront about what property types they are willing and able to fund. Most hard money lenders will not lend on owner-occupied properties, for instance, because of extra rules and regulations. This means lenders may not fulfill your loan request if you plan to reside in the property.

It’s also important to understand which loan type is best for your project. If you’re looking for a loan to assist with the purchase of development-ready raw land or for improvements to existing buildings or infrastructure, an acquisition and development (A&D) loan would be best. For raw land that needs to be made construction-ready, or for soft costs and entitlements, you should seek a land development loan. Construction loans are best when you’re looking to cover the cost of building various real estate projects. The recommended loan for major renovations to your property is a redevelopment/heavy rehab loan.

Understand hard money loan interest rates and points.

Most lenders charge both interest and upfront or exit points on the loan. You can expect bank loan points to range from 2 to 10 percent of the total loan amount; the exact cost depends on your specific situation as the borrower as well as the lender’s guidelines.

Compared to a bank, hard money lenders take on more financial risk with the loans they originate. Due to this increased risk, private money interest rates are often higher. This means that hard money lenders may be more expensive than banks; interest rates for hard money loans range from 9 to 18 percent. These rates will vary depending on the lender and region in which you’re operating.

It’s important to remember, however, that while hard money loans may be more expensive than a bank, they are less expensive than bringing in a new equity partner. In many situations, an equity partner can take upwards of 50 percent of the profit, which is well above a lender’s interest rate.

Calculate your Loan-to-Value (LTV) ratio

calculating loan to value ratio

A loan-to-value (LTV) ratio is what lenders use to determine the risk they’re taking on. You can calculate your LTV by dividing the loan amount by the value of the asset, and then multiplying by 100.

LTV = (Amount owed on the loan ÷ Appraised value of asset) × 100

Most hard money lenders will lend up to around 65% LTV or property value. There are some lenders, however, that will lend on after repair value (ARV) which is the estimated value of the property after it has been improved. This could increase your interest rate and/or points because it also increases the lender’s risk on the loan.

Be prepared with the necessary documentation.

Most hard money lenders are more concerned with the amount of equity you have in the property, versus, let’s say, your credit score. Lenders focus on the equity and property value as a whole.

Hard money lenders are also concerned with how you ultimately intend to pay off the loan. Be prepared to provide lenders with your exit strategy.  We recommend having a few backup plans that could be easily implemented if needed.

Banks typically want a large amount of documentation and paperwork. Hard money lenders, on the other hand, usually require much lighter documentation.

So, what types of documents are needed? Documents include, but are not limited to:

  • Loan application
  • Purchase contract
    • As with any type of loan, a Purchase and Sale Agreement is required. If the property is being refinanced, a payoff statement showing the outstanding loan balance can be required.
  • Preliminary title report
    • To show a clear title to the property.
  • Credit report
    • Impacts whether you’re approved and the rates and terms you will receive.
  • Most recent tax returns
    • Proof of funds to ensure your debt-to-income ratio remains below a certain level.
  • Proof of insurance
    • For any property being purchased or refinanced.

For construction/development loans, lenders would also need:

  • Itemized budget
  • Building permits
  • Building plans, specs, and architectural renderings
  • Name of the licensed contractor
  • Contractor agreement inclusive of a completion guarantee

Hopefully, this article has prepared you with the knowledge and confidence needed to consider a hard money loan to fund your next project quickly and efficiently. Higher interest rates may seem overwhelming at first, but the benefits of flexible loan structures, higher LTVs, and getting a loan funded quickly can far outweigh the extra cost.

 

Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation, or development of residential or commercial properties. The company has originated over $2.2 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one of our lending experts today.

Broadmark Realty Capital lends in Denver, Florida, Georgia, Idaho, Maryland, North Carolina, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Washington D.C., and Wyoming.

Five Ways for Builders to Reduce Waste

Five Ways for Builders to Reduce Waste

Can you guess the volume of construction waste generated annually by construction projects worldwide? What about the U.S. alone?  According to a report from Construction and Demolition Recycling in 2018, the world’s yearly volume of solid waste will nearly double to 2.2 billion tons by the end of 2025. Construction waste makes up more than half of overall waste generated annually. This includes materials such as wood, shingles, asphalt, concrete, and metal.

construction waste from a building

Additionally, construction continues to be costly. In August, construction input prices increased by 0.6 percent from July according to an Associated Builders and Contractors analysis of the U.S. Bureau of Labor Statistics’ Producer Price Index. Nonresidential construction input prices were up 0.3 percent for September.

Much of this waste can be recycled or reused; however, sometimes after a long day of labor, sustainability, and care for the environment can be overlooked. That said, sustainable building practices are growing in popularity and builders are finding competitive advantages in saving on material costs or cutting costs associated with waste. Below are five strategies to reduce waste on your job site.

  1. Reduce Packaging

Work with manufacturers to minimize packaging around products such as plastic, cardboard, and paper to reduce waste that will end up in your dumpster. Approximately 10-12 percent of a construction project’s waste comes from cardboard.

How to Reduce

  • Purchase materials in bulk instead of individual packages.
  • Use returnable containers and packaging materials.
  • Reuse non-returnable containers. You can hold materials in tubs, barrels, and buckets.
  • Donate non-returnable containers to community organizations if you aren’t using them.

 

  1. Reuse and Recycle

Place recycling bins on the job site, or at the end of the day, sort materials into a reuse pile instead of throwing everything into the dumpster. This not only helps the environment but will help lower transportation and landfill costs.

Recyclable materials:

  • Asphalt
  • Brick
  • Concrete
  • Carpeting
  • Cardboard
  • Drywall
  • Gravel
  • Metal
  • Paper
  • Plastic
  • Roofing
  • Wood
  • Sinks
  • Countertops
  • Baths

You can recycle these materials at a construction and demolition (C&D) recycling facility if one is available in your market, and rates are typically competitive with landfill tipping fees. Lastly, try to sell unused materials back to the supplier.

  1. Deconstruction Instead of Demolition

Deconstruction is the process of selectively disassembling a building piece by piece to preserve materials and eliminate waste. The salvaged materials can be reused and transformed into valuable resources that can be sold to be used on future construction projects. Additionally, donated materials can be used as tax write-offs.

The demolition process is similar to that of deconstruction in its removal of high-value, reusable materials. However, the main difference is there is a lower chance of preserving materials through demolition because the process is focused on speed.

  1. Proper Material Storage

Make sure that your products are stored away from the sun and water. Covering your materials will help prevent having to buy new supplies as a result of tossing rotten ones due to degradation from the elements. Secondly, properly storing your materials will avoid theft and the costs associated with replacement.

  1. Plan Your Materials Ahead of Construction

Planning and proper organization means fewer mistakes and fewer materials being wasted on the job site. You can reduce labor and product costs by properly measuring and ordering the right sizes of materials – this prevents cutting or altering larger-sized products. If you have scraps from cutting materials down, try to reuse them. For example, small pieces of wood can be shredded down into mulch if they’re not stained or painted. A plan that includes the following would help reduce waste disposal:

  • Account for potential waste
  • Supply the job site with recycling, compost, and waste bins
  • Calculate the exact amount of materials and order only what is needed
  • Identify recyclable materials
  • Educate workers on sorting waste as it’s produced

The price of dumping materials is becoming more significant to builders as the costs of materials continue to increase. The less you throw away, and the more you reuse, the less money you spend on construction waste disposal. Consider these five ways to save money and the environment by reducing construction waste on your next build.

Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation, or development of residential or commercial properties. The company has originated over $2.2 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one of our lending experts today.

Multifamily Guide: How to attract Generation Z renters

Each generation has its own quirks. Gen Z is no different and appears to be more practical than others. While we’ve seen that some generations are happy to rent forever, Generation Z sees it as a stepping stone. In fact, 97 percent of them want to buy a home someday. Now, most of them won’t leave their parents’ home and immediately buy a house. This means you still have a chance to reach them. With this in mind, let’s cover how multifamily operators can reach Gen Z where they are spending most of their time – online.

Social media marketing

Gen Z is more reluctant to use traditional social media channels such as Facebook. Instead, try reaching out to them via a partnership with influencers and creating a strong presence on channels like Instagram, Snapchat, YouTube, and TikTok. Influencer marketing is a useful way to spread the word to younger renters. Consider setting up a referral program to your residents in exchange for promoting your community.

Online video content

It’s official. Gen Z spends the least amount of time watching TV. They spend most of their time watching online videos, so consider sharing video tours of your property. To help keep their attention, be sure the content is concise, engaging, digestible, and shareable.

Mobile-friendly website

Generation Z spends an average of 26 hours per week on their mobile phones and uses laptops rather than desktops. They also grew up with Google and Siri in their back pockets, so they expect fast and easy interactions. Forget about emailing or calling, they want to ask a question and have an immediate answer. Multifamily websites are no exception, property managers will want to make sure that their website is optimized for mobile and accessible on the go, from any device.

You might ask yourself; how do I fill this need of instant gratification? Try adding chatbots. Chatbots are programmed to interact with users. They get to know a user by asking a series of questions and are then able to provide the user with answers. For example, a chatbot could ask a user where they want to live, how much they want to spend, and what amenities they want. Then based on those preferences, respond with information. Chatbots could also help with managing maintenance requests. A renter can interact with the chatbot making them aware of a broken A/C unit and schedule the maintenance. Allow Gen Z renters and other potential renters to interact in the way they want.

How to appeal to Gen Z renters

Keep it simple, mobile, and digital. Make everything accessible online– basic communication, rental applications, community news, virtual tours – all these can and should be managed online.

Create a highly rated online reputation

Be authentic. This generation is keeping up with what you’re posting to social media and what is said about your community online. Stay consistent and realistic with all your posts and responses to online reviews. If you receive a bad review, it’s not the end of the world, just be sure to respond immediately. For Gen Z, seeing the negative reviews might provide balance and will allow you to show how you deal with conflict in your community.

Pricing

As natural researchers, Gen Zers know where to look for the best deal and answers. Property managers must keep units priced appropriately to capture this group. If you have your apartments listed above market value, they won’t be attracted to your community.

Gen Z is a largely untapped market waiting to be recognized. If your real estate business is proactively seeking to tap into this market and improve resident engagement, implementing the technologies and content strategies that appeal to this generation should be a large part of your strategy. If companies manage to incorporate lively video posts and conversation-starting events into their marketing routines, they will increase their odds of winning over this generation.

 

Related article:  The growing impact of Gen Z on the Multifamily Housing Industry

 

Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation or development of residential or commercial properties. The company has originated over $2.2 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one our lending experts today.

The Value of Hard Money in the Real Estate Investment Industry

Private (or hard money) lenders are some of the most important funding sources for real estate project investors. Whether you’re new to real estate investing or an expert, chances are you will want to scale your business at some point. And every successful real estate investor knows that, to scale your business, you need one thing: reliable funding.

With the current condition of the market, it’s now more important than ever to make sure that you have a relationship with a hard money lender that you can rely on. Here are a few benefits to using a private lender:

Men discussing the hard money

Hard money loans are approved and funded quickly

The approval speed of hard money loans is one of their biggest advantages. In many cases, lenders can approve your loan in one to two days. They will consider the attributes of the property, the down payment amount or equity you have in the property, your experience, your exit strategy, and they will make sure you have some cash reserves to make monthly payments.

In addition to the quick approval, hard money lenders can also fund projects quickly. If needed, projects can be funded or have draws completed within three to five days.  Compare that to the 20+ days it can take a bank to fund. In today’s real estate market, how quickly you can close on a project is often more important than the cost of capital. Most investors would rather pay slightly more to be assured they will close in a week rather than risk closing in 45 days.

This fast funding is also helpful when you’re trying to close on a project in a timely manner. For example, a deal that would benefit from a 1031 exchange.

Private loans provide funding for projects that cannot be financed elsewhere

Hard money lenders often provide funding that banks may not consider. An example of this would be a short-term loan for an investor that wants to purchase a property, quickly rehab it, then sell or rent the units. In most cases, you only need a 12-18-month loan, which most banks don’t offer. Banks prefer long-term loans and are happy to make their interest over a long period of time.

In addition, hard money loans are ideal for properties that have numerous issues that prevent them qualifying with a bank. These issues could be related to the foundation, electrical work or plumbing, for example. Banks are highly regulated, risk-averse lenders and are unable to consider loan scenarios that are outside their criteria.

A hard money lender would be able to fund a loan for a property that has these issues. They employ their own lending guidelines and some even have in-house underwriters, enabling them to adjust the loan conditions to meet your funding needs.

writing pros of private lending

Increased capital, bigger projects

Many hard money lenders will have a maximum loan amount as well as a maximum Loan-to-Cost (LTC) ratio, dictating the amount of financing you receive for your commercial real estate project. Hard money lenders that have a high LTC percentage can provide increased capital upfront, providing you with more flexibility and the option to fund the project on your own rather than bringing in a partner.

In addition, increased capital allows you to slowly build your way up to bigger projects. You can start looking at multifamily and commercial deals, rather than solely looking at single-family properties. Closing more deals will also increase your personal capital and give you higher returns on bigger deals.

A note on our lending environment

We understand there is uncertainty in the markets and recognize the seriousness of the current environment. Broadmark Realty Capital’s focus is primarily on short-term, real-estate-backed senior mortgage loans, and we currently have no debt on our balance sheet. Because we do not use leverage and are not dependent on outside lenders to fund our loans or construction draws, we expect to be able to effectively navigate the liquidity and funding challenges that some of our highly levered competitors are facing in this environment.

The world has changed considerably since we founded Broadmark ten years ago following the financial crisis, and the current global public health emergency is a stark reminder that developments in financial markets are impossible to predict. However, what has remained a constant over the past decade is our commitment to always functioning responsibly on behalf of our borrowers and our investors. We remain focused on continuing to serve as a reliable source of funding for our borrowers who have come to value our flexibility and the certainty of execution that we provide.

The growing impact of Gen Z on the Multifamily Housing Industry

What Gen Z renters are looking for in their community and from property managers

 

Watch out, there’s a new generation defining the future of the multifamily industry. While millennials make up 56 percent of the rental market, Gen Z comprises 74 million people, making it equal in size to millennials and baby boomers. Even though they may be young, they have money to spend. They contribute $44 billion to the U.S. economy and it’s only a matter of time before they head into the rental market.

If you rent to college students, you might already be familiar with the preferences of Gen Z renters. If not, you may ask yourself how different are their preferences from those of the millennials? The primary difference is their relationship to technology. Gen Z relies on social media and the internet to make purchasing and lifestyle decisions more than millennials. They understand how to leverage technology to benefit them and find the information they need.

Personalization

Gen Z is used to having everything personalized just to their liking. From their playlist to their newsfeeds, their world is designed to their tastes and interests. Look further and you’ll see that this generation is the most connected to brands through which they can build experiences. For commercial real estate, this means cultivating individualized tenant experiences.

Affordability

Finances are often front and center for most generations, but even more so for Gen Z. They would rather put their money into their businesses and savings accounts than into rent. Rental prices that allow them to do this while not feeling house poor are ideal. Longer term leases, 18 to 24 months, are more attractive to this group than 12 months. They appreciate the stability and they want to know what their rent will be over a year from signing to avoid worrying about what their next step is.

Human interaction

Gen zers having a game night in apartment complex

Community. Gen Z craves community, one that helps build a creative network. Incorporate resident events and other activities such as movie night, pool parties, and game nights. If your apartment community hosts property-wide events and spaces, make sure you promote them. This will help attract Gen Z renters and help build your commercial real estate community.

Positive messaging

88 percent of Gen Zers invest in companies that share their values. Have you sponsored a charity event or local sports team? To attract these renters, use social media to share your apartment community’s involvement in the neighborhood.

Authenticity

As mentioned before, this generation craves a company they can connect with and trust. Figure out your community’s brand and core values, then start building an authentic marketing campaign around it. Share residents’ stories, educate renters and provide them the opportunity to build relationships.

Energy-efficient amenities

 

Again, this generation is passionate about environmental causes. In fact, the majority of them define success as having made the world a better place. So, investing in green amenities is worth the upfront costs. Whether you’re building new or updating older units, make more sustainable choices. For example, upgrading the windows to energy-efficient panes and installing eco-friendly appliances are good places to start.

Consumers drive the market, and the best businesses are the ones that meet and exceed those needs. Gen Z may be new, but they are making a large impact on the multifamily industry. So get social and start reeling in new residents!

Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation or development of residential or commercial properties. The company has originated over $2.2 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one our lending experts today.

Mortgage Broker vs Direct Lender

You’re in the market for an investment property and you’ve found a viable project, and your next step is securing a loan. For some, this is the most stressful step. You want to ensure your finances are in shape and examine your credit score before deciding where to apply for your loan. This used to be a simple matter of walking into a bank or credit union. Today there is a wide range of options, including mortgage brokers and direct lenders.

What is a mortgage broker?

Mortgage brokers assist in comparison-shopping, serving as middlemen bringing borrowers and lenders together, but do not actually fund the loan.

They gather pertinent information from the borrower, such as income, employment documentation, credit report, etc. to assess how much a borrower can afford. The broker will then determine the loan amount, loan-to-value ratio and type of loan they see fit for the borrower and submit it to lenders. Once you’ve selected the lender and been approved, you work directly with the service provider or loan originator.

What is direct lending?

Exactly what it sounds like – direct. Instead of going through the middle-man, a direct lender usually can do everything in-house. They employ experts in various divisions like underwriting, asset management and loan servicing to help ensure your loan is processed accurately. Direct lenders can do everything from inspecting your credit to handing you your check. A direct lender is a one stop shop.

For the best results, be sure to research direct lenders before you apply. It can make all the difference in securing more funding and better customer service.

Flexibility:

Typically, a mortgage broker is bound by guidelines that are set by the individual lender, meaning they do not have the discretion to adjust the requirements to gain your business. A direct lender sets their own lending guidelines, allowing them to waive requirements under certain circumstances.

Fees:

Both a mortgage broker and direct lender charge fees, which could include origination fees, application fees and appraisal fees. However; the fees charged by the mortgage broker are usually higher than those of a direct lender. Direct lenders don’t typically charge prepayment penalty fees and are transparent about the fees they charge. While the prices may vary, the knowledge, expertise, and dedication of a direct lender is very important.

Speed:

Since operations are done in-house, direct lenders can provide funding quickly – deals can be completed within weeks. Compare that to a broker who has little control over the processing of your loan.

Personalized Solutions:

Either a mortgage broker or direct lender can provide you with loan options. Before choosing, you may want to ask for quotes from both and compare.

A mortgage broker can help you compare many quotes more easily, therefore saving you time on shopping around and applying to numerous direct lenders. But, if you want the loan approval and funding more quickly, then working with a direct lender may be your preferred route.

At Broadmark Realty Capital, we offer competitive rates on a wide range of loan programs. Our lending experts will take the time to understand your project, financial needs and goals in order to create a personalized loan solution.

 

What A Lender Looks For In A Bridge Loan Borrower

Bridge loans are often taken out in order to buy another property while they wait for an existing property to sell. Bridge loans obviously don’t come without a risk, but they’re an excellent way to, as the name implies, bridge the gap between the transition of two or more properties. It’s one of the best strategies to use when approaching lenders for a larger commercial loan, but the criteria to apply for one can often be strict.

In this article, we’ll be talking about what a lender looks for when a borrower approaches them to apply for a bridge loan.

Net Worth

Net worth is one of the most important metrics in determining your eligibility for a bridge loan. In most cases, your loan amount will be equal to your net worth.

Previous Experience

Lenders that offer bridge loans are always looking for experienced individuals. You will likely be asked to demonstrate your previous projects, and this will have an impact on how much money you can borrow.

Cash Reserves

You may be asked to show proof of sufficient cash reserves in order to cover for contingencies. They may also hold back a certain amount of the loan proceeds as an interest rate reserve.

Documentation

You’ll need to provide sufficient documentation in order to qualify for a bridge loan. This will include a credit report, tax returns and a resume. You’ll also be asked to provide an exit strategy, breakdown of the renovation costs on the property and an executive summary.

Short Loan Terms

Loan terms are often shorter for a bridge loan due to the conditions. Most lenders won’t offer a term longer than 3 years, so it’s important to present a short loan term when you’re applying.

High Loan Amounts

Lenders are usually more interested in larger sums of money. You’ll typically want to start at a minimum of $1,000,000.

Quality of Property

The quality of your property will play a factor in your eligibility for a bridge loan. Some lenders will also look at the DSCR (debt-service coverage ratio) of the completed property. Most lenders will require a ratio of 1.1 – 1.25.

Credit Score

While credit score doesn’t play a big part in commercial bridge loans, lenders do expect you to have a score of 650 or more. However, this isn’t so much for the bridge loan itself, but more for refinancing your bridge loan with permanent financing as an exit strategy.

 

Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation or development of residential or commercial properties. The company has originated over $2.2 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one our lending experts today.

Fix and Flip Loans

Many investors are turning to property flipping in order to reach their profit goals. While fixing and flipping can be a lucrative source of income, there are some considerations to keep in mind. For example, the way you obtain your funding.

What Is Fixing and Flipping?

Fix and flip loans are short-term loans that real estate investors can use in order to renovate a property before listing it on the market. This is to increase the value of a property and flip it for a larger profit.

Fix and flip loans are typically high-interest loans due to the short term of a fix and flip project. In most cases, an investor will purchase a distressed property below the market price. Next, they’ll attempt to fix the property. This might include a full renovation, fixing the foundations or dressing it up and fully installing certain amenities and extras. Next, the goal is to flip the property by taking into account the price paid for the property, the renovation investment and also a profit margin.

Who Provides Fix and Flip Loans?

In most cases, fix and flip loans are offered by private money lenders to private investors or business entities.

What Risks Are Involved?

Fixing and flipping sounds like a great way to make a profit from old and distressed properties, but it doesn’t come without risks.

It’s important to understand what you’re doing when it comes to renovating a property in order for it to sell quickly on the market. You also need to pay off the loan by the deadline or else your lender will resort to foreclosure. It takes experience and knowledge of the property market to make fix and flip loans lucrative.

What Is Expected of Me?

Typically, a fix and flip loan will require you to invest a down payment. This can be anywhere between 20% to 40% of the property’s value in your own money. You’ll also need to provide a personal guarantee. Most lenders will also require you to show them a plan of action and how much money you estimate you’ll need for the fix and flip project. There are standard loan fees such as administrative fees and inspections.

Once you’ve been approved, you’ll need to work quickly to repair the property and re-list it on the market at a higher price. Once the project has concluded, you’ll pay off your loan and the terms will be met. Fix and flip loans are a good way for property investors to advance their career and make a profit, but it does require considerable knowledge of the markets and an understanding of how to rehab a property.

 

Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation or development of residential or commercial properties. The company has originated over $2.2 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one our lending experts today.

Hard Money Lending vs Traditional Lending

Let’s compare private lending with traditional to determine what may work for your situation.

The needs of a commercial real estate investor are not always met with traditional lending options. This is where hard money lending comes in. Also called private money lending, the loan is judged by the real estate collateral and the borrower’s credit profile is generally not a factor.

A hard money loan is issued by an investor (or investment group) who makes loans secured by real estate. While these loans typically charge higher rates than banks, the advantages are numerous. In fact, even investors and developers with access to bank credit and have strong financial statements often opt to use hard money loans (i.e., private money loans) for a variety of reasons.

1: Speed

The ability of the lender to fund the loan quickly can be the difference between winning and losing a deal, especially if you’re trying to secure a property against other competing bids. A quick close with a hard money loan can entice sellers and set your offer apart from other buyers with slower, more conventional funding.

This is where hard money really shines. In most situations, these deals can be completed and funded within a week. Compare that to 45 days it takes to get a loan from a bank or credit union—and its really no contest. Not to mention, private lenders can even process an application in 1-2 days, and sometimes it can be completed the very same day.

2: Structure

Private lenders can structure hard money loan repayment and collateral release terms in ways that are mutually beneficial to both lenders and borrower. Banks and credit unions aren’t as flexible and typically take a multipurpose (one-size-fits-all) approach to all loan requests. Hard money lenders will often structure loans based on a percentage off the purchase price or LTC (loan-to-cost) as well as the LTV (loan-to-value) with value being based on the quick-sale value of the collateral property. The maximum loan to value ratios are typically the lower of a 70% – 80% LTC or 60% – 70% LTV.

 3: Approval

If you’ve been turned down for a conventional loan due to past credit trouble, foreclosures, or a short sale, you know how frustrating it can be. Not to mention, there’s numerous reasons for denial banks can offer—even if your financial history is spotless (e.g., self-employment, new job and lack of income history, incomplete records). Hard money lenders are able to look past these issues as long the loan be repaid and the borrower has enough equity invested in the property.

Contact us today or check out our loan programs to get your project started and on the way to profitability.

Are Hard Money Lenders Legal, Regulated and Safe

Hard money loans are a type of asset-based loan financing which is usually applied for through private lenders. Typically, lenders are more interested in your credit score than anything when examining your ability to repay a loan. If you have a good credit history and you can show that you’re a responsible candidate, then you’ll likely have a better chance at getting approved.

However, it’s a slow process even if you have a good credit rating. It can also be troublesome if you’re trying to build up your credit rating because the checks involved are slow and painful, making traditional loans a poor choice for anyone who wants to take swift action.

The Difference With Hard Money Lenders

Hard money lenders use collateral instead of your credit rating. Meaning, they’re not as concerned about your ability to repay because they can get their money back with your collateral. The value of the collateral is more important than your history with money. This might sound scary at first, but there are many fantastic advantages to hard money loans and many different applications. In addition, hard money lending is regulated and safe much like any other loan with a bank. As long as you can pay back the loan, you won’t lose your collateral.

Why Use Hard Money?

Hard money is generally seen as a scary choice when borrowing money because of the fear of losing your collateral and also due to higher interest rates. However, there are many uses for hard money loans and many advantages over typical credit rating-based lenders.

  • Hard money is faster to approve. Hard money loans are much faster to approve because they don’t require credit rating checks. As long as the lender is happy with the collateral you are offering and they can value it quickly, then your loan will be quickly approved.
  • Hard money arrives in your account faster than it would with a typical loan. There aren’t any complicated processes nor waiting for your credit rating to be checked. This means that once you gain familiarity with a lender, you can make future loans much more quickly as well.
  • Hard money agreements are more flexible. Hard money agreements are far more flexible than typical loans. There is often some room for negotiation for things like repayment schedules and collateral value. Most of the time, private lenders are willing to talk and treat you like a valued client, not another random customer.
  • Hard money loans are convenient. Because of the speed, quick approval and relationship that you can build with the private lender, hard money loans are much more convenient than regular loans.
  • Hard money opens up more opportunities; therefore, creating funding for projects that usually wouldn’t be possible with regular loans. Hard money loans can be short-term and you can take on risky projects that banks are usually too afraid of taking on.

We are hard money lenders that specialize in construction loans designed for real estate investors and developers who require quick closings, outside-the-box thinking, a high loan-to-value, and the utmost professional service. Meet our lending experts.