Wednesday, July 16, 2008

Construction Loans Don't Mix with Hard Money

Construction loans and private, hard money loans turned into a lethal combination for Scott Coles and Mortgages Ltd., one of Arizona's biggest private lenders during the real-estate boom.

The front page of today's Wall Street Journal (subscription required) highlighted the risks inherent in making hard money loans for commercial real estate construction projects. For Scott Coles, it resulted in the Chapter 11 filing for the business his father built and his own presumed suicide.

Many of these hard money lenders are learning the same lessons as the many commercial banks who made loans to real estate developers in the last two or three years of the real estate boom. Bet on the right horse and know your exit strategy if events turn against you.

According to The Wall Street Journal, "hard-money lenders that didn't overextend themselves during the boom, and still have capital to lend, are poised to cash in as the credit crunch spurs traditional lenders like banks to stay on the sidelines."

I'm working with a couple of hard money lenders that fit this description. While they won't extend construction loans, these private money lenders will lend from $1 million to $50 million against commercial real estate. For California commercial real estate, the interest rates current start at 9-10% for 12-18 month loans. With points averaging 4.5 and loan to values as high as 70%, these loans can be extremely helpful in acquisitions or re-financings.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : commercial real estate , hard money loans , construction loans , private money loans

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