Real Estate

How to Navigate Today’s 2016 California Commercial Real Estate Market

It is a great time to be a commercial real estate borrower in California if you have realized a property. Prices are static for the first time in a long time, the private business loans the market has boomed and the loan-to-value (LTV) ratio has risen. New consumer protection regulations have worked in their favor, and new administration may mean more proactive loan rates and relaxed property taxes. The problem is the Fed’s slight interest rate hike, which raised mortgages from 3.8 percent last year to 4.5 percent next year.

The advantage that the alternative lenders What they have is that they offer more convenient procedures than banks, faster turnovers, more flexible terms and an underwriting process that is easier than ever. Add to that the myriad of recent protection laws passed in your favor by the California federal government and consumer agencies and you just might be in luck.

Are you looking to buy a home, remodel or do a renovation? Look no further. If you live in California, hard money loans are a feasible alternative. Best of all, local lenders are competing for business, offering more aggressive terms and lower prices than ever before.

House prices are slowing down

The California Association of Realtors (CAR) showed that prices are finally slowing down for the first time in decades. Five years ago, prices rose from $300,000 in 2010 to $500,000 this year, with only a slight drop in the first two years. If you have a house that cost you $43,000 ten years ago, you could sell it for twice that price next year. In fact, 2016 is a great time not just to sell, but to buy, as house prices are only raising their heads slightly, by a mere percentage or two. Wait any longer and CAR warns that global economic uncertainty and predictable higher Fed rates may push prices out of reach.

Just because prices are slowing doesn’t mean prices are affordable. far from there The California real estate market has a reputation for higher home prices and rents than anywhere else. But if your bank has turned you down, you need the loan to fix or buy, and you have a promising property in mind, a hard money lender may be a promising solution. He or she evaluates the value of your property instead of your credit history and awards you the money accordingly.

The California Alternative Loan Market

For those who are familiar with banks or other alternative loans institutions and little or nothing else, the hard money lending niche can come as a pleasant surprise. Originally known for its high prices and low loan-to-value rates, this market has divided its competition, causing lenders to outbid each other with more aggressive terms, faster procedures, higher LTVs, and lower prices.

A fleeting look at a hard money lenders‘ Directory in California (BiggerPockets.com), for example, shows 578 listings. Approximately 65% ​​of these offer LTVs reaching 80-100%. Five years ago, it would be hard to find such attractions. Most are offered around the 50-60% range. Looking at that Directory, you’ll also find lenders offering all types of loans, from residential to commercial, commercial and in-between. Worried about how much money you can borrow? Many private lenders partner with organizations or individuals so they can offer you loans starting at $100,000 and up (average loans seem to be around $150,000). Most promise fast delivery so you can complete your fix or change in the shortest time possible or jump to the front of the line to bag that house. As a comparison: banks take at least 60 days to process your documents. You’ll need to provide forms, sign tons of forms, pay to have your FICO and credit checked, and all the related stuff. And at the end of it all, you may not receive your loan. Hard money lenders do all of this in a fraction of the time, in a week tops, and they barely check your credit history. It is the value of the property that is still important.

The directory at BiggerPockets.com mentions that hard money lenders generally lend only for very short terms, usually between 6 and 24 months. But in reality, rates, fees, terms, and schedules vary among individuals, as each borrows out of pocket.

The shortcomings, of course, are the high price, double the normal mortgage, and the fact that the lender can pocket your property if you don’t make the payments. (Fees generally range from 8-15% depending on the amount of the loan and the length of the term. When getting a hard money loan, you will typically pay a fee that ranges from 3-10% of the loan amount; this fee is also known as paying “points”). Those are points you’ll want to consider.

Loan to value rates have risen

Property has its equivalent in money, so for example, if your property is worth $80,000, you will get $1,000. Hard money lenders are known for paying notoriously low percentages that tend to be around 50-60% of the value of the collateral. This also deterred borrowers. But in 2015 this changed. Hard money lenders in California have extended their LTVs from the usual 65% to 75% of appraised value at more attractive rates. A cursory look at the latest reports from Los Angeles online lending agencies shows that one or two people or organizations even offer LTV at 100% of the appraised value. Given the tight housing market, this may encourage more people to buy and sell homes and certainly creates a brighter future for hard-money lenders who live and do business in California.

Consumer protection regulations are in

These are just some of the laws:

  1. Global Loan Consumer Protection Act 6500: The FDIC created Consumer Protection Act 6500 which restricts balloon loans from maturing in less than 5 years. In some cases, such loans are even prohibited. This prevents them from becoming too excessive and beyond their means of payment.
  2. Negative Amortization Bans – Negative amortizations refer to cases where interest rates are so high that the individual cannot keep up with the payments. As a result, the borrower gets further into debt despite making the payments. The Government prohibits negative amortization.
  3. The government checks your ability to pay: Federal consumer protection laws insist that lenders must do some type of credit check or income verification before making a loan. A lender who proceeds without verifying the borrower’s financial capacity, or who knowingly lends to a low-income borrower, is making what consumer protection calls predatory lending. A judge can declare such a loan illegal and cancel it if it occurs.
  4. Advance Payments: Federal law provides that a lender may not request more than two reasonably sized advance payments, although the number and amount depends on the structure of the loan.

2015 also saw TRID requiring the lender to publish their calculations and show you all the details of the transaction. This gives you time to reflect and question or restart the process if you wish.

In an effort to strengthen protection, the California Department of Business Oversight (DBO) recently surveyed the Marketplace Lending (P2P) industry to see how they could step up protection. This P2P industry includes all individuals or non-governmental private lending organizations. BOD Commissioner Jan Lynn Owen stated that the purpose of her survey was to “protect” consumers from fraud and exploitation. The DBO intends to adjust the scope and terms of its credit structure so that fewer lenders, and only the most qualified and honest ones, can practice.

So far, the DBO has surveyed fourteen California marketplace lending platforms requesting five-year trend data on their lending programs and investors. The results of the survey are yet to come.

All of this slows down the loan process, but wouldn’t you rather your money was safe?

Healthy real estate market

The prices are high, but that’s another factor. Housing demand remains strong (although most prefer to rent). Many people in California are looking for affordable homes. California remains as desirable a place to live as ever. If you have the money and want to buy, you can still find affordable housing on the market. If you want to sell, experts say now may be a good time. Private lenders (like hard money lenders) are aware of that fact and are very willing to help you. Market conditions encourage private commercial lenders to find promising customers, and if you appear to be one, they may adjust your rates accordingly.

Finally, though not definitely, there are rumors that a new administration may relax the property tax and slow the rise in house prices. We can’t trust these predictions, but wouldn’t it be great if it did?

How can you improve your success rate?

Approach the commercial lender as you would the bank. Prepare your request as a business proposal. focus on property value; demonstrate how much you can give him in the long run and how it would benefit him to invest. Second, affirm your historical success with real estate and your knowledge of the market…

If you manage to highlight the property’s value, you may walk away with money within 24 hours that can help you move toward achieving your goal.

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