Determining Which Commercial Real Estate Loans are Right for you: Crowdfunding versus Hard Money Lenders

These days, two frequently used types of funding for commercial real estate loans are hard money lenders and crowdfunding.

Find out which one is right of you and what the differences are.

Whether you are looking for capital for acquisitions, development or to start from the ground up, both of these loan types, crowdfunding and hard money lenders, are viable options. As a commercial real estate investor, you may have found that traditional loans are difficult to come by in this day of increasing regulations, or you may need to start a project immediately and don’t have the time to go through the mounds of paperwork and months it takes to process. Here, then, is a look into the two loan options that many in your position are turning to.

The two investment strategies involved with crowdfunding are debt and equity investments. In the first, a backer is investing in the commercial mortgage loan while in the second they receive an equity stake in the property. Originally, an investor was required to be accredited, which meant they had a minimum net worth of $1 million or an annual income of at least $200,000. But, as of October 2015, a ruling by the SEC opened the doors to non-accredited investors which have opened up the playing field.

The problem: While there are over 100 crowdfunding sites that offer commercial real estate loans to be found on the World Wide Web, not all are created equal. Some are fly-by-the-seat-of-their-pants operations, so be sure to do due diligence when investigating this option. Points to consider when checking out the various crowdfunding sites include: transparency, accountability, high-volume, specific to real estate and pre-funding options. You will be required to submit an application which often entails information regarding the project and a background and credit check, and then you will need to attract investors. You will, in most cases, be working with multiple investors and, if you do not raise the amount requested, the campaign may be scrapped and deposits returned, depending on the platform and if pre-funding is offered. A few of the many crowdfunding sites include Peer Street, Realty Shares and Patch of Land.

Hard Money Lenders

Using a hard money lender is very different to that of crowdfunding. First, there is only one lender, or a group of investors that work together, and they will use the borrower’s real estate as collateral. In order to determine the amount, the company uses a loan-to-value ratio (LTV). This determines the value of a loan against the value of the property and is determined by dividing the amount of the loan by the appraised value or purchase price of the property. Many hard money lenders offer a loan on 65 to 75 percent of the property value. Another difference involves the application process and time to loan. A hard money lender is more concerned with the value of the project than your credit report, and time to loan is often much quicker.

A hard money lender bases the amount and acceptance of a loan on the project and the real estate’s collateral value more than on a credit report.

At level 4 funding, we provide commercial real estate loans for most commercial real estate development projects including multi-family, industrial, warehouse and office. As hard money loan mortgage brokers, we work with many investors and banks and will find the best rate and program to meet your unique needs. In addition, we fund up to 90 percent LTV, offer very competitive rates and interest only payments. If starting from the ground up, construction loans are available for up to 24 months with monthly draw programs. Funding can be available in as little as 24 hours. Call us to discuss your project and determine if we are the right company to fulfill your commercial real estate loans and development needs.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.