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

It’s a great time to be a commercial real estate borrower in California if you’ve made a property. Prices are static for the first time in a long time, the private business loans the market has prospered and the loan-to-value (LTV) ratio has risen. New consumer protection regulations have worked in your favor, and a 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 turnover, more flexible terms, and an underwriting process that’s easier than ever. Add to that the plethora of recent protection laws passed on your behalf by California’s federal government and consumer agencies and you 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 compete 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 only to sell, but also to buy, as home prices are only slightly rearing their heads, by a mere percentage or two. Wait any longer and CAR warns that global economic uncertainty and predictable higher rates from the Fed may push prices out of reach.

Just because prices are slowing down doesn’t mean prices are affordable. far from there The California real estate market has a reputation for home prices and rents that are higher 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 corresponding money.

The California Alternative Loan Marketplace

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

A fleeting glance at a hard money lenders‘ directory in California (BiggerPockets.com), for example, shows 578 listings. Approximately 65% ​​of these offer LTV ranging from 80 to 100%. Five years ago, such attractions would be hard to find. Most are offered in the 50% to 60% range. Looking at that Directory, you’ll also find lenders offering all types of loans, from residential to commercial, commercial and intermediate. Worried about the amount of money you can borrow? Many private lenders partner with organizations or individuals so they can offer you loans ranging from $100,000 and up (average loans seem to be around $150,000). Most promise fast delivery so you can complete your fix or move in the shortest amount of time or jump to the front of the line to bag that house. For 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 reviewed, 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 at most, and barely check your credit history. It is the value of the property that remains 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, the rates, charges, terms, and schedules vary from person to person, as everyone lends out of their own 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 miss payments. (Fees typically range from 8-15% depending on the loan amount and length of term. When taking out a hard money loan, you will typically pay a fee ranging 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 gone up

Properties have their equivalent in money, so for example, if your property is worth $80,000, you will get $1,000. Hard money lenders are notorious for paying notoriously low rates that tend to hover around 50-60% of collateral value. 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 loan agencies shows that one or two individuals or organizations are even offering LTV at 100% of appraised value. Given the tightness of the housing market, this may encourage more people to buy and sell homes and certainly creates a brighter future for hard-money lenders living and doing business in California.

Consumer protection regulations are in

These are just some of the laws:

  1. Consumer Protection Act 6500 on balloon loans: The FDIC created the Consumer Protection Act 6500 that restricts balloon loans so that they cannot mature 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 Prohibitions: Negative amortizations refer to cases where interest rates are so high that the individual cannot keep up with payments. As a result, the borrower goes further into debt despite making the payments. The Government prohibits negative amortization.

  3. The government verifies your ability to pay: Federal consumer protection laws insist that lenders must perform some type of credit check or income verification before making a loan. A lender who proceeds without verifying the borrower’s financial standing, or who knowingly lends to a low-income borrower, is engaging in what consumer protection calls predatory lending. A judge can declare such a loan illegal and nullify it if it occurs.

  4. Advance Payments: Federal law stipulates that the lender may not request more than two reasonably sized advance payments, although the number and amount depend on the structure of the loan.

2015 also saw TRID requiring the lender to post 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 non-government private lending individuals or organizations. DBO 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 conditions 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 Marketplace Lending platforms in California 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

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 (such as hard money lenders) are aware of that fact and are very willing to help you. Private commercial lenders are encouraged by market conditions to find promising clients, and if you appear to be one, they may adjust their rates accordingly.

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

How can you improve your success rate?

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

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

Leave a Reply

Your email address will not be published. Required fields are marked *