Archives 2024

New YorkCNN — 

Help may not be on the way for first-time homebuyers frustrated by high mortgage rates and even higher home prices.

Economists at Bank of America warned this week that the US housing market is “stuck and we are not convinced it will become unstuck” until 2026 — or later.

The bank said home prices will stay high and go even higher. The housing shortage will persist. And mortgage rates may not fall much — even if the Federal Reserve finally delivers long-delayed interest rate cuts.

“This will take many years to work itself out. There isn’t a magic fix,” Michael Gapen, head of US economics at Bank of America, told CNN in a phone interview. “The message for first-time homebuyers is one of patience and frustration.”

Housing affordability is a major problem in America.

Home prices spiked during Covid-19 and then the Fed’s war on inflation sent mortgage rates surging.

The one-two punch has made it a historically unaffordable time to buy a home.

“It’s been a weird combination. Mortgage rates rose substantially but so did home prices. That typically doesn’t happen,” said Gapen.

The supply of homes simply cannot keep up with demand. Prices have had nowhere to go but up.

The median price of a previously owned US home climbed in May for the 11th month in a row to a record $419,300 — up 6% from a year earlier.

Bank of America expects home prices will climb by 4.5% this year and then by another 5% in 2025 before eventually dipping by 0.5% in 2026.

‘Lock-in effect’ could persist for eight years

One major problem hurting supply is the “lock-in effect.”

People who already own their home are effectively locked into their property after refinancing or getting a mortgage during the pandemic when ultra-low rates were available. Buying now at current rates would require them to pay hundreds of dollars more per month on interest alone. Plus, home prices have gone up.

For many, it just doesn’t make sense to move. And because those homeowners are not moving, the supply of existing homes on the market is limited.

“Why would I sell unless I have to?” said Gapen. “Prices have gone up and the mortgage rate is a lot higher. So, I’m content to stay where I am.”

Bank of America warns the lock-in effect could persist for another six to eight years, keeping a lid on supply during that time.

That’s because the mortgage rate of people who already own is historically low. And the rate for new buyers is elevated. Bank of America doesn’t think that gap will shrink much for years.

This problem helps explain why pending home sales fell in May to a record low, according to data released on Thursday. Pending sales, tracked by the National Association of Realtors since 2001, are a forward-looking gauge of home sales that measures contract signings.

‘They can’t take their mortgage rate with them’

Dave Liniger, who co-founded real estate giant RE/MAX with his wife in 1973, said the lock-in effect means people who want to size up to a bigger home can’t, and the next generation can’t even get their foot in the door for a starter property.

“The move-up market does not exist,” Liniger told CNN. “Starter homes have doubled in value and the owners would like to move up but the problem is they can’t take their mortgage rate with them.”

Liniger agrees that the housing market is stuck, for now at least.

“We have to muddle our way through this for a period of time,” he said.

But Liniger urged first-time homebuyers to remain patient. “Don’t give up the dream,” he said.

In theory, a flood of supply of new homes would help unstick the market.

However, Bank of America expects housing starts — which is a measure of newly constructed homes — to remain flat for the coming years. And housing starts have still not recovered from the bursting of the housing bubble in the mid-2000s.

Divide between haves and have-nots

The forecast for a “stuck” housing market cuts both ways.

The spike in home prices has padded the net worth of existing homeowners and given them additional financial flexibility.

The longer they are prevented from buying, the more time they miss out on wealth creation.

In a recent Gallup poll, just 21% of Americans said it is a good time to buy a house, tied for the worst reading in Gallup history. An overwhelming majority — 76% — say it’s a bad time to buy.

Gapen, the Bank of America economist, said if the US economy achieves the soft landing that he expects, meaning that inflation cools without triggering a recession, there is a risk that home prices will rise even more than anticipated.

On the other hand, if the durability of the recovery has been overestimated and a recession is on the way, home prices could tumble and affordability would ease.

“But, obviously, you don’t want to go through a recession to have better housing affordability,” he said.

TAMPA, Fla. – A recent report is unpacking the impacts of rising homeowners insurance costs in Florida. 

According to a new report from online realtor Redfin, nearly three-quarters (70.3%) of Florida homeowners say they or the area they live in have been affected by rising home insurance costs or changes in coverage (e.g., their insurer dropped them) in the past year. This compares with less than half (44.6%) of homeowners nationwide.

The report is based on a Redfin-commissioned survey in February of this year. The survey was fielded to 2,995 U.S. homeowners and renters.

“Insurance is top of mind for homeowners in Florida and California because those states are the epicenters of the insurance housing crisis,” Kenneth Applewhaite explained in an April 17 news release. 

Applewhaite elaborated that many homeowners have seen their premiums skyrocket, and some have lost coverage altogether because intensifying natural disaster risk has prompted many insurers to stop doing business in Florida and California. 

In the Sunshine State, 11 insurers have liquidated amid growing flood and storm risk,” he wrote. 

Mounting insurance costs and natural disasters are prompting some people to relocate. According to Redfin, in Florida, 11.9% of survey respondents who plan to move in the next year cited rising insurance costs as a reason — roughly twice the national share of 6.2%. 

But while some people are leaving disaster-prone areas, there are still more people moving in than out, a separate Redfin analysis found.

Homeowners living in areas where insurance premiums are surging are at risk of seeing their properties gain less value than homeowners in areas with stable premiums — and in some cases, they may even lose money,” said Redfin Chief Economist Daryl Fairweather. “Homes with low disaster risk and low insurance costs will likely become increasingly popular, and thus more valuable, as the dangers of climate change intensify.”

Condo prices in some parts of Florida have already started to fall amid an increase in insurance costs and HOA fees.

As a property developer or home builder, you know that time is money. While you can choose from many construction loan lenders, private or hard money lenders offer significant advantages over a traditional mortgage lender. Here are just some of the advantages of hard money loans:

• Loans close much faster than traditional mortgage loans.
• Programs range from home construction loans to condominium and multi-family construction loans.
• Terms are based on your experience and the project’s prospects for success.
• Loans come with interest-only payments and a balloon payment on completion.
• There are no prepayment penalties.

Interested? Read on…or contact us for details or book an appointment to learn more.

When financing construction projects, whether you are building or renovating, it is important to thoroughly understand your construction loan – its features, how you benefit, what’s required to qualify, and the application process. Financing a construction project is different than financing a home purchase with a standard mortgage loan. Your real estate investment in the lot, construction costs, and activities in each construction phase will affect your profit. Therefore,when choosing a lender for your construction loan, you must know your options and what considerations to weigh to help you select the right one.

At Muevo, we’re committed to educating borrowers about the financing alternatives available for their projects and helping them secure the right hard money loan to meet their unique needs. In this blog, we’ll review the ins and outs of construction loans – how they work, why they can be advantageous, what you’ll need to apply and be approved, and why you should consider a private lender like Us as your financing partner. We’ll also share some potential challenges and how to overcome them as well as several tips to ensure you successfully qualify for our construction loan program.

Understanding Construction Loans

Construction loans are used to finance the building of a range of property types. At Muevo, we offer them for the construction of:

• Condominiums
• Single-family residences
• Two-to-four units
• Multi-family homes
• Townhouses
• Other property types (on a case-by-case basis)

There are several distinct advantages of obtaining a construction loan for these particular projects. First, a construction loan provides the necessary funds to cover embedded costs including labor, materials, permits, and other related expenses. Securing such a large amount of capital upfront for a construction project would be challenging without financing.

Second, a construction loan ensures proper cash flow management via the draw process, which we’ll explain in greater detail later in this blog. Third, these loans make it possible to seize construction opportunities in high-demand areas – which yield higher returns once completed. You also stand to benefit from increased property value and rental income (if you are planning to rent once the project is completed). Finally, financing via a construction loan will help you build equity for your next project.

Qualifying for a Construction Loan

Once you’ve determined that a construction loan is the best way to get your project off the ground and ultimately completed, you must prepare to qualify with a lender.

Before all else, become familiar with the credit score and financial requirements necessary to be approved for the construction loan from your lender. And know that both your personal and business financials will be thoroughly reviewed. As such, your lender will require you to provide related documentation and paperwork for verification purposes. They will make an assessment of your financial situation by also weighing income and debt considerations.

Other important financial requirements to be aware of are the required down payment amount and your loan-to-value ratio. These also factor into whether you can qualify.

In addition, you will need to furnish information about your project and those involved in its construction, such as:

• Contractor credentials
• Property information and proof of lot/land ownership (title deeds, zoning info, property surveys, etc.)
• Insurance coverage
• Any legal contracts with the construction team, architect/engineers, or other parties involved

You may also be asked to provide even more documentation as the information a lender needs can vary by project. At Muevo, we use this property data to properly assess its value and ensure compliance with local regulations.

The Construction Loan Process

When applying and obtaining approval for a construction loan, the process is fairly straight forward.

1. Pre-application phase – Borrower investigates requirements, gathers necessary documentation
2. Loan application and approval – Application and documents are submitted, reviewed, and approved
3. Construction contract and plans review – Lender reviews all required property-related information
4. Loan disbursement and draw schedule determination – Funds are distributed in accordance with outlined draw schedule
5. Inspections and project monitoring – Lender conducts necessary inspections and continually monitors the progress of the project
6. Transition to permanent financing – Draw schedule concludes and regular payment schedule commences

Finding a Private Lender for Construction Loans

When it comes to construction loans, there are some district benefits in working with a private lender. Private lenders offer more flexible terms and loan amounts than traditional lenders.

Their loan application and funding process is much quicker too. Private lenders are also well versed in the local real estate markets in which they operate. In addition, once you have established a partnership with a private lender, there is the potential for additional financing opportunities once your project is successfully completed.

However, to select a private lender that is a good fit for your project, you must consider a number of factors:

• Reputation
• Experience
• Loan terms
• References
• Financial stability

Research and compare private lending companies in your area based on these factors to identify where you can most easily navigate the application and approval process. For example, loan terms can vary considerably. At Muevo, our standard new construction loan terms are as follows:

• Max Loan Amount: $10,000,000
• Max LTC/ARV (Loan to Cost / Loan to After Completed Value):
  – Experienced Investors: The Lesser of 82.5% LTC or 70% ARV.
  – Inexperienced Investors: The Lesser of 65% LTC or 55% ARV.
• Rate: Starting at 10.5%
• Term: 12-24 months
• Payments: Monthly Interest Payments with Balloon at Maturity
• Prepayment penalty: None

Managing Construction Loan Funds

One of the most important steps that must be taken to complete a construction project successfully is to create a detailed budget. This is where the draw process comes in. Rather than receiving a lump sum check, construction loans pay out the loan amount over the course of the project. The installments are called draws, as the lender draws funds from the account. A draw request is necessary to ensure disbursement of the funds.

Many lenders do prorated draws, typically 80% financing/20% equity ratios on every draw. Our loans start once the 20% has been completed. Should you have investors, it is important that they understand the draw process and the difference between money spent and job completed.

In the end, the draw process ensures the proper allocation and use of funds and allows for contingency planning in case there are any unexpected costs.

You have questions. We have answers.

Who are the best hard money lenders in Florida?

Are you looking for private or hard money lenders for your construction loans? Do your research! The best private lenders, whether in Florida or anywhere else, have proven track records that are easily accessible on your County Recorder of Deeds website. Don’t just take their word for it. Ask your lender to show recent transactions they have funded and provide a link to the recorded documents. Beware of companies that advertise as lenders but are just brokers, adding additional fees. As a builder or investor, take your time to research potential lenders and ensure they are legitimate before proceeding. Experience counts. Muevo has brokered over 3,000 loans totaling more than $300 million in the last 10 years. Our loan programs have financed thousands of projects with attractive construction loan rates, reasonable closing costs, and, most crucially, flexible loan terms and speed!

Will the bank or private lender let me be my own general contractor?

Yes, many home builders and contractors utilize construction loans to fund their own construction projects. You will be subject to the same requirements as those developing investment properties using a third-party general contractor. Acting as your own general contractor should not affect your hard money loan as long as you have experience and a history of successfully repaying your construction loans.

Tips for a Successful Construction Loan Experience

Inherent to the construction process are several potential challenges that can impact your financing. These include construction delays and cost overruns, changes in market conditions and interest rates, and unexpected construction issues all of which require contingency plans. To that end, there are several things you can do proactively to mitigate these risks.

First and foremost, be sure you are engaging with professionals, such as seasoned architects and experienced contractors. And do all you can to communicate clearly and constantly with your lender and construction team. Closely monitor the progress of your project and resolve any issues that arise as promptly as possible. Finally, stay organized. One of the best ways you can do that is by maintaining accurate, up-to-date documentation throughout the course of your construction project.

Now that you have a good understanding of how construction loans work, how to qualify, how you benefit, how to select a private lender and how to ensure a smooth experience, you can confidently move forward and secure the financing you need for your construction project. Take the next steps in obtaining a new construction loan with RBI! Click here for more information.

For professionals seeking quick and flexible financing solutions, hard money lenders are an invaluable source of opportunity in the real estate industry. While these lenders offer a lifeline for those looking to seize lucrative opportunities, navigating the terrain requires caution. In this article, we’ll shed light on common mistakes professionals make when borrowing from hard money lenders and provide valuable insights to steer clear of these pitfalls.

Mistake 1: Underestimating the True Cost

One prevalent mistake is underestimating the true cost of borrowing. Hard money loans often come with higher interest rates and fees compared to traditional financing options. Professionals must meticulously analyze the total cost of the loan, including interest rates, origination fees, and any other associated charges. By doing so, borrowers can make informed decisions about whether the investment remains profitable in the long run.

Tip: Always request a clear breakdown of all costs associated with the loan and carefully assess how they align with your overall financial strategy.

Mistake 2: Ignoring the Terms and Conditions

Another common pitfall is neglecting the fine print in the loan agreement. Hard money lenders may impose strict terms and conditions, such as short repayment periods and high penalties for default. Professionals must thoroughly review the terms, seeking clarification on any ambiguities. Ignoring these details can lead to financial stress and potential legal complications.

Mistake 3: Overleveraging Without a Cushion

One critical oversight is overleveraging without a financial cushion. Some borrowers make the mistake of borrowing the maximum amount without considering unexpected expenses or market fluctuations. This can lead to financial strain and increase the risk of default.

Tip: Build a financial cushion into your borrowing strategy, considering potential unforeseen expenses, market uncertainties, and other risk factors.

Mistake 4: Failing to Have an Exit Strategy

A crucial oversight is neglecting to establish a clear exit strategy. Hard money loans are typically short-term, and professionals need a well-thought-out plan for repayment. Without a viable exit strategy, borrowers may find themselves scrambling to secure alternative financing or facing unfavorable terms for an extension.

Tip: Develop a comprehensive exit strategy before obtaining the loan, considering potential challenges and outlining specific milestones for repayment.

Conclusion

Borrowing from hard money lenders can be a strategic move for professionals in real estate and investment. However, avoiding common mistakes is essential to ensure a positive and profitable experience. By thoroughly understanding the costs, scrutinizing the terms, being cautious about overleveraging, and having a well-defined exit strategy, professionals can navigate the terrain of hard money lending with confidence and success.

ROCKFORD, Ill. – The nation’s top housing market in 2024 might come as a surprise to some: Rockford, Illinois.

According to the Wall Street Journal and Realtor.com’s Housing Market Ranking, Rockford has secured the coveted No. 1 spot.

The city’s ascent to the top ranking is attributed to its abundance of affordable housing options and its burgeoning industries in healthcare, aerospace, and logistics. Additionally, its central location, within reasonable distance of major urban centers like Chicago, Milwaukee, and Madison, adds to its allure. A forthcoming direct train line from Rockford to Chicago is expected to further enhance its accessibility.

Rockford’s remarkable growth has led to a surge in median home prices, with the average home listing in March reaching $235,000—an increase of nearly 52% compared to the previous year, as reported by the Wall Street Journal. In contrast, the national median listing price stands at $424,900.

Moreover, Rockford stands out favorably against other Midwestern cities due to its lower susceptibility to natural disasters, offering a potential reprieve for homebuyers increasingly concerned about high insurance costs associated with wildfires, floods, and hurricanes.

Social life in Rockford revolves around the scenic Rock River, dividing the city between east and west and serving as the focal point for a vibrant arts and culture scene. The city also boasts an impressive 7,000 acres of parkland and public gardens.

In terms of job opportunities, Rockford’s manufacturing sector alone employs over 20,000 individuals, underscoring its robust business environment.

The top 10 housing markets in 2024, as per the Wall Street Journal and Realtor.com rankings, include:

1. Rockford, Illinois
2. Canton-Massillon, Ohio
3. Ann Arbor, Michigan
4. Akron, Ohio
5. Springfield, Missouri
6. Fort Wayne, Indiana
7. Manchester-Nashua, New Hampshire
8. Columbus, Ohio
9. Kingsport-Bristol-Bristol, Tenn.-Va.
10. Portland-South Portland, Maine

The rankings take into account various economic and lifestyle factors, including housing supply, housing demand, property taxes, unemployment rates, and proximity to retail and restaurant establishments. Additionally, they consider the risk of extreme weather events such as heatwaves, windstorms, poor air quality, floods, and wildfires over the next three decades.

For the full list and report, click HERE.

Distress reared its head in Texas last year, and foreclosures are skyrocketing.

In March, commercial foreclosures in the state increased by 129 percent year-over-year and 31 percent from the previous month, Bisnow reported, citing property data company Attom Data Solutions. California, New York and Florida were the only states with more foreclosures last month.

Commercial foreclosures in Texas totaled 55 last month, following 42 in February and 56 in January. Nationwide, there were 625 in March, up 117 percent year-over-year and 6 percent month-over-month. 

There’s been a gradual uptick in commercial foreclosures since spring 2020, when pandemic-related moratoriums and financial aid safeguarded property owners. But with these measures now largely unavailable, landlords are facing a harsh reality.

Foreclosures and other signs of distress have been especially apparent in the office sector, which continues to get hammered by the remote-work movement that’s driving up vacancies and available sublease space to historic highs. Foreclosures are on the rise across all asset classes, though. 

 Office vacancies in Texas’ major metros were among the highest in the nation to start the year, according to the report. Notable foreclosure cases this year involve the iconic Oil & Gas Building in downtown Fort Worth, the Scanlan Building in downtown Houston and the office building at 211 North Ervay Street in downtown Dallas.

Multifamily foreclosures have been most evident in Houston and San Antonio markets, with syndicators Applesway Investment Group and GVA being on the wrong side of numerous cases. 

Top Five Reasons to Invest in Texas

Diverse and Desirable Locations

Texas is a treasure trove of diverse locations that attract both tourists and residents. From its stunning coastline to its rich cultural experiences and natural parks, Texas offers a wide range of options for investment in vacation rentals. Moreover, with the state experiencing significant population growth, it presents an excellent opportunity for long-term rental and fix and flip investments. When considering investment locations, it’s crucial to evaluate what makes an area attractive and sustainable in terms of tourism, job opportunities, and overall desirability.

Thriving Economy and Job Market

Texas consistently ranks high in terms of economic growth, boasting a strong employment and income forecast for the foreseeable future. The state is home to a plethora of major companies, including over 100 of the largest public and private companies in the U.S. These factors contribute to a stable and appreciating real estate market. It’s worth keeping a close eye on established businesses and new enterprises moving into the area, as they indicate sustained residential demand and potential investment opportunities.

Continuous Population Growth

Population growth is a crucial factor for real estate investors as it signifies a robust demand for housing. As the second most populated state in the U.S., Texas projects continued growth in the future. By analyzing population growth data at the city or county level, investors can identify areas with the highest potential for investment and capitalize on the growing demand for housing.

Robust Rental Market and Attractive Rental Rates

Texas offers a thriving rental market with a wide range of rental rates across different locations, counties, and neighborhoods. Conducting thorough research on rental rates specific to your target area is crucial for maximizing profitability. Data from Zillow shows a significant 5.8% increase in the median rent in Texas over the past year, with rental rates projected to continue rising according to the Dallas Fed report. 

Supportive Legal and Regulatory Environment

Texas provides a landlord-friendly legal and regulatory environment, offering protections for property owners and favorable landlord-tenant laws. This ensures that investors have the necessary legal framework and support to manage their properties efficiently and protect their investment interests.

Investing in the real estate market in Texas offers a vast amount of exciting opportunities, particularly in select cities that shine as prime options. When considering real estate investment in Texas, it’s essential to take into account various factors that contribute to the overall appeal and potential profitability of each city. In this section, we will delve into some of the top cities in Texas for real estate investment.

In the dynamic landscape of real estate investment, the build-to-rent (BTR) sector is emerging as a robust and resilient opportunity for investors. The BTR boom is fueled by a shifting demographic landscape, changing work patterns, and evolving housing preferences. As we look ahead to 2024, the opportunities in BTR real estate are poised for continued growth and adaptation to the demands of the market.

Meeting the Changing Needs of Home Seekers

The surge in BTR housing demand can be attributed to a diverse range of demographics, including young families, remote workers, and empty nesters. These groups seek the benefits of homeownership but face barriers in the traditional real estate market. With high occupancy rates and steady rent growth, the BTR sector is an increasingly attractive investment avenue.

Blending Work and Home Life

With homes serving as workplaces, there is an increasing demand for multifamily communities that offer spare bedrooms and shared workspaces. BTR properties can capitalize on this trend by providing spaces and amenities that seamlessly blend work and home life. Communities located farther from major job centers may experience growing demand as renters prioritize flexible work arrangements over daily commutes.

The build-to-rent sector presents lucrative opportunities for real estate investors in 2024 and beyond. By staying attuned to market trends, focusing on property versatility, and embracing the changing needs of renters, investors can position themselves for success in this evolving landscape. As the real estate market continues to transform, BTR stands out as a resilient and forward-looking investment choice.

Versatility in Exit Strategies

One of the key advantages of investing in BTR properties is the flexibility in exit options. Investors can choose between renting or selling to individual home buyers, depending on market conditions and investment goals. This exit optionality provides a strategic advantage and enhances the overall resilience of BTR investments.

Remote Work’s Impact on Housing Preferences

The remote work trend, prompted and accelerated by the pandemic, continues to influence housing preferences. Hybrid work arrangements are becoming more prevalent, with 28 percent of all workdays still being conducted from home. This shift creates new opportunities for BTR operators to cater to the needs of high-earning and highly mobile renters.

Rental as a Practical Housing Option

As paths to homeownership become increasingly elusive for many Americans, renting is gaining traction as a more practical housing option. Even those who can afford to buy may find that renting aligns better with their financial goals. This shift in mindset is likely to continue, bolstering the demand for well-designed and amenity-rich BTR communities.

Navigating Affordability Challenges

Affordability remains a significant challenge in the real estate market, affecting both potential buyers and long-term renters. High home prices and spiking mortgage rates have kept many families in the rental market. BTR properties become an attractive option for those seeking a single-family home lifestyle, but are unable to afford a home in the current market, fostering continued rental demand.

1. Attic insulation upgrade

Winter is the ideal season to enhance your home’s energy efficiency by upgrading attic insulation. This project helps regulate indoor temperatures, keeping your home warmer and reducing heating costs. While costs may vary, investing in high-quality insulation can typically range from $1,500 to $2,500. The long-term benefits include lower energy bills and the potential for increased property value.

2. Landscaping enhancements

Winter is an opportune time to plan and implement landscaping improvements. While the garden may be dormant, adding features like walkways, outdoor lighting, or even planting evergreen shrubs can boost curb appeal. Costs vary widely based on the scope of the project, but a well-executed landscaping upgrade can make your home stand out, come spring time. 

3. Smart thermostat installation

Upgrade your home’s heating system by installing a smart thermostat. This winter home improvement project, which usually costs between $200 and $300, allows you to control your home’s temperature remotely, leading to energy savings and increased comfort. Winter installation is convenient, with fewer demands on HVAC professionals and the added benefit of immediate energy efficiency improvements.

4. Kitchen cabinet refinishing

Give your kitchen a facelift without breaking the bank by refinishing your cabinets. This cost-effective winter project can be completed for under $500. Refinishing cabinets is a quick and efficient way to modernize the heart of your home, even if you have a tight budget.

5. Basement waterproofing

Protect your home from winter’s harsh elements by investing in basement waterproofing. This essential improvement can prevent water damage, mold growth, and structural issues. While costs may range from $2,000 to $6,000, the long-term benefits often outweigh the initial investment. Winter is a great time to start this project as it tackles potential vulnerabilities ahead of spring rains, ensuring a dry and secure basement.

6. Ceiling fan installation

Improve both aesthetics and energy performance by installing ceiling fans in key rooms. This affordable winter project helps distribute warm air more effectively in the winter and cool air in the summer. The energy savings, combined with the visual appeal of stylish ceiling fans, make this an easy and cost-effective improvement.

7. Window replacement

Upgrade your home’s energy performance by replacing old or drafty windows. New windows not only improve insulation but also enhance natural light, aesthetics, and soundproofing. The energy savings and improved comfort make this project a wise choice for homeowners struggling with expensive electric bills. 

8. Bathroom fixture upgrade

Revitalize your bathroom by upgrading fixtures such as faucets, shower heads, and lighting. This relatively low-cost project, usually ranging from $500 to $1,500, can instantly modernize the space and improve functionality. Upgraded fixtures not only enhance your daily routine but also contribute to a more appealing and comfortable home.

9. Flooring refinishing

Give your home a fresh look by refinishing the flooring in high-traffic areas. Whether you have hardwood, laminate, or tile floors, this project can cost between $1,000 and $3,000, depending on the materials. Refinishing not only restores the beauty of your floors but also adds durability, making it an investment that can pay off in terms of aesthetics and functionality.

10. Smart lighting system installation

Enhance your home’s functionality and energy performance by installing a smart lighting system. This winter home improvement project, which can cost between $500 and $2,000 depending on the complexity, allows you to control lighting remotely. Additionally, the convenience and energy savings make this a modern and attractive feature for many homeowners.

11. Crawl space encapsulation

Crawl space encapsulation stands out as a key project to safeguard your home in the colder months. The process involves sealing the crawl space beneath your home to create a barrier against moisture, pests, and potential issues that could compromise your home’s structural integrity. Winter proves to be an opportune time for crawl space encapsulation, primarily because the drier air allows for efficient installation and curing of materials. By addressing this project during the colder months, you can fortify your home against the impending challenges of spring rains and thawing snow.

12. Fireplace upgrade

Make your living space more cozy and appealing by upgrading your fireplace. This can involve refacing the fireplace, adding a new mantel, or converting to a more efficient gas or electric model. A stylish and functional fireplace can be a focal point in your home, adding both aesthetic value and charm. 

The most relevant commercial real estate lending basics offer far more than the chance to develop key professional relationships and avoid tenancy issues that often coincide with residential rental properties; it offers lucrative income potential that can dwarf more traditional forms of real estate investing. However, as any commercial real estate investors will tell you, the trick isn’t always finding a commercial property, but rather acquiring one of those ever-essential commercial real estate loans that let you bring a property into your portfolio.

While many lending principles apply equally to both residential and commercial real estate loans, there are some key distinctions (and tricks-of-the-trade) about the commercial real estate loan process that can save you time and money, if understood before plunging ahead.

COMMERCIAL REAL ESTATE LENDING BASICS

Commercial property loans, not unlike their single-family counterparts, are the foundation of a great real estate investment. The loans are just as important as the assets themselves—if not more so. At the very least, there are many types of commercial real estate loans which award savvy investors with unique advantages for their particular situations. That said, it’s not enough for investors to simply take the first loan that comes across their table; they need to mind due diligence and get to know the ins-and-outs of commercial real estate loans before making any decisions. The more an investor knows about their own CRE loan and how it applies to their situation, the better.

Individuals Vs. Entities

It is commonplace for residential loans to be made to individuals. However, commercial real estate loans are usually made to entities. Otherwise known as business entities, entities can represent a number of business: corporations, developers, limited partnerships, funds or trusts. It is common for entities like these to receive commercial real estate loans. If for nothing else, receiving a commercial real estate loan may even be why the entity was created in the first place.

Unlike a residential loan where money is given to borrowers based on things like their credit score, en entity won’t have a credit rating. Instead, the entity will have the owners guarantee the loan. That way, the owners of the entity will provide the credit history. In the event of a default, the owners will also give the lender an idea of who they need to recover from. 

For more information on not only how to get a commercial real estate loan, but also today’s commercial real estate lending basics, here are some answers to today’s most common questions on the subject.

WHAT IS A COMMERCIAL REAL ESTATE LOAN?

A commercial real estate loan, or “CRE loan” as it sometimes called, is a debt-based agreement set up between a borrower and financial institution in which the borrower uses funds to acquire commercial (non-residential) property.

One common misconception is to assume the terms “commercial loan” and “commercial real estate loan” are interchangeable. This is not the case. Commercial loans refer to the securing of funds that can be used for non-real estate purposes, such as equipment purchases or operating expenses. As an investor, your aim is a commercial real estate loan; it’s important when navigating the loan process to look for lending institutions that specialize in loans of this kind.

Types Of Commercial Real Estate Loans

Not unlike their single-family counterparts, commercial real estate loans can be found with countless terms and underwritings. The sheer volume of available commercial real estate loans is to help buyers acquire deals with favorable terms and rates. There is practically a loan for every situation a commercial real estate investor could think of. Let’s take a look at some of today’s most popular commercial real estate loans:

• SBA 7(a) Loan For Commercial Real Estate: As their names suggest, SBA 7(a) loans are backed by the U.S. Small Business Administration. While there are several types of SBA loans, this particular one is specifically tailored to those who want to purchase or refinance owner-occupied commercial properties up to $5,000,000.
• CDC / SBA 504 Loan For Commercial Real Estate: Also backed by the U.S. Small Business Administration, CDC / SBA 504 loans are best suited for those who need more than the $5,000,000 offered by SBA 7(a) loans.
• Traditional Commercial Mortgage: Traditional commercial mortgages are offered through institutionalized banks and lenders. Traditional loans tend to range from five to 20 years, but are great for those with good credit and in need go longer loans.
• Commercial Bridge Loan: Commercial bridge loans help investors secure immediate financing, giving them a chance to search for a more long-term solution in the interim. Bridge loans help investors bridge the gape between when they need immediate funding and when they can find a more permanent solution.
• Commercial Hard Money Loan: Commercial hard money loans are reserved for those with a need for short-term loans. They tend to come with higher interest rates, but the price comes with a benefit. Since hard money lenders aren’t associated with an institutionalized bank, borrowers can receive the money fast, and without a perfect credit score.

HOW LONG ARE COMMERCIAL REAL ESTATE LOANS?

Commercial real estate loans can be as long as 30 years or as short as a few months. But generally they’ll have a term, on average, of between 5-30 years.

This doesn’t mean, however, that you necessarily will be paying a monthly commercial mortgage for the full term of the loan. Unlike residential loans, which are fully amortized—or have the balance of the loan broken up in regular, monthly payments—commercial real estate loans often have a set monthly payment period (usually the first five to seven years), and then require a large balloon payment at the end.

This can be either a benefit, or catastrophe, for commercial real estate investors. It’s vital you mind your due diligence to ensure the terms of a commercial real estate loan fit in with your overall real estate investing needs.

CRE Loan Repayment Schedule

The repayment schedule of a commercial real estate loan can last anywhere from five years to 20 years. There are, of course, exceptions, but that seems to be the industry standard. It is worth noting, however, that the amortization period is traditionally longer than the loan itself. Not unlike a residential loan, a commercial real estate loan’s rate can change depending on the length and amortization of it. Investors with a good credit standing may have ore negotiating power than those without.

WHAT ARE COMMERCIAL REAL ESTATE LOAN REQUIREMENTS

There are universal criteria that come into play when approaching a lender about a loan, no matter what type. But when applying for a commercial real estate loan, it’s vital you focus on these key CRE loan requirements:

• Credit History: This has less to do with your credit score, which should be at least 680 or higher, and more to do with ensuring your credit history doesn’t contain recent tax liens, foreclosures, and recent bankruptcies. Otherwise you might find the commercial real estate loan process quite difficult.
• A Low Loan-To-Value (LTV) Ratio: LTV ratio calculates the amount of equity, or collateral, a borrower has in a given property by dividing the loan amount by the appraised value (or purchase price) of a property. (Example: If your loan amount is $97,000 and the property is worth $100,00, your LTV is 97%.) Home buyers securing a residential loan can have an LTV as high as 100%, though usually somewhere in the 80-97% range is more common. Investors seeking a commercial real estate loan will most likely have to sit somewhere in the 65-80% range, at a minimum.
• Business Entity: This is a common mistake many first-time commercial real estate investors make when applying for a loan. But having your business entity set up, before filling out that application, can sometimes make a huge difference to lending institutions.
• Organized Paperwork: This is another overlooked area of the loan application process for many first-time commercial investors. But making sure that every document (and packet) you send to a lender is organized, tidy and doesn’t set off “alarm bells” can sometimes make the difference between getting rejected, and that large commercial real estate loan you need to make your investing dreams come true.
• Online Marketplace Loan: Otherwise known as a “soft money” loan, an online marketplace loan will match borrowers with private investors who help finance commercial properties for a return. These loans will come with an interest rate between conventional banks and hard money lenders, which people often call a “soft” loan. These loans are traditionally short for commercial real estate, as they can last from six months to a few years.
• Joint Venture Loan: In the event a single entity isn’t able to secure a loan by itself, it can join forces with another entity. By seeking a joint venture loan, the loan will be given out based on two entities instead of one, effectively making them partners, but also making it easier for entities who would otherwise not qualify.

Do CRE Loans Have Fixed Or Variable Interest Rates?

This depends on the type of commercial real estate loan you secure. (There are numerous kinds of CRE loans, including a traditional commercial mortgage, bridge loan, hard money loan, and joint venture loan, etc.)

As a general rule, a commercial real estate loan will most likely have a variable rate — that large amount of money borrowed comes at a cost — and be considerably higher than residential real estate loans (sometimes as much as two-three percentage points).

CAN YOU GET A COMMERCIAL REAL ESTATE LOAN WITH NO MONEY DOWN?

It is entirely possible to get a commercial real estate loan without putting any money down. However, it is important to note that the less an entity puts down, the harder it will be to qualify. That said, a down payment is not necessary; there are a number fo different financing methods to use instead.

For example, if an entity can’t come up with the money, they can perhaps partner with another entity and form a joint venture. In that case, the other entity could front the money. Another way to get away without putting any of your own money down is to get a bridge loan. Bridge loans can help investors secure short-term funding for a down payment so that they may negotiate a longer-term loan through a more traditional lender. 

HOW LONG WILL IT TAKE TO GET A COMMERCIAL REAL ESTATE LOAN?

As the commercial loan brokerage Whista detailed in a column recently: “Everyone is going to tell you it should take about 30-45 days to get a commercial loan. Not in this lifetime…if your broker or lender is being honest with you, they will tell you to expect about 45-120 days.”

This doesn’t mean there won’t be exceptions; there may very likely be situations in which you’re able to reduce this commercial loan process considerably. But if your investing strategy depends on a quick timeline, go in knowing you may need to be flexible until you hear back from a lending institution.

HOW TO CALCULATE COMMERCIAL REAL ESTATE LOANS

No calculation can be made until a number of metrics are already in hand. That said, to calculate a commercial real estate loan, an entity will need to obtain the possible loan amount, interest rate, amortization term, and any balloon payments if applicable. With all of the numbers in hand, simply visit an online mortgage calculator and fill in the blank fields. 

HOW TO CALCULATE LOAN-TO-VALUE RATIO

As the name suggests, a loan-to-value ratio gives entities a way to measure the value of a loan against the value of a property. In order to calculate the loan-to-value ratio, or simply LTV, divide the amount of the loan by the property’s appraised value or its purchase price, whichever is lower. 

SUMMARY

Learning today’s commercial real estate lending basics isn’t as hard as many would assume, but they do require far more diligence, preparation, patience, and paperwork then a residential mortgage loan; that’s because of the large amount of funds being requested. It is a good to remember that commercial real estate financing is more complicated and logistically challenging; they have to be due to the increased risk. There are many moving parts—both legal and financial. However, if you’re able to stay persistent and focused through the process, you might find a life-changing transaction just around the corner.

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Key Takeaways

• Understanding how to finance commercial real estate is one of the first steps for investors looking to break out of the residential industry.
• With a firm grasp on the commercial real estate financing basics, investors should have a slid commercial foundation to build off of.
• Commercial real estate loans are a bit more complex than residential loans, but they are necessary for larger projects further down investors’ careers.