If you’re purchasing commercial real estate for the first time, there are many things about the process you need to know, like how to make a formal offer. This involves calculating what your offer should be and sending a letter of intent. There are many ways to purchase commercial real estate, including with a hard money loan in Houston. We’ll discuss how to make an offer and how to use hard money loans to purchase real estate for commercial purposes in this article.
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How to Make an Offer for Commercial Real Estate
Before you make an offer on commercial real estate, there are several things you need to do to make sure that for one, you want the property, and secondly, you pay a fair price. Usually it starts with looking at the broker brochure, which will have a lot of details like the current financials for the property and the pro forma calculations. You’ll also want to do your own research to confirm these numbers. From there, you’ll need to decide what to offer for the property.
Most people use the 70% rule for making offers on commercial properties. This is basically a method of calculating the maximum offer price for a property. This is important, as you want to make sure the property will be profitable, particularly if you need to pay off loans like a hard money loan in Houston tied to the property.
For this method, take the after repair value (ARV) and multiply by 0.70. Then, take that number and subtract all costs that lead up to that, like the costs for renovations or construction. That gives you a number that, if done correctly, will promise a 30% profit for the property. Of course, this might not work for every deal, so you can alter these numbers as needed. For instance, if you want a minimum of 40% profit from a particular property, then multiply by 0.60 instead.
After you know what you want to offer for the property, the next step is to send a letter of intent. If you’re working with an agent, they can typically do this for you. Otherwise, there are plenty of free online forms to help you do it yourself. This is basically a no-obligation letter detailing your offer to the seller. You can negotiate after they accept.
Using a Hard Money Loan in Houston to Purchase Commercial Real Estate
There are many ways to purchase commercial real estate, but most investors and organizations don’t want to tie up valuable cash flow to purchase properties outright. Yet, many traditional loans take a long time to complete and have stringent criteria that you might not meet for one reason or another. This is where a hard money loan in Houston can save the day.
Hard money is a type of private money lending in Houston. The capital comes from private investors for the loans. As such, there’s fewer requirements compared to a traditional lender. For instance, you can often get a loan with a bad credit score or a high debt to income ratio. Instead, usually the loan is based on the property value, as it will serve as collateral for the loan. Investors regularly use hard money loans to help purchase and improve properties that they can then make a profit off of through regular income or through a sale.
Texas Funding – Trusted Private Money Lending in Houston since 1982
For fast, hassle-free real estate loans, contact our team at Texas Funding. We’ve been providing hard money and collateral loans in Houston since 1982. We provide you with the short-term financing you need for real estate investments. Our team works with you to provide you with funding with minimal paperwork, no pre-approval process, and quick closing times. Get in touch today to get started.