Alternative to Commercial Rehab (Rehabilitation) Loans

Commercial Rehab Loans have historically been the "territory" of either commercial construction loans or commercial hard money. Neither option is ideal for the borrower. The negatives with hard money are obvious; they are expensive and often carry harsh terms.

Traditional commercial construction loan also carry negatives. From a traditional banks perspective Commercial Rehab Loans are essentially the exact same as construction loans. Banks require the same type of documentation on commercial rehab financing, (plans, permits, lien wavers, etc) as on ground up construction. Although fees and rates on bank construction loans are much better compared to commercial hard money, commercial construction borrowers "pay" for these loans with their time and intense documentation/reporting requirements.

Borrowers that own other commercial property should look into using equity from other property, via the new Commercial Second Mortgage, to potentially finance the rehabilitation costs. Some benefits of this approach include:

• Reduce or no reporting to bank.
• No waiting for capital/draws while city and bank approve work.
• No 3rd party or upfront fees.
• Commercial Second Mortgage comes in a Fixed Rate Second or Equity Line of Credit.

The commercial second mortgage can be a solid alternative; however borrowers should be aware that the loan program does have limitations. Most common complaint is that the rate is typically 1% -2% higher rate when compared to first lien position traditional bank loans. Also, lending banks adheres strictly to max combined loan to value cap of 75% and will not lend beyond $500,000.

However for the borrower that owns an existing commercial property with ample equity this new option can certainly lessen the burden of the construction loan process.

Jeff Rauth is President of Commercial Finance Advisors, Inc out of Bloomfield Hills. He specializes in Commercial Real Estate Loans between $100,000 - $5,000,000. Offers unique loan programs such as Commercial 30 Year Fixed and 90% non SBA financing, Commercial Private Money, Commercial Equity Lines and Commercial Second Mortgages. He can be reached at 248 990-7602. , , or .

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