One of the advantages of hard money loans is that the private money lenders who underwrite them are not bound by the same rigid federal restrictions that govern banks and other institutional lenders. This series of blogs will explore the types of out-of-the- box loans in which private capital lenders specialize and highlight how hard money loans can be a crucial tool for the savvy commercial real estate investor. There are eight common types of loans that private capital lenders will underwrite which banks typically will not consider.  These types of loans  will be explored in detail over eight blogs: Cash-Out Bridge Loans, Loans to Foreign Nationals, Marijuana-Tenanted Properties, Note-Purchase Loans, Non-Recourse Loans, Vacant Land Loans, Tight Timeframe Lending, and Beyond the Typical Requirements.

What Is a Note-Purchase Loan?

A note-purchase loan is a loan used to purchase loans from banks as well as other private money lenders typically at a discount.  The increased federal regulations since 2008 have motivated banks to sell off non-performing or under-performing notes to get them off of their balance sheets. Investors who are interested in adding notes to their investment portfolio can use note-purchase loans to pick up these loans which are frequently bought at a discount.  It is important to remember that you are not buying the real estate directly, but the debt instrument that is secured by the real estate.  This type of lending is formally referred to as hypothecation.

Why Use Hard Money to Purchase Notes?

When banks offer loans from their portfolio for sale, they normally like to complete the sale of these notes quickly.  Investors interested in purchasing these notes from banks need access to funds quickly in order to take advantage of opportunities as they arise. Hard money loans are available in weeks or even days, so they are an ideal way in which to fund note purchases.  Banks are normally not willing to accept a note as loan collateral while, by contrast, private money lenders are open to considering financing these types of note purchases.

Note-purchase loans are just one example of the flexibility and willingness of private capital lenders like Montegra Capital to work with their borrowers to find creative, outside-the-box lending solutions to finance various types of commercial real estate loans when traditional lenders are not willing to do so. Check out the next blog in this series, Non-Recourse Loans, for another example of how hard money loans can work for you.

For more information about Montegra’s note-purchase bridge loan program, contact us at 303-377-4181 or loans@montegra.com.