A real estate acquisition loan is, conveniently enough, exactly what it sounds like it would be - a loan used to acquire property. However, there’s one pretty large caveat that goes along with real estate acquisition loans, and that is that they can only be used to acquire property. That means that if, as a developer or fix and flipper, you were hoping to take out a loan to purchase property and begin construction or renovation, this is not the loan for you - unless you’ve got other funds ready and available to get the project moving.
What Are The Benefits of Real Estate Acquisition Loans?
1. Fast Access to Funds
One of the biggest benefits of a real estate acquisition loan is that it can help you secure the purchase of a property as soon as possible. As all real estate developers and fix and flippers know, time is of the essence when it comes to real estate. If there’s a deal that’s just too good to pass up, but you’re a bit too short on cash to make the purchase, this is where an acquisition loan comes in. These loans, unlike fix and flip or construction loans, are based solely on the value of the property and don’t take into consideration any of the work that may need to be done to the property to get it ready for resale.
2. Hard Money Lending, More Than Just Financing
You may be wondering why you wouldn’t simply go to a traditional lender - such as a bank or a mortgage broker - and take out a regular loan. For starters, traditional lenders have very rigid lending requirements - if a property doesn’t meet their standards, which is often the case with fix and flips and rehabs, a bank simply won’t lend on the property. Their outlook is that they will only lend on what the property is worth - not what the property is potentially worth, and whether or not they feel they would get a good return on the investment if they needed to recoup the loss through foreclosure or another process. When developers are purchasing properties they can often be in less than ideal condition and a bank may simply look at that and pass.
Additionally, banks and traditional lenders can take a long time to close. While a month may not seem like a very long time in the grand scheme of things, when you’re trying to submit an offer and get to the closing table as quickly as possible to secure a deal, a matter of just a few days can make or break you. As with all Walnut Street Finance loans, we rely on doing our due diligence and our strong relationship with our developer partners to enable us to approve loan requests and disburse funds more quickly than a traditional bank might.
3. Additional Options
So, what happens once you’ve purchased the property? If you have your own funds available, you can begin getting to work on your planned construction or renovations. However, if you’re still waiting for additional funds to come through, there are other options - you can apply for a construction loan if it’s an entirely new project, or you can apply for a bridge loan, which will provide you with funding until the sale of a previous project comes through and provides you with some liquidity.
Are you interested in working with Walnut Street Finance to acquire property and begin growing your wealth? Download our guide Building Your Real Estate Empire: Borrower Basics 101 to get started.