What is a real estate acquisition loan?
Acquisition loans are used to purchase real estate properties or a business entity that owns a portfolio of properties. Lenders will require borrower information and property information for the properties being acquired.
What property information is required?
Lenders will require a 12-month proforma, 10-year proforma, residential leases, rent rolls, capital expenditures, purchase contracts, tax records and utility bills.
What borrower information is required?
Lenders will require proof of liquidity, three months of bank statements, credit reports, background checks, business entity information, proof of identification, two years of tax returns, and a summary of their experience and real estate transactions.
The loan is sized based upon the financial performance of the core asset. This strategy decreases the weight of the borrower’s credit report. These real estate acquisition loans can produce higher net proceeds as the loan is based on the assets ability to cash flow and perform over time. This allows private lenders to provide funding quicker.
In the real estate industry time is of the essence. Especially in competitive markets where investors are battling for opportunities. Therefore, established, and experienced investors prefer going through private lenders who deal with real estate transactions on daily basis. The lenders real estate experience and expertise allows for a fast closing in comparison to going through a bank. Private lenders can close a deal as fast as needed when time is of the essence.
The greatest benefit of a real estate acquisition loan is that it allows real estate investors to scale their business. Most private lenders will only lend to experience real estate investors. However, if an investor can manage to get a few properties under their belt through a traditional bank loan then scaling becomes significantly easier as private real estate lenders will be willing to work with you. The two greatest benefits of working with private lenders are their high level of flexibility and high level of experience with real estate deals.
Popular property types for real estate acquisition loans
The most acquired real estate property types through acquisition loans are single family residential (SFR), townhomes, condominiums, studios, duplex, triplex, fourplex, and multifamily.