‘Mini-perm’ loans are a niche mortgage type that are growing in popularity with lenders and real estate investing pros. So how do they work, when should you use one and how can you land one?
A mini-permloan is a type of short term financing that is blossoming in the absence of construction loans and while mortgage lenders stay tough on underwriting.
These mortgage loans have typically been used as bridge loans on commercial properties to fill the gap between finishing construction and paying of the construction lender and being able to establish income history to secure more attractive long term rates. However, creative real estate investing pros are now finding them an incredible tool for snapping up great deals on a variety of opportunities.
Everyone knows that there are tons of attractive real estate investing opportunities out there today, unfortunately no matter what the real potential and discount mortgage lenders just don’t want to fund properties that aren’t proven to perform.
By using a mini-perm loan investors can swoop in to develop land, grab bargains among retail and office buildings, take over ailing multifamily rental properties and even take out distressed debt to realize big discounts and profit margins.
A mini-perm can provide the time needed to spruce the property up, secure better tenants and establish solid income history and stabilize rents so that they can either turn these properties over for large capital gains or obtain attractive long term financing for buy and hold with maximum cash flow yields.
These loans typically run 3-5 years with a balloon, though there are longer term ones available that use phased incentives to encourage their early payoff. As with other mortgage types, options might include interest only payments, non-recourse borrowing and the option to roll the loan into a permanent one when it balloons.
Qualifying for one of these loans starts with a great executive summary. Talk to lenders early and you’ll find out what they are looking for in terms of collateral and management experience as well as ways of creative structuring and improving terms with contracts and cross-collateral.