So you’ve finally found that perfect piece of real estate – but unfortunately, the bank doesn’t seem to agree because it’s not located near a population center.
Traditional financing institutions are not willing to fund deals outside of cities or other major population center, citing risk aversion. Banks and other conventional lenders are concerned about what will happen in the event a borrower defaults on their loan. For properties in and around cities, lenders presume that that they can easily recuperate their money in the event of a defaulted loan. In rural areas, however, if a borrower defaults and the bank forecloses, the property could wind up on the market for months or years before a buyer comes along, devaluing it and creating a headache for the financing institution.
The intended use of land in a rural area also impacts conventional lenders’ considerations. For example, financing institutions face limits on foreclosing on a farm if the owner derives their primary income from the property. That can add 12 months from the date of default before foreclosure proceedings can even begin. The risk of getting tied up in years of recuperating efforts is enough to discourage most conventional lenders from issuing loans to these types of properties.
Some lenders simply don’t see the value of extending financing to properties so far away from highly-traveled areas. For commercial properties in particular, conventional lenders fall into the trap of thinking that the lack of a mass market means the lack of a market altogether.
Conventional lenders’ reticence aside, there are alternative financing solutions, chief among them direct private lenders, who can work around these stringencies if they see the value of the property or the potential of the deal. They are not beholden to the same strict procedures as conventional lenders, so they can make exceptions to the rules that a traditional financing institution cannot. This gives them the latitude and the flexibility to extend loans to a property far from a population center.
However, direct private lenders aren’t in the business of handing out money. There has to be true potential in order to fund a deal far from a major population center. Factors such as housing, major highways, competition, and other commerce in the area are all brought into account. If you articulate the great value and potential you envision for the property, a direct private lender can share in your vision.
“When a borrower comes to us with an opportunity in a remote location, we always examine it to see the merits of the deal,” said Kevin Wolfer, CEO of Kennedy Funding Financial. “Oftentimes, there are factors which indicate that this deal will be successful and profitable – and those are deals we are happy to fund for qualified borrowers.”
Partnering with experienced lenders that can point to proven successes is key to a positive working relationship. Kennedy Funding Financial has a track record of supporting investments with tremendous potential because we see the value of the investment, just like you do.