Are you looking for a hard money lender? Do you even know what one is? You can’t look for a hard money lender if you don’t know what hard money means, but once you do, especially if you do business in the Miami area, you may realize that a hard money lender is just what you need. We encourage you, in fact, to explore the ways in which you can be helped by a hard money lender. Miami is just one area where Infiniti Funding does business, but a hard money loan could solve your specific financial scenario and provide you with the funds you need when you need them.
A hard money loan is an alternative to more traditional financing, in which a borrower uses his or her assets to secure the loan because more traditional methods of credit cannot be extended to that borrower. The financial services industry is constantly evolving, and market volatility as well as short and long term market trends (such as the collapse of the real estate market in past decades, including the credit crunch of 2008 and the collapse of the housing market temporarily. This led to a significant recession that, on some levels, our country and our economy are still feeling. Interest rates on hard money loans are therefore higher in order to compensate the lender for the increased risk incurred. The benefit to the borrower is that, while the interest rate paid is higher than that paid in a traditional financing model, the loan is made available to the borrower (when, without that hard money loan ,the borrower would not be able to obtain financing at all). This is the same reasoning behind “subprime” housing loans and the justification for this type of financing: Paying more for the increased risk is preferable to not being able to obtain financing at all.
Rick Blevins explains that hard money lenders evaluate the value of your property by looking at the loan to value ratio and by seeking to understand your business. “A commercial hard money lender would typically need to have a loan to value ratio of up to and 65%, depending upon the use of the property,” he explains. “A five-unit plus apartment building or mixed-use property may be considered at up to 65%. Mixed-use usually means a combination of retail/commercial and residential units in the same building. The appraised value of your property is based on several elements, such as neighborhood depreciation or appreciation. If your property is located in an area that is being developed, this bodes well for the success of your valuation. Relevant local infrastructure is taken into account such as utilities, sidewalks and public access areas. The opposite is true if your building is situated in a run-down area of town. Though your plan might be to turn it all around, the current condition of the neighborhood is what matters to the licensed appraiser. They will take marks off for deteriorating building facades, signs of criminal activity and a lack of road maintenance by city officials. … Once you acquire the loan, you will then have the capital to fully develop your real estate endeavor. This is especially true in the case of a renovation or rehabilitation project, where you may have taken advantage of a distressed property at a bargain price.”
Jason Van Steenwyk, writing in Real Estate.com explains that where a hard money lender (Miami based or otherwise) is concerned, most investors “are at least passingly familiar with conventional mortgage underwriting. We’re quite used to thinking about mortgages and mortgage underwriting in terms of cash flow. Banks are chiefly concerned with the stability of the borrower’s income and whether that income – plus an allowance of, say, 60 to 75 percent of anticipated rental income – will be steady enough and sufficient enough to keep up the payments on the property. …A hard money lender is a lender who specializes in loans to people or on properties which don’t fit into standard assumptions that traditional lenders use. These loans are generally shorter-term loans, which can be for anything from a few weeks to a few years, and they are geared toward fix-and-flip situations. Interest rates are typically higher than what your local bank charges for 15- or 30-year mortgages. But since flippers are typically in and out of a property in a few weeks or months, the interest rate on any particular deal is a relatively minor consideration. The underwriting, however, is fundamentally different from bank underwriting. Bank underwriting is based primarily on cash flow analysis. But cash flow means little to the hard-money lender. Instead, the hard money lender relies on asset-based underwriting. This form of underwriting is much friendlier to the investor with a spotty credit history or an irregular income. Normally, the hard money lender doesn’t even care what your income or credit history is, as long as he is comfortable with your personal integrity. Instead, the lender is looking for security in the asset. Collateral is king.”
Van Steenwyk goes on to explain that a hard money lender (Miami lenders are the ones we’re interested in here) is “generally looking to provide about 2-1 financing on any given project. That translates roughly into LTVs [loan to value ratios] of 65 percent or less, though some lenders may go up as high as 75 percent. In many cases, hard-money lenders are open to cross-collateralization arrangements. That is, you can pledge a property or other asset that is not financed by the deal as collateral. 100 percent financed deals are possible if the collateral is there. These 100 percent financed deals are not unheard of in the hard money world, where there is substantial cross-collateralization….However, you can’t cross-collateralize an asset you hold in a retirement account for any loan outside of your retirement account.”
Van Steenwyk asks a provocative question: Is a hard money lender (Miami area or otherwise) essentially a loan shark? Fortunately, he answers this question in the negative. “Not by a long shot [is a hard money lender a loan shark],” he writes. “Typically, hard money lenders are just investors, or bird-dogs acting for investors. They have to be licensed, and they don’t want to lose that license. The investors themselves are typically successful business people looking to diversify their own (substantial) investment portfolio against low yields on savings and treasury bonds on one hand, and an uncertain stock market on the other, who are looking to get a decent rate of return on their capital. Hedge funds often allocate a portion of their capital to hard money lenders, because they can get a 6 to 8 percent return or better on their capital even in today’s environment of low interest rates, with some safety of capital thanks to the collateral. You can expect a hard money lender to be very experienced in your niche – most hard money lenders specialize in specific kinds of loans, or loans within a certain geographical area. They will be very knowledgeable about conditions in your market – and a valuable source of market intelligence themselves.”
He identifies several very significant advantages to working with a hard money lender. Miami based businesses can easily avail themselves of the services that Infiniti Funding provides, and hard money loans are among these. The advantages of working with a hard money lender (Miami again being primary among our interest in this case) are speed, flexibility, less red tape, and improved terms.
“Hard money loans are fast,” he writes. “Because they don’t need as much due diligence on non-property-related issues, they can be approved and funded quickly – often within a week. An experienced lender will know what a property is worth, and can make a quick decision based on the estimated after-repair value of the property by itself. …Hard money lenders don’t need to conform to anyone else’s underwriting standards. Fannie, Freddie and the VA aren’t involved. The hard money lender is primarily interested in the safety of his capital. Demonstrate to the lender that his capital is more than secured by the collateral, and you’ll get the loan. The hard money lender isn’t very interested in your tax returns, your income or anything else. If he knows the loan is secured by adequate collateral, all that other nonsense is irrelevant. …The hard money lender lends on the asset – not on your income and credit history. Because of that, the documentation is much less involved than your typical bank mortgage. If you’re a serious flipper, your time is money. Hours spent applying for bank loans are better spent finding good properties, overseeing process has value in and of itself. [While you’ll pay higher interest rates, you’ll] also have more points or up-front fees for hard money loans. But many hard money loans have no payments for the first 90 days, 6 months, or even the first year. Instead, there may be a balloon payment due at the end of the loan term. This can be ideal for the short-term flipper, since you don’t want to be making mortgage payments on the loan while you’re busy trying to fix it and you can’t rent it.”
Yanni Raz, writing for NuWire Investor, explains that real estate investors are increasingly turning to hard money loans because of the difficulty in obtaining more traditional forms of credit. “As a borrower, if you have bad credit or are looking for a non-owner occupied loan, your situation is likely dire. With the credit crunch brutalizing the financial industry, banks have been forced to tighten up their lending standards. That means that if borrowers don’t have pristine credit, and ample income and reserves, the chances of them getting approved for a loan is minimal. With credit standards so tight, there are a huge number of potential borrowers that are simply out of luck. If you happen to be an investor looking to take advantage of today’s incredible real estate investment opportunities, the situation might seem hopeless – but it doesn’t have to be. Hard money lenders have become a very popular option for investors in today’s market. The simple reason for this is that hard money lenders are filling the gaping holes not being covered by traditional lenders. Hard money lenders are in business specifically because they take on loans that banks won’t. These hard money lenders tend to focus more on property fundamentals and equity position – rather than a borrower’s credit history. Hard money loans will certainly cost more than traditional loans, but for investors looking to cash in on a great investment opportunity, the extra loan costs might be more than worth it.”
Raz goes on to explain that just because hard money loans are easier to get, you may still want to look at a traditional loan. “As a borrower, if you are able to get a traditional loan, you should. Rates are so ridiculously low right now on traditional loans, those investors who are able to get long term fixed traditional loans are starting out with a huge advantage. Hard money loans will not only come with a much higher interest rate, but also more points up front. The total APR on hard money loans will be considerably higher. Typically the main reason an investor would choose a hard money loan over a traditional loan – assuming they could qualify for a traditional loan – is timing. If an investor needs access to funds in a very short amount of time, getting a hard money loan might be their only option. Banks tend to have a very defined process when it comes to funding a loan, and getting them to deviate from that process is nearly impossible. Because of this, it typically takes at least 30 days to fund a traditional loans.”
Contact Infiniti Funding today to see how we can tailor a financial solution to your needs. We can be your hard money lender. Miami area borrowers are always welcome. Let us help you.