Miami real estate investors keep an eye on the market every day. The real estate market in this city changes all the time, but it’s almost always a hot market. The city itself is one in which people want to live, so there is always a need for housing. People who live in the north want to move south because they’re tired of the harsh winters. Few people enjoy shoveling snow for months at a time, and they want to find homes in or around Miami. They want to trade their white Christmas for a white sandy beach. It’s a big draw for people across the country, and Miami is even a city where people want to come from all over the world.
Investors know this, and they know that they are not risking nearly as much in the real estate market working in this area. However, are you aware that real estate investors in Miami aren’t just looking to buy and flip properties? Some of them are looking to invest their money in other investors by issuing hard money loans. Essentially, they want to give other investors their money to find and purchase homes for next to nothing, flip them, sell them, and pay back their money in addition to a hefty interest rate. It’s a profitable business, and it’s one that might just work for you if you’re interested in flipping homes.
Why Does A Hard Money Loan Make Sense?
A hard money loan makes sense if you want to flip a house. Speed and efficiency are two of the most important factors in the real estate investment market. The faster you can buy a home and flip it the faster you can sell it. When you can sell a home faster, you stand to make more money. The longer it takes you to flip a home means the more risk you are taking. The market changes all the time. However, most homes take anywhere from 30 to 60 days to close, which means your current comparable home sales in any area are only good for that long depending on how many homes are for sale in that area.
Since the market fluctuates regularly, you don’t know what might happen in the next 30 to 60 days. The great comps you see right now to support your asking price on the flip you want to buy might not be relevant by the time you secure a mortgage, buy the home, fix it up, and sell it. This is what you want to find a hard money investor for.
A hard money loan issued by a Miami investor allows you to find a home and buy it in as little as a few days. Investors don’t want to spend weeks doing credit checks and verifying income and making you sign paperwork while the underwriting process occurs. They want to make more money with their money, so they look at the collateral property and decide if they’re lending you the money you need. If they feel that the property you want to buy is worthwhile, they’re issuing you a loan right away. Your credit score, credit history, and even your repayment abilities do not matter as much as that collateral property.
Should I Use A Hard Money Loan?
Time is rarely more of the essence than it is in the real estate market. Now is your chance to get a loan and buy a home in days rather than months. You could potentially have your home fixed up and on the market in the same amount of time it takes you to get a traditional mortgage through your bank when you opt for a hard money loan instead. This is a powerful situation.
Rates are higher and the terms are different, but the money is there right away. You typically have anywhere from a few months to two years to repay this loan, but the rate is high enough that it will encourage you to work fast and efficiently. If nothing else, this is one way to remove some of the risks of losing your comps when working with an investment property.
Hard Money Loans Miami
Delancey Street is a premier, and trusted, Miami hard money lender. We offer loans on residential and commercial properties alike. We fund entrepreneurs who need funding in order to purchase properties. We understand the challenges real estate investors face when purchasing investment properties – funding is an issue. We can help you with that funding. As a private lender, we don’t have the same stringent guidelines that traditional lenders do.
First and foremost, the term hard money comes from equity which the loan is based on when borrowing money to purchase real estate, a lender needs a guarantee they won’t lose money. With normal, or “soft” loans, this comes in the form of pay stubs, bank account balances, etc. With a hard money loan, the loan is based on “hard assets,” such as the property being financed, or another property in your name. Banks, and other institutional lenders don’t lend like this.
As a result, the money in a hard money loan is – in all practicality, coming from private lenders. The money for a hard money loan comes from a private lender, as opposed to larger institutions.
Who uses hard money loans
Hard money loans can be used by anyone, for anything, that is backed by a tangible hard-asset. We often see hard money loans be used for rehabs, fix and flips, initial purchases, or even other more creative scenarios. Long term investments are typically not a good idea for a hard money loan – because they can get expensive quickly. You want a hard money loan if you think you can pay it off quickly.
Who qualifies for the money in a hard money loan
Hard money loans don’t take into account credit history etc. The primary thing a hard money lender looks at – is the deal. They look at the property/real estate being purchased, and it’s value relative to the amount being lended.
What do we look for when funding hard money requests?
Many people consider hard money after their loan request has been declined by a traditional bank or a credit union. Others think about using Miami hard money loans because these loans can close very quickly. One of the main reasons people prefer hard money loans is because they get approved fast. Traditional lenders can take 2-3 months to approve; in contrast hard money lenders can approve a loan within 3-4 days.
Hard money lenders do not have tough underwriting guidelines that they strictly follow. If a loan makes sense in the lender’s eyes, you’ll be approved for hard money financing.
Basic Miami Hard Money Loan Requirements
While hard money loan requests are reviewed individually, keep in mind that each lender usually has specific basic requirements. For example, a commercial hard money lender may only make loans up to 60 percent loan-to-value and up to $5 million dollars. The lender might only lend on multi-family and multi-tenant office buildings. Each hard money lender typically has specific requirements such as this, so it is important that you review the loan requirements for lenders. These are usually found on the lender’s website. Remember, however, that the actual interest of the lender as well as the loan terms that you may receive will be based on an in-depth review of the loan request.
The Merits of the Project
Some applicants use Miami hard money loans as a convenient source of cash when they do not have time to wait for a traditional loan to get approved. Sellers won’t wait for months – before knowing if their property is sold or not. Sellers will sell it to the first party with funding. That means hard money loans, which can be approved in 3-4 days, give any real estate investor a competitive advantage.
Many real estate investors who are interested in hard money loans need financing because the they do not qualify for a traditional loan. If a property needs to be renovated, or rehabbed, in some way before it can qualify for traditional financing, then you’ll need a hard money loan to purchase it. Traditional lenders don’t provide funding for rehab properties, or properties in distress.
Steps for Qualification
Hard money loans are unique and individually reviewed. It is not possible to accurately say if a loan may qualify for hard money loans until the lender actually reviews the loan request.
The next step to take is to create a detailed package that provides a written outline of the scenario and all supporting documentation. One of the great benefits of hard money loans is that there are no strict qualification requirements. Each Miami hard money lender reviews loan requests in different ways, and they all typically look at loan requests that are not suitable for traditional loan programs.
How are hard money lenders different from traditional lenders?
When most people think about applying for a real estate loan, they immediately think about reaching out to banks and credit unions that initially come to mind. This may include some of the largest and most well-known financial institutions in the country, a few regional banks and perhaps some local credit unions. To save time and energy shopping around for a new loan, these individuals may sometimes use the services of a mortgage broker. However, these well-known financial institutions are not the only real estate lending option available. There are times when it makes more sense to reach out to a hard money lender for assistance with your real estate financing needs.
You may have heard the term “hard money” before, but you may not be certain what it means or how it pertains to you. Bank lenders and hard money lenders may be used to fund the same types of properties, but they typically do not compete with each other head-to-head. This is because they appeal to applicants in different ways. With a closer look at how these two types of lenders are different, you can better determine when you should reach out to a hard money lender for a real estate loan.
How Traditional Lenders Work
You may have previous experience applying for a real estate loan through a traditional lender. When you complete a loan application and formally apply, you will learn if you qualify for their loan program. Their loan programs for residential, commercial and even construction scenarios usually have very specific criteria that you need to meet. This may include a debt-to-income ratio, a loan amount and LTV, a minimum credit score requirement, a minimum cash reserve after closing and more. There are also usually property requirements. For example, in most cases, an existing property must be in good condition with minimal or no significant deferred maintenance. If your loan request does not meet these and other requirements, the lender will decline your application regardless of mitigating circumstances in most cases. Essentially, either you meet all of the loan requirements or the financing request is declined.
What to Expect From a Hard Money Lender
A hard money lender, on the other hand, will not typically quote terms over the phone or via email without learning more about the loan scenario. Rather than trying to find loan requests that fit into a predetermined box of lending requirements, hard money lenders consider each loan to determine if the loan has merits. Hard money loans are commonly used to renovate or rehab a rundown property so that it can later be sold or used as an income-producing property. There are not specific borrower credit score requirements, debt-to-income requirements or other requirements for the loan request, but the loan request must still be strong or have incredible potential. The loan terms are determined based on the lender’s perception of risk. Because these loans typically fall outside the typical lending parameters, hard money loans have a shorter term and a higher interest rate than bank loans. In addition, while bank loans may take two to three months to close, a hard money loan may take a week or less.
Essentially, many real estate investors first look at traditional banks as a source of financing. This is because bank loans are usually more competitive. Hard money loans are often only considered when a bank loan is not possible or ideal.
Hard money loans are not suitable for all situations. Do your homework before applying and potentially wasting time. If you feel a hard money loan is what you need – then Delancey Street can help. We are a top rated hard money lender in Miami, and have funded ten’s of millions in loans. If you have questions about hard money and want a loan, we can help. Contact us today by either filling out our loan application or calling us.