Even a red hot real estate market presents hurdles ~ like where to obtain capital?
While there are banks that will help good credit & well-experienced real estate professionals ~ these options can be a bit cumbersome in the early stages. As the relationship is developed, bank rates make this exercise worthwhile in the long run … if your credit composite qualifies.
Yet, there are a number of other traditional & hard money options available. (Hard money definitions: a hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by real property. Hard money loans are typically issued by private investors or companies ~ Wikipedia is a great example!)
Today, we will look at hard money lending ~ a common option for real estate in Kansas City and most parts of the country. Let’s explore the commercial lending options:
LTV: Loan to Value. The amount of the loan as compared to the value of the property. Often 65%-80% is the current amount that a hard money lender is willing to fund – depending upon various factors.
ARV: The value of the project after repair. (i.e. What is your projected selling price?)
Rate: The rate of the contract ~ the interest rate.
Term: The duration of the contract ~ most often less than a year.
Loan Extension: Projections don’t always go according to plan. To that end, it is nice to have a right to extend for a specific time frame (often 3 months.) Without this, you may end up in default (we don’t want that!)
Points: A loan origination cost expressed as a percentage.
Draws: If the renovation funds are included in the loan agreement, a lender will normally disburse the draws as the project progresses, according to their inspections.
With these definitions as a backdrop, here are The Basics:
Typical hard-money Terms: 6-12 months
Typical hard-money Rates: 8% – 18%
Typical hard-money Points: 2% – 6%
Typical Extensions: 1 or 2 extensions for 2 or 3 months each.
Think of these terms as a sliding scale based on the overall risk perceived by the lender. The greater the risk, the more rigid the terms, and the greater the rate & points.
Hard Money Credit Requirements
Most commercial hard money lenders will want to see basic underwriting documentation that will include the following general information:
- Credit Application
- Borrower’s tax returns
- Borrower’s financial statements – personal & business
- Project information: purchase contract & project plan (specific financial request)
Once you submit your package to a lender, they may require an appraisal & other documentation. Once all needed information is received, this process may take (typically) 1-3 weeks. Some lenders may offer pre-approvals. Finally ~ you may make all the difference! Professional & complete presentations help in the underwriting process. Do your best work.
Once Approved… Now What?
Your closing agent at the lender’s title company will guide the process.
- Schedule closing
- Signing all sale & lending documentation
- Funding – including any renovation funds – into your account
Get Busy – Renovation Madness!
A complete & thorough demo is a perfect way to start the process. Take it one step at a time & enjoy the work.
SLS is an experienced commercial lender in serving Real Estate Professionals with the following:
- Real Estate Renovation Loans
- Hard Money Loans
- Flash Funding – short term acquisitions
- Bridge Financial
- Real Estate Renovation Equipment Financing & leasing
We always look at the person & their story when helping business owners with capital for profit, growth & expansion.
Best of all, our people & systems are dedicated to making the process as uncomplicated as possible. Need help?
Call Doug (or email!) any time!