How to use Hard Money Loans for Commercial Properties in West Palm Beach

Real estate investing depends on the speed of the transaction. As a highly competitive industry, it can often feel like the search for worthwhile commercial properties is a race to secure the best opportunities for significant profits. Because speed has a lot to do with securing investment properties, commercial hard money loans, like those offered through HML Solutions, have become a staple in the real estate market. 

Commercial hard money lenders strip away all of the complicated and redundant rules of conventional lenders to get to the heart of what clients need: funds to close on properties, profit from investments, and even fund rental or office spaces. Working with a hard money specialist will ensure you get a loan that suits your project’s financial needs.

Commercial real estate is the new gold rush, except with real financial rewards. However, to capitalize on the limited potential, you must learn to move fast, and part of moving fast is to find commercial hard money lenders you can trust, those with experience in the commercial niche.

If you are curious about how you can use hard money loans on your next commercial investment, continue reading. There are at least three ways you can use funds, but first, it is crucial to define a commercial hard money loan.

Defining Commercial Hard Money Loans

The primary thing to understand about commercial hard money loans is they are asset-based. Unlike conventional loans that are strongly credit-based, a hard money lender focuses on the investment’s property value. While some lenders will focus strictly on the current value, others will consider the after-repair value to determine overall loan value.

Due to the speed of commercial real estate transactions, hard money vehicles are an essential tool for property investors. However, the key to the effective use of such loans is understanding when they provide the most value. Whether you are looking to fix-and-flip properties or want a fast and flexible option for your next rental, understanding the primary uses of hard money loans will ensure you always get the most value from the experience.

Understanding Why Hard Money Loans are so Valuable To Investors

Conventional loans take time to process and approve, and the borrower often feels assessed and judged because they essentially are. Commercial hard money lenders take less interest in the person borrowing the money because the loan is asset-based, meaning it is secure, presenting limited risks to the lender. 

Because a hard money lender cares less about the creditworthiness of the borrower and more about property value, the approval process can happen in as little as a few hours. Often, a borrower can receive funds within one week or less. 

Most commercial real estate investors use hard money loans in specific ways. Some examples include:

  • Multi-family units
  • Warehouses
  • Office buildings
  • Retail facilities

Using a Hard Money Loan for Investments and Rental Properties

There is no secret formula for making more money. You need to increase revenue streams and continue adding to them to increase earnings. In real estate investing, the primary way to increase revenue is through rental properties. The more properties you own, the more income you have coming in, hopefully contributing to your net profits.

Many first-time investors start by purchasing single-family homes or duplexes, but the real profit and opportunity lie in multifamily properties. A multifamily property consists of four to five family dwellings in one building. According to the National Multifamily Housing Council, nearly 63% of all existing rental properties are multifamily units, meaning there is plenty of investment and ownership opportunity in the marketplace.

While some investors might feel motivated to purchase single-family homes for rental opportunities, there are drawbacks to such decisions. First, while rental income looks promising on a single-family home with less risk of tenant turnover, greater profit exists in multifamily properties. 

Consider a single-family home will rent for $2,000 per month. That is the extent of your profit. From that, you need to cover expenses from maintenance and property and business upkeep. Now consider you have a multifamily unit with five dwellings, each renting for $800 per month, bringing the total rental potential to $4,000 per month. Because the multifamily unit is still within a single property, maintenance costs and other expenses will remain similar to a single-family home, meaning profit potential is significantly greater with a multifamily unit.

Due to the availability and competitive nature of real estate investing, a quality multifamily property will not sit on the market for long, meaning that securing funding quickly is a priority. Out of all loan options available, no lender is quicker than a hard money lender. 

Besides the transaction speed, an experienced hard money lender like HML Solutions can provide insight into the current real estate market. Our experts might be able to offer suggestions for improving your investment opportunity, ensuring that everyone is happy with the arrangement.

Finding the Value in Commercial Property Investment

It is no secret that investing in commercial real estate – or any real estate for that matter – is a risk. However, the potential benefits are the reasons so many real estate investors are drawn to the commercial market:

  • Appreciating value
  • Low maintenance
  • Long-term tenants
  • Long-term revenue streams

Working with an experienced lending partner is crucial to ensuring your venture’s success, especially if you are not familiar with the industry or area of your investment. An experienced hard money lender like HML Solutions can help guide your project, keeping you focused on the future tenant rather than personal preference.

The Draw To Commercial Hard Money Lenders Over Banks and Other Conventional Institutions

Some people, especially amateur investors, might feel a little uncomfortable working with a private lender rather than a more conventional institution, like a bank. While it is true that hard money lenders offer loans with higher than average interest rates, the overall approval and funding process is significantly faster than traditional financial institutions. 

Conventional lenders require extensive underwriting and paperwork. They also require background checks, credit scores, investment plans, and several other things that slow down the process. By the time a bank finishes making borrowers jump through hoops, the investment opportunity might be long gone.

Commercial hard money lenders can take greater risks and have more freedom when it comes to the approval process because they are private lenders, and loans are asset-based, meaning less interest is placed on the creditworthiness of the borrower. Hard money loans often require higher interest rates because of the shorter terms on the loans, but if term lengths are flexible, depending on the project, sum, and refinance options.

Understanding the Three Uses for Commercial Hard Money Loans

Thus far, we have discussed hard money loans for multifamily investments and commercial real estate. The third use of hard money loans is as a bridge loan to fund the gaps between the sale of one property and the purchase of the next. 

Bridge loans are fairly common in commercial real estate investment. Using a bridge loan, an investor can refinance one property and use the funds to purchase another. However, more often, a bridge loan is used in one of three ways:

  1. Finishing a project
  2. Getting the property ready for the next stage in the investment
  3. Preventing foreclosure

Sometimes a bridge loan is used to purchase foreclosures at auction. An investor uses a cash-out refinance on one of their existing properties, providing them with the capital necessary to make a cash offer during an auction. While you might think it would be easier just to get a loan for the prospective property, that is not how foreclosure auctions work.

Auctions require cashier’s checks to place bids. A hard money lender will not offer a loan and is not permitted to provide a loan for such bids. A lender needs title insurance and escrow to secure their bottom line in a transaction, and an auction does not provide either.

In Summary

Hard money loans make it easier to invest in commercial real estate. Lenders provide fast and flexible loans to accommodate quick-moving deals. There are at least three ways to use a hard money loan:

  1. Investing in multifamily properties
  2. Investing in commercial facilities
  3. Bridging a funding gap

Why Choose HML Solutions for Your Hard Money Lender

When you are looking for a custom lending solution to secure a fast commercial real estate investment, you need to work with an experienced lender. HML Solutions is a trusted name in the industry, and our lending experts have the expertise to customize a funding solution that works for you. Better still, they can work with you to secure approval and funding within a week, in most circumstances.

We know that your project should mean more than your credit score, and we are prepared to look beyond most issues. We care most about the potential of your project and the value of the existing property. Why work with a conventional lender when a hard money option gets you the approval you need fast with little hassle. Contact an HML Solutions representative and ask them about our loan programs and how we can help make your investment goals a reality.

The Advantages of Bridge Loans for Construction Projects in Florida

If you work in construction in Florida, you know that securing the right financing is an essential piece of the puzzle. However, getting funding on the right terms isn’t always easy. Bridge loans offer a valuable tool for construction projects that may make financing the full project easier. With the development boom in Florida, this is especially important.

Bridge Loans and How They Work

Bridge loans are a type of short-term loan that allows the borrower to get money secured by equity in a current asset. Although there are many types of bridge loans, they are most often used when making real estate transactions. In this arrangement, the equity in a current property can be used to raise money to buy another property, typically as the down payment on a larger loan. The bridge loan is then paid off when the original property is sold.

For residential borrowers, this is helpful because it can prevent the need to line up selling a current home and buying a new one. It is also frequently used by commercial borrowers who want to move quickly on opportunities. This can include funding a construction project or buying the land that you want to develop.

Financing Construction

Paying for construction projects often relies on construction financing. These are special loans that may be taken against the value of the land or some other asset to help pay for the development of a property either as new construction or a renovation.

The longer you sit on a property without developing it, the more you are spending and the more opportunity for returns you are missing. Therefore, it is often in the interest of a developer to get a construction project financed quickly. However, it is not always possible to make the necessary down payment on a loan, especially if your cash is tied up in other projects and properties.

Using a bridge loan can help to bridge the gap between where your finances are currently and where you need to be. It can help you get money from the equity you own in various properties to help fund your latest project. It could also be used to help with buying the land that you want to develop. This is especially relevant for time-sensitive opportunities.

Florida Development and Bridge Loans

Florida has experienced an increase in demand for high-end housing options as people have tried to escape colder climates and high taxes during the COVID-19 pandemic. This means there are opportunities to be leveraged if you have the right financing. However, the trend may not last forever. You will need to move quickly to take full advantage of it. For this, a bridge loan may help you to secure the money you need to thrive.

Explore More Today

Discover more about financing construction projects and bridge loans today. HML Solutions is an expert in bridge loans and hard money loans. We can help you get the financing you need for all your construction and other business ventures in Florida. Contact us today to learn more about these financing options.

Property Flippers in West Palm Beach Prefer Hard Money Loans

Flipping houses can be a great source of income, especially if you know how to spot a good deal and keep your costs low. It’s also important to have a flexible source of financing you can use to help you acquire various fix-and-flip projects. Often, homes that are ripe for renovation are snatched up quickly by people who want to turn a quick profit. That’s why you need to be able to get a loan quickly, so you don’t miss out on any great opportunities. Here at HML Solutions, we offer hard money loans for situations like this. Unlike standard loans, a hard money loan is only meant to offer short-term financing. As long as you complete your fix-and-flip project and sell the home for a profit before your loan terms end, you’ll be in good shape. 

Why a Fix and Flip Loan Is Better Than a Traditional Loan for Flipping Houses

You may be wondering why you can’t just take out a traditional loan for a fix-and-flip project. The answer is pretty simple: most mortgage lenders don’t offer financing for such projects. Even if you could get a traditional mortgage loan, it would be the wrong fit for a fix-and-flip situation. You don’t need to get a 30-year mortgage on a house you don’t plan to own for 30 years. In fact, if you manage your project well, you’ll probably fix up and sell the house within a year. That’s why short-term financing is ideal. 

People and businesses who flip houses regularly are better off going through a hard money lender for the type of financing they need. Our hard money loan solutions offer rapid financing, but they do need to be repaid quickly if you want to cut back on costs and fees. You can use a hard money loan for the duration of your project. Or, if you think your project may take longer than a year, you can use a hard money loan to help you acquire the property you want, then replace it with a source of long-term financing once you have the time to do so. 

How Fix-and-Flip Loans Work

Most hard money loans for flipping houses have 12-month terms, though some offer terms as low as six months or as high as 18 months. Some even come with an initial term, but also offer an extension option if you aren’t able to pay them off at the end of the term. 

You’ll find that some fix-and-flip loans come with fixed interest rates, while others come with variable interest rates. However, almost all of them are structured as interest-only payments until the loan comes due. At the end of the loan period, the entire principal balance is due. This is also known as a balloon payment structure. 

To make this simpler, if you have a 12-month hard money loan, your monthly payments will only go toward interest until the end of the 12 months. At the end of the loan period, you’ll need to pay the entire loan balance at once. 

When you take out a loan for flipping a house, the amount will be sufficient to cover the entire project cost (which includes repairs, renovations and the cost to buy the house). The maximum allowable amount for the loan depends on the lender you go through. However, most lenders calculate the maximum allowable amount through either of these approaches:

  • Loan-to-value (LTV). Through this option, the loan amount is issued based on a percentage of the property’s projected value (once associated renovations and repairs are finished).
  • Loan-to-cost (LTC). When this approach is used, a loan amount is issued based on a percentage of the anticipated renovation cost. 

In most cases, you’ll be given the option that produces the smaller loan amount. This is beneficial to you because it gives you the smallest possible loan payoff amount. 

House-Flipping Experience and Loan Eligibility

If you’ve never flipped a house before, you may be wondering if you’re eligible for a house-flipping loan. Fortunately, previous house-flipping experience is not a requirement to get this type of loan from some lenders. However, you may find that some lenders refuse to work with first-time house-flippers. We’re not one of those lenders. As long as you meet our qualifications, we’ll extend financing to you even if this is the first time you’re venturing into the fix-and-flip industry. 

Down Payment Considerations

Most private lenders require that borrowers provide a down payment when getting a fix-and-flip loan. The amount of this down payment will depend on the estimated cost of repairs as well as the total cost of the home. Your lender may finance as much as 90% of the cost of your project, but is likely to finance only up to 75% of its after-repair projected value. Keep this in mind when you’re trying to determine how much of a down payment you’ll need to secure a loan for your project. 

Required Documentation

Most lenders require the same documentation when you apply for a fix-and-flip loan. Plan to provide the following:

  • Copy of your driver’s license or other ID issued by the government
  • Bank statements
  • Personal tax returns
  • Executed sales contract for the property
  • LLC operating agreement (if applicable)
  • Renovation and repair estimates from a licensed contractor
  • Documentation for previous fix-and-flip projects you’ve done

If you have any questions about the documentation you’ll need if you apply for one of our fix-and-flip loans, just give us a call. We’ll help you prepare to make the application as quick and easy as possible. When it comes to meeting our qualifications for a hard money loan, we do require a minimum credit score. However, the determination to extend financing is based more on the property in question and your plan to renovate it. We’ll take a look at the home’s after-repair value to determine if it’s realistic or worth financing. We’ll also analyze the renovation timeline and budget. 

Potential Drawbacks of Fix-and-Flip Loans

While fix-and-flip loans are ideal for very specific situations, they do come with potential drawbacks. Here are a few of them:

  • Fees. Fix-and-flip loans often come with a variety of fees that can quickly add up, including an origination fee. 
  • Carrying costs. When you consider all of the expenses that go into fix-and-flip loans, don’t overlook carrying costs. These costs include all the money you spend throughout your period of property ownership. To put this into perspective, if you own the property for 12 months, you’ll be paying insurance and property taxes for that year. If you also have a mortgage payment, it will increase your overall costs. As long as your property sells promptly and for the amount you expect when you finish your renovations, you should be OK. But you do need to plan for potential challenges selling the property or getting the price you want out of it. 
  • High interest rates. One thing you’ll notice about fix-and-flip loans is that they have higher interest rates than regular mortgages. The rates you receive as a borrower depend on current rate ranges as well as your credit profile and the value of the property in question. 

Getting a hard money loan can be very beneficial for certain projects, but it’s important to consider both the benefits and the potential downsides. If the benefits outweigh the drawbacks, then this type of loan may, in fact, be ideal for your needs. 

Getting a Hard Money Loan in the Name of an LLC

What if you want to take out a hard money loan in the name of an LLC instead of in your own personal name? Is this scenario possible? The answer is, yes. In fact, most hard money lenders prefer to extend hard money loans to LLCs. There are some that will not issue fix-and-flip loans to individuals at all. So if you don’t currently have an LLC set up, you may want to consider doing so if you plan to take out multiple fix-and-flip loans going forward. 

Credit Score Eligibility Information

You may be wondering what kind of credit score you’ll need to be eligible for a fix-and-flip loan. While all lenders are different, you’ll likely find that a minimum FICO score of at least 600 is required. This score falls into the “fair” credit category. Keep in mind that although this is likely the minimum score you’ll need, the higher your score is, the more likely you are to get good loan terms and rates. However, it can be comforting to know that you don’t need to have an exceptional credit score to qualify for a fix-and-flip loan. 

Learn More

If you aren’t highly experienced in fix-and-flip loans, you may find the terms to be confusing. If this is the case, don’t worry! We’d love to help you understand these loans better and how they can benefit you in certain situations. Don’t hesitate to contact us and rely on the expertise and knowledge of our friendly financial consultants. We’re here to help you choose the best loan product for your needs. Contact us today to schedule your obligation-free consultation or to request your application. 

Demand for Luxury Rentals Rises in South Florida

South Florida is seeing a rise in demand for high-end rentals and luxury condominiums. This represents a significant departure from recent trends and may impact real estate projects in the area. The region appears to be attracting an increased number of affluent Americans and the current inventory may not be able to keep up.

Increased Demand for Luxury Properties

As affluent buyers and renters arrive in South Florida, they are seeking luxury rentals and condominiums that can satisfy their lifestyle needs. This group is primarily made up of wealthy families coming from other states, particularly those with relatively high property taxes and/or harsh winters.

Historically, places like New England, New York and California have been hubs for affluent individuals and families because they are also centers of commerce and industry. However, the COVID-19 pandemic greatly increased the interest in and availability of work-from-home opportunities. This has encouraged many people to seek out new homes in areas with lower taxes and more pleasant weather.

These families are bringing significant wealth into the area. Thus, they are also looking for homes that can suit their lifestyles and expectations.

Buyers Looking for Larger Spaces

One of the most notable trends is the emphasis on larger condominiums. There are not a lot of single-family homes available in South Florida. So, many of these newcomers are looking primarily at larger condos either as purchases or rentals.

However, the availability of larger condos is also limited. People arriving with a family of four or more, especially with kids who are accustomed to having their own bedrooms, want condos with three or more bedrooms. Much of the available inventory is one- and two-bedroom units. Developers who built the currently available inventory were not expecting such an explosion of newly arrived families.

Three-bedroom condos are especially in-demand. However, these are relatively rare throughout the South Florida region.

In some cases, new arrivals are coming from massive homes in other states and seeking to downsize to avoid the maintenance needs. However, they are still looking for homes of 6,000 or more square feet. Currently, there are not enough properties to meet the demand.

Risk for Developers

The obvious solution to this issue is to create more supply. However, there is a significant risk. Much of this trend has correlated with the COVID-19 pandemic. Therefore, it could end as quickly as it began. There is no guarantee that people will continue to remote work from Florida for a job in New York.

Therefore, if developers invest in larger condos and homes, they may find themselves holding inventory that is no longer in demand. While some multiunit properties can be converted into smaller units, large single-family homes may drop substantially in value.

Learn More Today

The increased demand for luxury rentals and purchases in South Florida is an interesting trend. It is unclear at present how long the trend will continue. It may be a long-term shift in where people live and work. However, it may also be a temporary change that fades once post-pandemic normalcy returns. Learn more about this trend and more with HML Solutions.