8 Ways To Use Hard Money Financing

If you haven’t used hard money financing before, it’s natural to have some questions. Many companies are turning to this flexible, fast and simple loan option. At HML Solutions, we’ve helped countless businesses in Florida, from construction businesses to real estate developers. How can you use a hard money loan to benefit your business?

Real Estate Purchases

In Florida’s high-speed housing market, you need capital if you want to snag the best deals on real estate. Hard money loans are fast, often providing financing in as little as a week. That way, you can close on hot properties before other buyers get a chance to start a bidding war.

Fix-and-Flip Projects

Whether you have your eyes on a bank foreclosure property or a house with a heart of gold that needs a lot of work, hard money financing can help. You can use this type of loan to purchase property, cover the cost of renovations, hire contractors and buy materials.

Asset Liquidations

Sometimes, it can take a while to sell a property you’ve inherited. The same thing goes when businesses want to sell heavy machinery or another type of equipment. If your company needs funds in the interim, hard money loans can cover your operations until the asset sells.

Business Acquisitions and Buyouts

Acquiring a business or buying out a business partner generally requires obtaining a large amount of capital in a short period. You don’t have months to wait for a long-term loan, and you can’t count on revenue until you complete the negotiations. That’s where short-term financing is a huge help.

Investment Property Improvements and Repairs

Property managers typically have a hard getting approved for traditional financing for property improvements. Lenders don’t see the value. Hard money loans are much more flexible. With high-value improvements, you can increase your profits every month from your commercial and residential rental properties.

Cash Flow Stabilization

Any business that has cash flow issues can benefit from hard money lending. Cash flow problems aren’t the same thing as low sales volume. A company can sell more than enough every month but still run out of funds if customers take forever to pay. With a hard money loan, you can cover financial needs while waiting for client invoices to come due.

Loan Deadlines

Can you honestly use a short-term loan to help cover payments on a long-term loan? Yes, if it’s a hard money loan. This type of financing is based on business assets, so it doesn’t hurt your credit to apply at the same time. You can cover the urgent loan payments until your revenue picks up enough to take care of the rest.

Credit Score Problems

Traditional loans — even SBA loans — are tricky to qualify for if you have past credit issues. Most banks won’t even seriously consider your application. With a hard money loan, it’s different. What matters is the value of your asset, not your credit rating.

These are just some of the benefits you can get thanks to hard money financing. To get started, contact us today for more information.

Using Bridge Loans as Gap Financing for Properties in Florida

Florida housing markets are off the charts in terms of investment opportunities. There are incredible properties with gorgeous vistas and coastal charm that buyers are waiting to get their hands on.

Before property investors and real estate businesses can complete the purchase, they need financing. Bridge loans are quickly becoming one of the most popular types of gap financing for this purpose. How can bridge loans help and how do they work?

What Is Gap Financing?

As the name suggests, gap funding refers to financing options that bridge a temporary gap in working capital. It’s a short-term financing method that provides funds quickly and flexibly. Several loan options can fall into this category, including working capital loans and business lines of credit. Bridge loans — also called hard money loans or asset-based financing — are one of the main gap funding options out there.

What Loan Challenges Do Real Estate Businesses and Flippers Face?

The ideal way to buy a property is to apply for a long-term loan with low interest rates. Unfortunately, these traditional mortgages come with a few major drawbacks. They can take a long time to get approved: between several weeks and several months!

Another downside of conventional loans is that they’re not flexible. A loan board has to look carefully at the property you want to buy, give you the OK and determine exactly how much funding will be provided.

For the same reason, it’s nearly impossible to get a traditional loan that covers significant property improvements or remodeling. House flippers that want to purchase a cheap home and turn it into a gorgeous property run into a brick wall with conventional bank loans.

Finally, mortgages only cover a portion of the total purchase price of the property. You always need to have money in savings for a down payment. The amount varies, but it’s common in Florida to need a down payment of 15%–25%. That’s a lot of money for real estate businesses, especially when there are unexpected costs to deal with.

How Can Gap Financing Help With These Challenges?

Bridge loans offer terms that are much more flexible. They let you make decisions quickly and help you maximize the potential of the homes you purchase. Approval for this type of financing is simple, often requiring only basic business information.

House flippers love hard money financing because it adapts completely to project goals. The money you receive is yours to spend however you decide. Did you run across unexpected issues during renovations? You can cover the costs with your bridge loan without needing any special approval.

Gap loans can help you cover purchase costs and remodeling costs. You can get money to hire contractors, subcontractors, electricians, installers and other professionals. You can use funds to buy materials for remodeling.

Even expansion projects and other improvements are on the table. You decide how to use the financing to increase the property’s value the best way possible.

When Are Gap Loans a Smart Idea for Your Real Estate Business?

Gap financing is frequently used in several situations. The way you choose to use it depends on what kind of business goals you have, how many projects you juggle at once and how quickly the current market lets you resell properties.

Bridge loans are a helpful way to supplement available funds. Some real estate businesses have lines of credit that they can use for the majority of the purchase price, but they still need additional capital. If a loan or line of credit has a loan-to-value ratio of 75%, it means the bank only covers 75% of the property’s purchase price. Taking out a bridge loan for gap funding can easily cover the remaining 25% or whatever portion you need assistance with.

Another common situation is when a business wants to buy a property but must wait for approval on a small business loan or mortgage. If the company has been preapproved, there’s a good chance of receiving the loan, but it’s still necessary to wait many weeks or months to know for sure.

What if another buyer swoops in first? With gap financing, the business can get the money to close on the property and then simply transfer the balance to the long-term loan once the financing gets approved.

Real estate businesses and house flippers frequently use gap funding differently. These businesses that have a high volume of home sales can use the profits from completed deals to pay for part of the purchase price for the next acquisition. In that case, it’s easy to use a bridge loan to buy the property right away.

As soon as the previous home sells, the proceeds are used to pay off the bridge loan. This keeps business cash flow and revenue high.

What Are the Advantages of Bridge Loans as Gap Funding?

Gap loans offer pros and cons for real estate businesses. The benefits make them a popular financing tool for many house flippers, property investors and commercial businesses.

Fast Approval and Closing

One incredible difference between bridge loans and traditional loans is their speed of approval. It may only take about a week to get the financing you need to complete a property purchase. That speed makes a huge difference when it comes to real estate.

Sometimes, homes appear at an extremely low price because of bank foreclosures or estate sales. Other times, savvy real estate agents find out about valuable homes before the owners have a chance to put them on the market.

In both cases, having access to a gap loan means you can take advantage of the opportunity. You can make owners an offer they can’t refuse before other buyers have a chance to start a bidding war or snatch a great deal from under your nose.

Stable Business Capital

Real estate businesses and property rehabbers that work on many projects at the same time can benefit from the stability that gap financing offers. In a way, bridge loans are a safety net you can rely on. If you aren’t able to sell a certain property as quickly as you want, you still have money to pay your employees, cover operating expenses, buy remodeling materials and handle other needs.

Working Capital Flexibility

Sometimes, property investors have high net worth but low liquidity. This can especially be the case for property owners who manage a large number of residential and commercial rental properties. The money you make from rent isn’t always enough to cover improvements, remodeling or in-depth repairs. Gap funding can provide an infusion of immediate capital that you can pay off at the end of the month.

Market Possibilities

With bridge financing, it’s possible to take on deals that wouldn’t have been possible before. Some properties in Florida provide a high return-on-investment once sold but come with a large initial purchase price. Wise investors can make the most of the situation, but first, they need the funds to cover these larger-than-normal deals. Gap funding gives you that extra push to complete high-value purchases.

Accessible Credit Requirements

Not all fix-and-flip businesses are large companies with dozens of employees. A major trend in Florida is for married couples to purchase fixer-uppers and generate profits with remodeling and resale. Normally, banks don’t like to provide loans for this type of deal, especially when individuals are just getting started in the industry.

Bridge loans are different. Your business experience or annual revenue aren’t the main factors for approval. Neither are your credit score or credit history. As long as the value of the property covers the gap funding, taxes, insurance and other costs, getting approved is simple.

What Are the Downsides of Gap Financing for Real Estate?

Like any type of financing, there are times when gap funding isn’t the best choice. It all comes down to your project goals and your business finances.

Compared to long-term loans, gap loans have higher interest rates. That’s why property owners looking for long-term investments only use bridge loans to close on properties until they can transfer the balance to a traditional loan. This technique provides the best of both worlds: fast approval and better interest terms.

Bridge loans just aren’t designed to be used as long-term funding. Most only have terms of six months to a year. This means that commercial remodeling projects that are projected to last a long time may not be the best way to use this funding.

Sometimes, bridge loans have additional fees and costs to consider. These costs are easier to absorb for businesses that handle a large volume of real estate transactions. For a single transaction, the fees may eat into your profits. Costs vary by lender, so it’s good to ask questions before signing the financing agreement.

How Can You Decide If Gap Financing Is Right for You?

As we mentioned before, it’s important to consider your specific business goals when deciding if a bridge loan is the solution you need. Gap funding offers countless benefits, but it also has a few downsides. At HML Solutions, our financial advisors can explain more about bridge financing options. Contact us today for assistance.

Choosing the Right Hard Money Loan for Your Next Project

Here at HML Solutions, we offer hard money loans for a variety of purposes. Hard money loans are those loans that are usually secured by some form of real estate, which is then used as collateral against the money being lent.

Our hard money loans are typically used for the financing of real estate transactions. In addition to being collateralized by real estate, hard money loans differ from traditional loans in that they are generally paid off quickly, within a few years or less, and they can be obtained even if the applicant does not have stellar credit because the funding is indeed secured by real property.

Varieties of Hard Money Loans

We at HML Solutions are in the business of providing the three major types of hard money loans: Bridge loans, Transactional loans, and Rental loans.

Bridge Loans

We offer Bridge loans for people in the transition period between two major transactions. This type of loan is intended to “bridge” the financing gap that often arises when one property is bought before an already-owned one is sold. They tend to be popular because they often come with quick approval. Advantages of obtaining a bridge loan include easy qualification as well as quick and easy repayment provisions.

We are particularly interested in offering these loans to those in the fix-and-flip business.  Property flipping is a big business in many parts of the country now, and our bridge loans can help ensure the smooth transition from one project to the next so that our customer’s business stays on track.

Transactional Loans

We can provide transactional loans to qualified individuals. These are designed to offer short-term infusions of capital to real estate investors. They are generally obtained much more quickly than traditional loans, which often involve a long and drawn-out process.

They are most advantageous for investors who have found buyers who are willing to pay a lot higher for a property than its real value. Here is a typical transaction: An investor purchases a property using a transactional loan then sells the real estate to the buyer. Immediately thereafter, the investor would then pay the loan off using the proceeds from the sale and profit the difference.

A key advantage of transactional loans is that the loan is made based on the value of the property in the potential deal. Additionally, the investor does not have to come up with the cost of purchase from his or her own funds.

Rental Loans

At HML Solutions, we also offer rental loans intended for people who are looking to purchase rental properties. Owning rental property can be quite lucrative, although many investors need an up-front infusion of capital to get their first property or two.  In general, these are highly versatile loans tailored to the specific situation of each person.

There are a number of benefits in obtaining a rental loan, including quick approval, high flexibility, and the ability to earn rental profits in short order. Obtaining a rental loan can be an important step to realizing long-term rental income.

Is Bridge Financing the Right Option for Your Next Property Investment?

Real estate investment is lucrative, but it requires smart decision-making to succeed. Markets can change quickly, and you need to be able to adapt just as quickly. One of the best things you can do is have a range of financial tools available. That way, it’s easier to select the real estate loan that fits your current business needs and cash flow the best. Is bridge financing from HML Solutions a good option for real estate investing?

What Are Bridge Loans?

Bridge financing involves high-capital, short-term loans that get approved quickly. This type of loan is designed to cover immediate costs ASAP, without the extensive waiting period of traditional mortgages. Bridge loans are also known as swing loans, gap financing, interim financing or asset-based lending.

There are several situations where gap financing can be a great fit for real estate investment businesses:

  • Providing funds immediately while you wait for long-term financing to get approved
  • Giving you money for a down payment on a new property
  • Covering a new mortgage while waiting for another property to sell
  • Financing remodeling, property expansion or other investment property changes

Who Can Use Bridge Financing?

One of the benefits of bridge loans are that they’re accessible for many different entrepreneurs. In reality, even homeowners use gap loans to cover mortgage costs when buying a new home. For investment in real estate, businesses of virtually any type can qualify for bridge financing:

  • Large real estate investment firms
  • Private real estate investors
  • Real estate developers
  • Companies that administer/lease commercial properties
  • Fix-and-flip pros

This type of financing is used by longtime investors and newcomers alike. Qualifying is relatively simple in terms of personal and business credit, so even small real estate businesses can take advantage of it. In fact, even companies with past credit problems can get a bridge loan as long as the chosen property is valuable enough.

What Challenges Are There With Bridge Loans?

Interim financing is a trustworthy option for buying investment property. Like any financial tool, it has pros and cons. There are times when it’s the perfect solution and other times when going with a different loan is the right choice. Knowing the downsides ahead of time can help you make a smart decision on every project.

First of all, it’s important to understand that bridge loans are solely designed as short-term financing. Lenders aren’t going to give you more than 12 months to repay the loan, and honestly you wouldn’t want to extend the financing further than that anyway because of interest.

Any kind of interim financing has higher interest rates than traditional mortgages. They’re not anywhere near credit card rates, but the interest does add up over time. It’s best to use this type of loan when you know you can pay it off quickly, in 6 to 12 months max.

Another thing you need to keep in mind with certain bridge loan options is that you may need equity in the property used as collateral. The amount of equity varies, but it’s usually around 20%. If you do choose to have multiple mortgages going at the same time, you have to qualify individually for both.

What Are the Benefits of Bridge Financing for Property Investment?

The good news is that you can overcome the challenges of bridge loans fairly easily when you use them correctly. After all, a higher interest rate doesn’t generally affect your profit margins when you’re planning on selling the real estate in a few months anyway. You can pay off the mortgage and the bridge loan in a short time with the money you make from the sale.

What are the advantages of this type of financing? There are quite a few benefits compared to conventional mortgages:

  • You can close on the property more quickly: An amazing benefit of gap financing is that it lets you get capital for buying properties very quickly. It may only take 2 weeks from application to closing compared to the 3–5 months of traditional loans. That’s pretty amazing when speed is a determining factor for success.
  • It’s easier to qualify for bridge loans: Approval for asset-based lending revolves more around the property used as collateral than your business’s finances or credit score. Even companies with relatively new or poor scores can use bridge loans.
  • Interim financing lets you work with sellers who don’t want contingent offers: Not all sellers are willing to agree to contingent terms related to selling your existing property. If you run into this obstacle, don’t worry about it. A bridge loan can help you make the purchase right away and still have time for your original property to sell.
  • You have more flexibility to take advantage of deals: In many markets, acting quickly is important if you want to make money from real estate investing. You want to buy low and sell high. This sometimes means having the capital for foreclosure sales or being able to negotiate directly with sellers before they put homes on the market. With bridge loans, you can buy whenever conditions are right.
  • There’s no limit to the property changes you can make: Traditional mortgages generally don’t cover remodeling costs or improvements. They’re not a great fit for most fix-and-flip deals. On the other hand, bridge financing gives you the freedom to make any changes you feel are important for resale value. This includes whole-house remodels, interior changes and exterior additions.
  • Real estate investors can improve their business’s cash flow: Having to wait for one property to sell before you even get started looking for your next project can put a serious damper on your cash flow. It’s better to have the financial freedom to pick up another promising property when you’re near to selling the first. This is important for smaller fix-and-flip pros and larger real estate investors managing multiple offerings simultaneously.
  • You can maximize profits in a seller’s market: There are times when the real estate market becomes a gold mine. When tons of buyers are scrambling to purchase a home — such as when interest rates are at an all-time low — all you need is sufficient capital to take advantage of the situation. Getting a bridge loan helps you get the most benefit from these time-limited opportunities instead of waiting around forever for a traditional loan.

How Does Asset-Based Lending Work?

Bridge loans are a type of asset-based lending solution. ABL financing relies on equity or collateral from property to back the loan. This allows real estate investors to qualify for funding amounts and loans that they may not get otherwise. The lender is taking a risk by extending a loan to a business without going through the traditional vetting process, which is why these loans carry higher interest rates.

There are several different types of bridge lending terms, from interest rates to repayment length. You can choose the program that fits the needs of each project best. There are bridge loans with no prepayment penalties as well.

What Options Are Available for Bridge Loan Programs?

One option is to use the property you’re planning to purchase as equity for the loan. In this case, you receive funds equal to a portion of the property’s as-is value. This is the loan-to-value ratio, or LTV. This type of bridge loan generally carries an LTV of 65–70%, so you need some funds for the down payment.

Another possibility is to take out a second mortgage for the new property with your current property’s value as the collateral. This helps you cover the down payment for the new loan while you wait for your property to sell.

You can also roll both mortgages together into one bridge loan. This provides financing of about 80% LTV for the value of both properties together. That way, you can get plenty of financing for full remodeling or other needs.

When Is Bridge Financing the Right Choice?

Bridge loans are smart for your business when you see the right set of circumstances. They’re especially valuable in a fast-moving market where real estate is selling quickly. That way, you can close on the property and resell it immediately. You can even take advantage of the loan’s flexibility to make a few improvements that add to the property’s value significantly, such as opening up the dining room, adding luxury details to the kitchen or building an outdoor kitchen.

What if your goal is to buy property and manage it for several years? Any time you plan to hold on to real estate for a long time, you’re going to get more benefits from a long-term loan such as SBA financing or traditional mortgages. Even in those cases, however, bridge loans can play an important role. You can take advantage of the fast closing of a bridge loan to buy the property quickly, then transfer the balance to a long-term loan once it goes through.

If you’re not sure what decision to make, talk to a real estate financing expert right away. Reliable bridge lenders want to give you a loan that helps your business prosper. Be specific when discussing your goals and current project, and don’t hesitate to ask questions. The best financing option depends on your needs and available capital. Contact the experts at HML Solutions to learn more about bridge financing options.

How To Use Bridge Loans for Financing Between Residential Properties

If you own your home, chances are that you intend to use the money from the sale of your current home to help fund the purchase of your next home. However, this presents a problem: you can’t access the current value of your home without selling it, but you won’t be ready to sell it until you have bought a new home. There are a few ways around this apparent catch-22. One of the most underappreciated options for residential properties is bridge lending.

What Is a Bridge Loan?

A bridge loan is a type of short-term loan that is secured against the borrower’s existing property (as opposed to the property that will be purchased with the loan, like a mortgage). The purpose of this type of lending is in the name: it helps borrowers bridge the gap between their current financial needs and where they need to be to complete their transactions.

Typically, a bridge loan allows a residential buyer to make a down payment on a mortgage without having yet sold his or her current home. The current home acts as the bridge loan collateral and will be repaid with the proceeds of selling that home. Technically, a bridge loan can be secured against another piece of real estate (such as a second home or an investment property), but this is less common.

How Can Bridge Loans Be Used for Residential Real Estate?

In residential real estate, the most common use for a bridge loan is to fund the down payment on a new mortgage. This may be done because the buyer is relying on the sale of an existing property to cover the down payment on the new mortgage.

Under normal circumstances, the buyer would be able to make a contingency offer on the new property. This means that the buyer will only buy the new property if his or her home sells. This is a fairly normal process, but it carries some extra risk for all involved parties. Therefore, being able to make a no-contingency offer is generally favorable. A bridge loan allows this.

Other uses for bridge loans include paying off existing debt, buying a second property (particularly a fix-and-flip or other investment property) and accessing home equity. The key characteristics of bridge loans are that they are short-term, secured against real estate and typically paid off through the sale of that real estate. In some cases, bridge loans have no regular payments and are only paid after the sale (or the end of the term).

What Are the Benefits of Using a Bridge Loan?

There are a lot of good reasons to consider using a bridge loan, especially when you are trying to move from one primary residence to another. These are some of the key benefits:

  • No Need for a Contingency: Perhaps the most important benefit of using a bridge loan is the ability to make an offer on a new home without a contingency. It will help you to secure a new mortgage without using the proceeds from the sale of your current home. Therefore, you can make a more attractive offer to the seller without adding more money. In some cases, sellers may even accept an offer other than the highest simply because it has no contingency.
  • Less Chance of Things Falling Through: One of the problems with contingency offers is that the deal can potentially fall through. If you make a contingency offer, don’t sell your home and otherwise don’t have the funds to make the deal, it can fall apart. This is frustrating and potentially expensive for everyone involved.
  • Fast and Flexible Financing: Bridge loans are typically approved and funded relatively quickly. Additionally, they can be used in a few different ways, provided that you have the necessary equity. Thus, you can use a bridge loan without the slow and time-consuming approval process associated with real estate mortgages.
  • Option To Leverage Equity: Using a bridge loan can let you access the equity you already own in your home. So, it can be used for purposes other than buying a new property, such as renovating or paying off debt. While this is less common than making a down payment, it can be a useful way to take advantage of bridge lending.
  • Enables a Variety of Financial Options: The goal of bridge lending isn’t to be the sole and final financing on a transaction. Instead, it helps to fill in the gaps between longer-term loans. Thus, with all the above benefits, bridge loans can be very helpful for simply bringing other financing options to the table.

What Are the Drawbacks of Bridge Loans?

Of course, bridge loans are not without their drawbacks. They should only be used thoughtfully by borrowers who understand the associated risks.

The most significant downside of bridge lending is that it is relatively expensive. Both the fees and interest are typically higher than those of other real estate loans. This may mean that the potential savings from a lower no-contingency loan could be eaten up by the bridge loan costs. Furthermore, you will need to be able to qualify for the second loan (meaning you can handle the costs), which is not the case for everyone.

Finally, you should also consider that a bridge loan can be risky. If you fail to sell your existing home (which is not guaranteed in any market), you could be on the hook for both mortgages and the bridge loan without the proceeds to cover them. It is important to weigh these risks.

Should You Use a Bridge Loan?

Whether or not a bridge loan is a good idea depends significantly on your individual circumstances. It can be a very powerful tool for purchasing residential real estate when wielded correctly. However, it can also be a path to financial struggles if used poorly.

You can potentially solve one of the biggest challenges of moving as a homeowner: that you need to both buy and sell at almost the same time. If you own a significant amount of equity in your current home, this could be the perfect option for you.

If you are confident that you will be able to sell your home but don’t want to make a contingency offer, this is an excellent route to consider. It could help you save a significant amount of money on your new home purchase.

Another situation that may call for a bridge loan is if you need to move homes quickly. This may be the case if you are moving for a job and need to start within a reasonable timeframe. Using a bridge loan can help you to buy a home while you are still arranging the sale of your existing home.

What Is the Process of Getting a Residential Bridge Loan?

The process of getting a bridge loan is similar to many other residential real estate loans. These are the key steps:

  1. Prepare: Before applying, you will need to know some key details such as the amount you will need (at least roughly), the amount of equity you currently own and the property you intend to buy. It is also helpful to gather relevant financial statements indicating your income and assets.
  2. Apply: Next, you will need to start the process by applying for a loan. The lender will likely want to discuss the situation with you to better understand your needs. You will need a lot of the information gathered in the previous step for this part.
  3. Underwriting: The lender will begin to evaluate your application. This is typically a mostly behind-the-scenes process that will take a few days. The underwriter(s) will consider your financial situation and use it to determine whether a loan can be offered and at what interest rate.
  4. Initial Approval: Assuming you are approved, you will have to provide some final documentation to back up your application. This is sometimes done at the application stage, but many lenders give you a bit of extra time to gather the necessary information. Additionally, you may need to have an appraisal on the property and other information that can’t be gathered before making an offer.
  5. Funding: If you receive your final approval, you will receive the funds for the loan. This is usually completed within a few days of submitting all your documentation. Thus, it is much faster than a mortgage.
  6. Buy the Property: With the bridge loan funds, you can buy the next property or make your down payment on a mortgage to buy it.
  7. Sell Your Home: Finally, you will need to sell your existing home to pay off the loan. Most homeowners begin working on this at the same time as securing the loan.

Learn More About Bridge Loans for Residential Real Estate

Discover more about using bridge loans for residential properties. With the above information, you can determine whether this is the right choice for you or not. HML Solutions can help you find the right hard money and bridge loans for your home buying needs in Florida. Contact us today to learn if a bridge loan may work for your needs.