Miami is the sixth most expensive city in the world. It is also one of the cities that has the largest gap between haves and have-nots. And this situation is worsened by banks who hesitate to hand out loans following Miami’s real estate plunge during the recent recession.
Miami – claimed by US Today to be one of the most expensive cities in the U.S. to buy or rent a home – is home to museums, restaurants, malls, culture and commerce. Foreigners swoop into Miami’s real estate with piles of cash. (As much as 70% of total home purchases in the Miami area were cash sales in March 2012, according to real estate research firm CoreLogic). In fact, Miami is considered cheap for buying prime property when compared to other parts of the world. But Miami Beach is exorbitant for its own people.
Miami’s city leaders and developers go to enormous extents to cultivate a global, cosmopolitan environment. Christie’s International Real Estate lists Miami among its top 10 luxury markets in 2014. Developers build mostly high-priced condos and homes to match the international demand. But Jack McCabe, a real estate analyst with McCabe Research & Consulting has concluded that ninety percent of new construction underway in Miami is unaffordable for 90% of its population.
Miami’s focus on luxury projects has left renters with few options. According to recent reports in the online real estate database Zillow, Miami-area renters spent 44.2% of their income on rent in the last three months of 2014, the second-highest figure in the country, after Los Angeles.
So what you have is a large number of prospective borrowers who are seeking loans. And you have an alternate market for hard money lenders – which may be superb for you if you live in Miami and are unable to get that standard loan. Miami is awash with hard money lenders.
What Is Hard Money Loans?
Hard money loans may be one of the best options for people who need to get a loan to either buy or rehab property but are unable to persuade their banks. Bridge lenders give loans that are faster, more expedient, and smoother than banks and credit unions do, and, best of all, they ignore your credit background. In other words, bridge lenders are more concerned with the property’s value than with the borrower’s credit-rating (although lenders still take some certain aspects of credit-reliability into account).
Hard money lenders can be private investors or a fund of investors. The terms are usually around 12 months, but can be extended to 2-5 years. Loans require monthly payments of only interest or interest and some principal with a balloon payment at the end of the term. In most situations, the borrower can receive the loan within a week. (Compare that to the 30-45 days of the standard bank loan!) The application process for a hard money loan takes one to two days. In some cases, hard money lenders approve the loan the same day!
The flip side to all of this is that bridge lenders charge an interest and origination fee that is typically as high, if not higher, than that offered by standard mortgage. But the risk is much higher, too.
Interest rates and origination fees vary from lender to lender and from region to region, so shop around. Generally, the rule is that the more money lenders that are saturated in one area, the cheaper you can expect the rates to be.
Property Types for Hard Money Loans
Hard money lenders specialize in various properties. Some only want to focus on one or more investment types whilst others prefer to diversity. But if you look hard enough and around enough, a borrower may be able to give you a loan on almost any type of property – including single-family residential, multi-family residential, commercial, land, and industrial. It is true that certain rules and regulations (Dodd-Franks for instance) may dissuade certain lenders from loaning on owner-occupied residential properties, but, work hard enough, and you’ll likely find others who will still be willing to wade through the paperwork.
When Should You Go For A Hard Money Loan?
The example of people in Miami who are unable to land loans from banks is a good case of individuals who may profit from bridge loans. Generally, it is inadvisable to go for one if you have good credit rating and plan to take on a long-term risk. But bridge loans are, usually, ideal for short term flips, rehabs, or for the initial purchase – particularly when you have been turned down by the bank and when the loan is needed now or fast.
Hard money loans are also terrific for situations that include: fix and flips; land loans; construction loans; and when the buyer has credit issues.
In short, hard money loans are excellent for those borrowers who are unable to land the standard loans because when banks say ‘no’, bridge lenders may still say ‘yes’.
Miami may be one of the most luxurious cities in the world. You may find yourself wondering whether you’ll ever be able to invest there. Particularly, if your credit-rating is low. But don’t worry. Hard-money investors may be your solution. Miami is awash with individuals or agencies who may lend you the money based on assets rather than credit. Get those loans and you could well find yourself owning the most important investment of your life.