What is a hard money loan, and why use it?

Short-term financing for quick property acquisition

• What: Hard money loans are short-term loans (often just a few months to a few years) used to quickly purchase investment properties.
• Why: Ideal for when you need to close fast – such as on a foreclosure, auction property, or a deal with a motivated seller – when traditional bank financing is too slow.

Asset-based lending focused on property value

• What: Hard money loans are secured by the property being purchased. Lenders care less about your credit score and more about the property's potential value and your equity stake.
• Why: This allows investors with less-than-perfect credit or who need speed to still acquire properties.

An alternative for "fix and flip" projects

• What: Hard money loans are common for rehab projects where the property isn't in a condition for traditional mortgages.
• Why: The lender focuses on the "after repair value" (ARV) of the property, enabling investors to secure funding based on its future potential.

A more expensive but flexible financing option

• What: Hard money loans come with higher interest rates and fees than traditional mortgages.
• Why: This is due to the increased risk for the lender. It's a trade-off: investors pay more in exchange for speedy access to funds and less stringent approval requirements.

A solution for situations traditional lenders won't touch

• What: Hard money loans can fill in when investors are facing difficulties like poor credit, bankruptcies, or unconventional property types.
• Why: When banks say "no", hard money lenders might be the only option to secure the funding needed to close the deal.

Why would a Jacksonville real estate investor pick a hard money loan (asset–based loan) over a conventional loan provided by a bank with lower rates?

Here are several reasons why a Jacksonville real estate investor might choose a hard money loan over a conventional bank loan, even with lower interest rates from the bank:

1. Speed of Funding:
   Time-Sensitive Deals: Jacksonville's real estate market can be competitive. Properties in foreclosure, at auctions, or with distressed sellers often need to close quickly. Hard money lenders can provide approvals and funding within days, while banks can take weeks or even months.
   Competitive Advantage: This speed gives investors using hard money a significant advantage in securing desirable properties.
2. Qualifications: Focused on Asset, Not Borrower
   Less-Than-Perfect Credit: Banks have strict credit score and financial history requirements. Hard money lenders focus primarily on the property's value and the investor's equity, making funding possible even with past credit issues.
   Self-Employed Investors: Proving income can be difficult for self-employed investors, a common profile in real estate investing. Hard money lenders might be more flexible in these cases.
3. Flexibility with Property Condition:
   Fix and Flips: Many lucrative deals in Jacksonville involve properties needing renovations. Banks often won't finance properties in poor condition. Hard money lenders are willing to lend based on the after-repair value (ARV) of the property.
4. Non-Traditional Investment Scenarios:
   Unique Property Types: Hard money lenders are open to properties banks may deem too risky – commercial properties, land, or unconventional structures.
   Short-Term Strategies: "Buy, Rehab, Rent, Refinance" (BRRRR) strategies or wholesale deals rely on quick execution, where traditional loans are too cumbersome.

Key Trade-Off:

Investors choosing hard money loans trade the lower interest rates of a conventional loan for the speed, flexibility, and greater accessibility they need to capitalize on specific opportunities in the Jacksonville market.

When Would Hard Money NOT be the Best Choice?

Long-Term Holds: If an investor plans to hold a property for an extended period, the higher cost of a hard money loan will outweigh its benefits. In these cases, they'd likely refinance into a conventional mortgage after any needed renovations.

What are the interest rates in Jacksonville's hard money loans?

Hard money loans in Jacksonville typically have higher interest rates than conventional bank financing, but offer greater speed and flexibility. Some key details on rates:

• Interest Rates - Jacksonville hard money loans generally carry interest rates ranging from 10% to 15%, significantly higher than conventional mortgage rates. Factors like loan-to-value ratio, project risk, and property type impact rates.
• Points - Upfront fees paid directly to lenders, known as "points", are common with hard money loans in Jacksonville. One point equals 1% of the loan amount. Investors often pay 2-5 points when originating these loans.
• Term Length - Hard money loans in Jacksonville usually have shorter repayment terms of 6 months to 3 years. The shorter timeframe leads to higher effective interest costs.
• Prepayment Penalties - Many Jacksonville hard money lenders charge prepayment penalties if loans are repaid early, ensuring they receive full expected interest payments.

While cheaper financing options are available, they come with longer wait times that can deter investors from capturing opportunities in Jacksonville's fast-paced real estate market. The benefit of flexible, rapid funding makes hard money loans' higher rates and costs worthwhile for many home flippers and property developers operating in the area. But borrowers should analyze their business model to ensure the numbers pencil with higher financing expenses.

What factors affect the interest rate for a hard money loan?

Several key factors influence hard money loan interest rates in Jacksonville:

1. Loan-to-Value Ratio (LTV): The higher the percentage of the property value you borrow (LTV), the higher the risk for the lender, often leading to a higher interest rate.
2. Borrower's Credit Score and Income: A strong financial profile with a high credit score and stable income can typically secure lower interest rates.
3. Property Condition and Location: The property's overall condition, repairs needed, and location can impact the rate. Desirable areas or properties requiring significant work might come with higher rates.
4. Borrower's "Skin in the Game": Your equity investment in the property (down payment) demonstrates your commitment and reduces the lender's risk, potentially lowering the rate.

Remember: Interest rates for Jacksonville hard money loans are typically higher than conventional bank loans due to the faster processing, flexibility, and risk involved. Comparing offers from multiple lenders and negotiating based on your strengths is crucial.

While Gelt Financial can't claim universally "the lowest rates around," we encourage you to reach out for a personalized quote based on your specific loan request. This way, you can compare our offer with others and make an informed decision.

How fast can a Jacksonville hard money loan close?

Need lightning-fast funding to secure hot properties? Gelt Financial can close your loan in days with your complete package, giving you an edge in the competitive real estate market. Avoid missing out on opportunities due to slow financing.

Some interesting facts about the Jacksonville, Florida real estate market

Steady Growth and Appreciation:

• Jacksonville's housing market has been on an upward trajectory in recent years. While price growth might not be as explosive as some other Florida metros, it offers a steadier appreciation that points to the city's economic stability.
• This growth is underpinned by factors like job growth, population increases, and its appeal as a relatively affordable alternative to more expensive Florida cities.

Waterfront Living:

• Jacksonville boasts miles of beautiful coastline along the Atlantic Ocean and the St. Johns River. Waterfront properties are a major draw, and you'll find everything from luxury condos overlooking the sea to charming riverside neighborhoods.

Diverse Neighborhoods with Varied Price Points:

• Jacksonville is a sprawling city with a wide range of neighborhoods to suit different lifestyles and budgets
• Historic districts like Riverside and Avondale offer character with older homes.
• Affordable suburban areas provide options for families.
• Luxury communities and oceanfront properties cater to those seeking a more upscale experience.

Growing Rental Market

• Thanks to steady population growth and affordability (compared to other parts of Florida), Jacksonville has a growing rental market. This presents attractive opportunities for real estate investors interested in rental properties.

Potential for Future Boom

• Some experts suggest that Jacksonville might be a "sleeper market." With its affordability, ample land for development, and growing appeal, the city could see even more substantial price growth in the future.

References:

• Jacksonville Real Estate Market Report (JWB): https://www.jwbrealestatecapital.com/jacksonville-real-estate-market-2-new-facts/
• Jacksonville FL Real Estate Market (Arrived Homes): https://arrived.com/blog/6-interesting-facts-about-jacksonville-fl-real-estate-market
• Jacksonville Real Estate Market (Doorloop): https://www.doorloop.com/blog/jacksonville-real-estate-market