What is a hard money loan?

A hard money loan is a type of financing provided to a borrower by a lender, primarily based on the assessed value of the underlying collateral asset. Unlike traditional bank loans, which heavily consider the borrower’s creditworthiness and income, hard money loans focus primarily on the value of the asset used as collateral. Typically, these loans are utilized as short-term solutions, with durations ranging from 1 to 5 years, serving as a bridge to facilitate property acquisition, rehabilitation, or stabilization in various real estate sectors such as commercial, retail, office, industrial, multi-family, or single-family residential properties.

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

There are many reasons a borrower may prefer private or hard money lending rather than more affordable traditional bank financing:

(1) Quick Funding Timeline – Banks generally take at least 45 days to fund a residential loan, 60-90 days for a commercial loan, and over 120 days for a development project. In contrast, a private lender can typically fund deals within 7-14 days.

(2) Financing For Fixer-Uppers – Strict bank underwriting means they rarely finance properties needing heavy repairs or redevelopment. However, private lenders happily provide loans for fix-and-flips or value-add deals as long as the borrower has sufficient equity invested. For example, borrowers can utilize short-term hard money loans to acquire and renovate properties before obtaining permanent bank financing once the asset is stabilized.

(3) Asset-Based Lending – Banks focus heavily on borrower credit scores, debt-to-income and ability to service debt. High net worth borrowers are often declined by banks if they have existing debt obligations. Private lenders emphasize loan-to-value based predominantly on the deal specifics and underlying asset rather than borrower credentials. At Gelt Financial our lending decisions revolve around a target loan-to-value ratio in the 65% to 80% range per transaction.

The speed, flexibility, and asset-centric nature of private money can fulfill an essential niche for real estate investors versus conventional lending sources. Choosing the optimal capital provider depends on the borrower’s priorities and project particulars.

What are the interest rates in Orlando‘s hard money loans?

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

• Interest Rates – Orlando 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 Orlando. One point equals 1% of the loan amount. Investors often pay 2-5 points when originating these loans.
• Term Length – Hard money loans in Orlando usually have shorter repayment terms of 6 months to 3 years. The shorter timeframe leads to higher effective interest costs.
• Prepayment Penalties – Many Orlando 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 Orlando’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 Orlando:

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 Orlando 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 an Orlando hard money loan close?

At Gelt Financial, we understand that time is of the essence. That’s why we offer flexible closing options to meet your needs. We can close your loan in days, not weeks, if you have a complete loan package. For more complex deals, we provide transparent timelines and work efficiently to get you funded fast.

Some interesting facts about the Orlando, Florida real estate market

Overall Trends:

• Shifting Pace: After a period of explosive growth, the market is experiencing a normalization, with slower but sustainable price increases. This is partly due to rising interest rates impacting affordability.
• Healthy Rental Market: Despite the shift, the rental market remains robust, with high occupancy rates and rising rents, driven by population growth and continued demand for Florida living.
• Diverse Options: Orlando offers a wide range of properties, from single-family homes in established neighborhoods to luxury condos in downtown and affordable townhouses in developing areas. This caters to various budgets and lifestyles.
• Investor Appeal: Orlando remains a magnet for investors, attracted by its stable job market, growing population, and tourism industry. However, investors should be more cautious and conduct thorough due diligence before making purchases.

Unique Characteristics:

• Theme Park Influence: The presence of major theme parks like Disney World, Universal Studios, and SeaWorld impacts the market in several ways. It fuels tourism, attracts residents, and drives demand for vacation rentals and short-term housing options.
• Tech Hub Growth: Orlando is increasingly recognized as a tech hub, attracting young professionals and companies, fostering growth in specific neighborhoods and impacting housing needs.
• Neighborhood Diversity: From historic districts like Lake Eola Heights to the modern Millenia area and the revitalized Milk District, Orlando offers diverse neighborhoods with distinct personalities and housing options.
• Affordability: While prices have risen, Orlando remains more affordable than many other Florida metros like Miami or Fort Lauderdale, making it an attractive option for first-time buyers and budget-conscious investors.