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

A hard money loan is a short-term financing option secured by real estate collateral. Unlike traditional loans that focus on a borrower's creditworthiness, hard money lenders primarily consider the value of the underlying asset. This makes them ideal for situations where traditional financing might be difficult or unavailable, such as:

• Quick property acquisition: Need funds to purchase a property fast, before securing conventional financing?
• Property rehabilitation: Looking to finance renovations or repairs before selling or renting out a property?
• Bridge financing: Bridging the gap between selling one property and purchasing another.

Key characteristics of hard money loans:

• Shorter terms: Typically range from 1 to 5 years, compared to 15-20 years for conventional loans.
• Higher interest rates: Reflect the increased risk associated with shorter terms and reliance on collateral.
• Faster closing times: This can close within days or weeks, compared to conventional loans that take several months.

Types of properties financed with hard money:

• Commercial properties (retail, office, industrial)
• Multi-family and single-family homes

Remember: Hard money loans can be a valuable tool for specific situations, but the higher interest rates make them a costlier option. Carefully consider your options and consult with a financial professional to determine if a hard money loan is right for you.

Why would a Port St. Lucie 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 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: Port St. Lucie'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 Port St. Lucie 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 Port St. Lucie 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 Port St. Lucie hard money loans?

Interest rates for hard money loans can vary depending on several factors, including the lender, loan term, borrower's creditworthiness, and the specific property being financed. Some general trends and factors to consider regarding interest rates for hard money:

1. Market Rates: Interest rates for hard money loans in Port St. Lucie typically range from 8% to 15%, but they can sometimes be higher or lower based on market conditions and lender policies.
2. Loan-to-Value (LTV) Ratio: Lenders may offer different interest rates based on the loan-to-value ratio. Lower LTV ratios (i.e., higher equity in the property) might lead to lower interest rates, while higher LTV ratios could result in higher rates.
3. Loan Term: Short-term hard money loans often have higher interest rates compared to longer-term loans. For example, a loan with a term of 6-12 months might have a higher rate than a loan with a term of 2-5 years.
4. Property Type and Condition: The type and condition of the property being financed can also impact the interest rate. Lenders may offer more competitive rates for properties in good condition and located in desirable areas.
5. Borrower's Experience: Experienced real estate investors with a strong track record may qualify for lower interest rates compared to first-time borrowers or those with less experience.
6. Lender Policies: Each hard money lender may have its own underwriting criteria and policies, which can influence the interest rates they offer. It's important to shop around and compare rates from multiple lenders to find the best deal.
7. Market Trends: Interest rates for hard money loans can be influenced by broader economic trends, such as changes in the Federal Reserve's monetary policy or fluctuations in the real estate market.

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

Several key factors influence hard money loan interest rates in Port St. Lucie:

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 Port St. Lucie 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 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 Port St. Lucie, Florida real estate market

General Market Appeal

• Rapid Growth: Port St. Lucie is one of the fastest-growing cities in the US, with consistent population increases driving demand for both residential and commercial properties.
• Affordability (Relative): Compared to other major Florida cities, Port St. Lucie offers a good balance of affordability and growth potential, making it attractive for investors seeking value.
• Location: Its proximity to major highways, the coast, and relatively short commutes to Palm Beach County adds to the area's desirability.
• Lifestyle: Port St. Lucie has a reputation for family-friendly living, plentiful outdoor recreation, and excellent golf courses. This draws both residents and businesses.

Residential Real Estate Focus

• Rental Market Strength: A high proportion of renters makes Port St. Lucie attractive for buy-and-hold real estate investors seeking rental income.
• Diverse Housing Options: The city has a mix of single-family homes, townhouses, and condos, offering investment opportunities at different price points and catering to varied tenant preferences.
• New Development: Ongoing new construction projects provide opportunities for investors interested in modern properties with potentially higher appreciation potential.

Commercial Real Estate Focus

• Expanding Industries: Growth in sectors like healthcare, manufacturing, and retail fuels demand for commercial spaces.
• Attractive Incentives: The city and St. Lucie County may offer tax breaks or other incentives to businesses relocating to the area, stimulating commercial real estate development.
• Infrastructure Improvements: Ongoing investments in roads, public transportation, and utilities support business growth and enhance property values.

Important Notes for Investors

• Do Your Homework: Always research specific neighborhoods and property types before investing. Some areas may have higher vacancy rates or less appreciation potential than others.
• Market Fluctuations: The real estate market can cycle. Have a sound strategy for both growth periods and potential downturns.

Where to Find More Data

• City of Port St. Lucie Economic Development Council: https://www.youredc.com/
• St. Lucie County Chamber of Commerce: https://stluciechamber.org/