What is a hard money loan?

Hard money loans are a type of financing where the loan is secured by an asset, usually real estate. The value of the underlying asset is the primary factor lenders use to determine approval, rather than the borrower's credit score or income like traditional bank lending.

Private investors and specialty finance companies provide These loans on a short-term basis, usually 1-5 years. Borrowers often use hard money as a bridge when they need flexible, quickly-funded financing to rehabilitate or stabilize property in preparation for refinancing into longer-term conventional financing.

Common hard money loan use cases include flipping houses, rehabbing commercial buildings, or providing working capital for real estate investments. Since hard money lenders can fund faster than banks by focusing on the project rather than the borrower, these loans allow borrowers to move quickly when time-sensitive investment opportunities arise.

The tradeoff is that hard money loans typically have higher interest rates and fees compared to conventional bank lending. This pricing reflects the increased risk taken on by the lender as well as the convenience of rapid funding. Like other types of alternative financing, hard money fills a niche for borrowers willing to pay more for speed and flexibility.

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

In the fast-paced Tampa real estate market, speed, flexibility, and access to financing can be crucial, sometimes outweighing the cost benefits of lower-interest conventional loans. Here are some key factors that influence Tampa investors towards hard money loans:

1. Lightning-fast Funding: Traditional banks can take weeks or even months to process loans, hindering deal flow and potentially causing missed opportunities. Hard money lenders, on the other hand, can close deals in as little as 7-14 days, allowing investors to capitalize on time-sensitive opportunities like hot properties or distressed assets.
2. Fixer-Upper Financing: Many Tampa properties, especially in up-and-coming areas, require renovations or rehabilitation. Conventional banks rarely finance properties needing repairs due to stricter guidelines. Hard money lenders, however, are more open to financing fixer-uppers based on the property's potential value after renovation, giving investors access to projects traditional lenders wouldn't touch.
3. Creative Deal Structures: Tampa's diverse market often involves unique investment strategies. Hard money lenders, with their more flexible approach, can cater to unconventional deal structures like short-term flips, bridge financing, or joint ventures, often unavailable with traditional lenders.
4. Credit Score Flexibility: While credit score matters, hard money lenders place more emphasis on the asset's value and the investor's experience. This can be a lifeline for investors with less-than-perfect credit or limited traditional financing options.
5. Local Market Expertise: Many hard money lenders in Tampa specialize in the local market, offering valuable insights and connections that can give investors an edge in deal negotiation and project execution.

Ultimately, the decision between hard money and conventional loans depends on the investor's specific goals, risk tolerance, and project timeline. While hard money offers speed, flexibility, and access to a wider range of deals, it comes at a higher cost. Weighing these factors carefully is vital for making informed investment decisions in the dynamic Tampa real estate market.

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

Speed and Flexibility at a Premium: While hard money loans in Tampa offer faster approvals and more flexible terms than conventional financing, they come with significantly higher costs. Let's break down the key details:

• Interest Rates: Expect rates between 10% and 15%, considerably higher than traditional mortgages. Factors like loan size, project risk, and property type influence the exact rate.
• Points: Upfront fees (points) are standard, with each point equaling 1% of the loan amount. Investors typically pay 2-5 points for hard money loans in Tampa.
  Term Length: Prepare for shorter repayment periods, typically ranging from 6 months to 3 years. This accelerated timeline leads to higher effective interest costs.
• Prepayment Penalties: Be aware that many lenders charge penalties for early loan repayment, ensuring they receive their expected interest income.
• Weighing the Trade-Off: While cheaper financing options exist, they often involve longer processing times, potentially causing missed opportunities in Tampa's competitive market. The advantage of fast and flexible funding makes hard money loans a viable option for some home flippers and developers, despite the higher costs. However, it's crucial to do your financial analysis and ensure your business model can accommodate the increased expenses.

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

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

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 Tampa 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 Tampa 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 Tampa, Florida real estate market

• Tampa is one of the fastest-growing cities in the United States. The population of Tampa Bay grew by 2.4% in 2021, making it one of the top 10 fastest-growing metro areas in the country. This growth is driven by a number of factors, including the city's strong economy, job market, and quality of life.
• The Tampa real estate market is hot. The median sale price of a home in Tampa was $410,000 in January 2024, up 3.8% from a year earlier. Homes are selling quickly, with an average time on the market of 23 days.
• Tampa is a relatively affordable city to live in. The cost of living in Tampa is about 5% lower than the national average. This makes it an attractive option for homebuyers who are looking for a more affordable alternative to other major cities in Florida.
• There is a diverse mix of housing options in Tampa. From waterfront condos to suburban single-family homes, there is something for everyone in the Tampa real estate market.
• Tampa is a great place to invest in real estate. The Tampa real estate market has a strong track record of appreciation, making it a good option for investors looking for a long-term return on their investment.

Here are some additional interesting facts about the Tampa real estate market:

• Tampa is home to a number of major employers, including MacDill Air Force Base, Tampa General Hospital, and the University of South Florida. These employers provide a stable source of jobs and income for the city's residents.
• Tampa is a popular tourist destination. The city is home to Busch Gardens Tampa Bay, Adventureland, and the Florida Aquarium, which attract millions of visitors each year. This tourism industry helps to boost the city's economy and create jobs.
• Tampa is a great place to retire. The city has a mild climate, beautiful beaches, and a wide range of cultural and recreational activities. This makes it a popular destination for retirees from all over the country.