General Lending Archives - HardMoneyHome.com Private Lending Blog

Category: General Lending

May 19, 2022

Buying your first home has long been thought of as a fundamental part to achieving the American dream, and in our grandparent’s generation it was one of the best investments you could ever make to secure your future. Unfortunately, nowadays this is becoming more and more one of the most common and concerning falsehoods pertaining to modern day real estate investment.  While it is accurate to say that homeowners generally have a higher net worth than those who rent, this does not mean purchasing a property is a good investment in all scenarios.  Below we will look at a few examples of when purchasing a first home is not always the best financial decision one can make.

Don’t Buy Before You’re Ready

If you’re too excited to purchase a property because you believe it’s always a great investment, you may be tempted to purchase a property at the wrong time in the market. This is often the case when you purchase a home but you do not plan to stay put for at least the first few years, or worse yet, if you purchase a home before you have the necessary money to make a proper down payment and cover all of the closing costs. It is so important nowadays to make sure you have the proper credit score, a sufficient emergency fund, a five year financial plan at minimum, and have your financial affairs in order before you purchase your first home.

Don’t Spend Above Your Means

It is understandable to think that your home is an investment that will always pay off for you, but regardless you should not ever justify spending more than you can currently afford. You should avoid taking out too high of a first mortgage loan, and avoid adjustable-rate mortgages which may put your payments within your budget but balloon out of control in the near future. Without the proper financial planning ahead of time you could be left house- poor or worse yet, placed at a higher risk for foreclosure or bankruptcy.   Over spending on a first home could leave you lacking much needed funds to accomplish other financial goals like investing in other higher return on investment opportunities.

Don’t Create Unnecessary Losses

It is important you do not fall for the trap and assume that all properties will go up in value in all circumstances and that you’ll always be able to sell your first home for more than the original purchase amount. Most properties may appreciate over time but there is are no hard guarantees in every situation.

Smart Alternatives

Sometimes you may find the right deal and make money off the appreciation of your home but you shouldn’t count on your first home purchase to make you tons of money.  Instead, you should view your first home investment as an expense and not just a sound investment.  It’s smart to make sure you take into account all the costs that comes with owning a home, including upkeep, property taxes and insurance. You should make sure any first home you decide to purchase is affordable after all costs are calculated, and that you’re in a good financial position to close the deal.  You should also keep in mind that while buying a first home will give you a place to live, you won’t be able to access the profits of your properties investment until you sell it or refinance and pull out equity. You will still need other more liquid investments for your retirement and other life commitments.  Understanding the above scenarios can help go a long way in making the right calculations prior to purchasing your first home and help you to achieve your long-term goals of growing your overall net worth.  This will put you in a much better financial position in the end.

May 13, 2021

Purchasing a property is likely the largest purchase you have or will ever make financially.  Owning your own place feels great, but you may not always be sure if your property is worth the monthly payments.  Given the current housing market, many people are considering whether or not to put their homes on the market. As nice as making a quick buck sounds, you should not base your decision to sell on that alone. There are several factors that should help guide your decision to either stay where you are or put your house up for on the market.  Here are a few tips to help you conclude whether or not you’re property is worth the monthly payments.

Rent Would Be Greater Than The Monthly Expenses

Diving deeper into the numbers can help you more clearly understand if the monthly payments  on a property ultimately make good financial sense. Look at whether or not the rent (after expenses) divided by the current market value is greater than the interest rate on the monthly payments. If the home can bring in more money than the cost of the monthly payments then it may be a worthwhile investment for you.  Anyone can use this formula regardless of whether or not they are actually planning to rent out a property.  Regardless of where you are in the decision making process, these findings can be very insightful on guiding you towards making a more educated decision whenever the time comes.

You Intend To Keep The Property Long Term

Even if your monthly payments are a little higher than you may ideally like, it does not necessarily mean your property is a bad investment.  Over time, with the more payments you make, less money will go to the interest and more goes to paying down principal.  This means the longer you hang onto a property, the more the monthly payments may become worth it in the long run.  One of the best questions you can ask yourself is ‘How long do I plan to keep this property?’ in determining if the monthly payments are worth it.

Property Taxes Aren’t Too Crazy

Regardless of where the property is located or who you are, ultimately, all property owners have to pay property taxes.   Property taxes in some areas are relatively reasonable but in other areas they make up a substantial part of a persons monthly mortgage, which could be a huge red flag.  Property taxes are known as a sunk cost, meaning it is money that cannot ever be recovered.  It’s important to be thorough and closely evaluate how much of your monthly payments are going to property taxes, how much to interest, and finally, how much is going to paying down your mortgage principal.

Great Location

It is not uncommon for many folks to purchase a home with the automatic assumption that the property value will always increase over time. However, this is only the case if the house is in an area people actually want to be in.  Some buy properties in the middle of nowhere hoping the value will increase but fail to consider that many may not wish to live in the middle of nowhere. More remote locations often make it harder to travel for work as well as provide fewer opportunities nearby to socialize.  These are just a couple of the reasons that could cause property values to climb much more slowly than in more densely populated areas.

You Can Afford It

No matter how much you love your home, it’s bound to be stressful if you can barely afford the monthly payments. Being house poor can make it hard to keep up with other essential expenses as well as enjoy even minor indulgences such as dining out or traveling periodically.  Perhaps your income has decreased since you bought the property or your expenses have increased. It could be that your budget is the same, but you’ve simply realized the monthly payment you signed up for are much too high.  No matter what the case, if a large monthly payment is causing a lot of stress in your life, it may not be sustainable long term.  On the other hand,  if the payments are within your monthly budget and not creating any financial strain than it could be worth the equity you will build to hang on to the property.

It’s Not the Most Expensive In The Neighborhood

There’s much more to life besides owning the one house on a street with the highest price tag. It can be tempting to envy the neighbor’s larger, more extravagant house, but the reality is, it’s probably not worth it.  Real estate agents use comparable local properties to gauge a home’s value. A house with a sale price notably higher than everyone else’s on the block was most likely valued too high.  Hopefully you’re not the neighbor with the overpriced house, but if you are, there’s likely a reason everyone else paid less to live in the area.

It may sound a little cheesy but home really is where the heart is. If you can easily afford your monthly payments and are truly happy with your property, then the monthly payments are probably worth it.  Whether the location is convenient to most everything in your life or it provides you peace from an otherwise hectic world, it’s not always so simple to put a price on your overall happiness.  If moving to save money on your mortgage payment would likely decrease your quality of life, it’s probably wise to simply stay put for the time being.

April 29, 2022

Most real estate investors spend a lot of time looking for creative ways to increase the income they receive on their rental properties.  While there are some obvious ways to increase the value of a property, like adding an extra room or upgrading the kitchen and bathrooms, there are also many ways to maximize your income on a rental investment without breaking the bank.  Below are just a couple of ways clever real estate investors can help ensure they are getting the most out of their rental property investments.

Allow Tenants to Have Pets

While many landlords have valid concerns and worry that allowing pets could damage their investment property, pet owners are becoming more and more frequent in this day and age. Pet owners are often limited in finding nice properties that allow pets and therefore will often settle for less desirable locations in order to live somewhere that will accommodate their fur babies.

Understanding this demand can easily add additional revenue to your monthly rental income if you are wise and know how to protect your asset accordingly.  Charging a nonrefundable pet deposit that will cover any deep cleaning and potential damages that a pet could cause is one smart way to create a win/win scenario for both you as a landlord as well as your prospective tenant.  Currently, a nonrefundable pet deposit of around $250 seems to be an industry standard in most real estate markets.  Additionally, many landlords will add on “pet rent” of around $25 to $50 per pet per month in order to offset any additional costs they may incur while increasing their overall rental income annually.

Consider Short Term Rentals

Considering lease terms shorter than 1 year can give you additional pricing power and a competitive edge over your competition.  Being flexible with tenants and offering them 6-month leases can easily add up to 10% additional monthly rental income compared to a 12-month annual lease.  Another often overlooked option is allowing for month to month leasing. Many renters who are in transition between housing or traveling for business are willing to pay top dollar for properties that do not tie them down to a long-term rental agreement.  Understanding the needs of your prospective tenants can help you secure the most out of your rental properties and set your place apart especially in a competitive market.

Supply Furniture

It is often the case, especially with short term rental agreements, that renters are looking for a place ready to go and set up with all of the furniture they need to move in and start living right away.  Whether a prospective tenant is needing to rent a place because they are traveling for business or they are a family in the process of building a new home, supplying furniture to your rental property is a need that many landlords overlook.  For those seeking furnished properties, the added convenience of a true turn key property adds a value that many are willing to pay top dollar for. Understanding the market you are in and being willing to offer a property furnished can set your property apart from the competition and secure you with happy renters for years to come.

Additional Amenities

There are plenty of creative ways you might be able to increase your property’s income potential if you are willing to think outside of the box.  For example, adding a doorbell or alarm system to a property in an urban setting can add additional security protection to your tenants and may significantly increase the amount a renter is willing to spend. Understanding exactly what your target audience is looking for and effectively delivering a desired amenity that other properties do not offer might leave you surprised as to how much additional rental income your property can bring in.

Understanding the growing demands of prospective tenants can be the difference of whether or not you are able to consistently rent out your investment property, especially in a competitive market. Allowing pets, agreeing to short term rentals, furnishing your rental property and adding additional security measures are only a few ways to set your property apart from the competition.  Regardless of what route you take to add additional value, researching the market you are in and being willing to step outside of the box will add the most potential income to your rental investment and leave your tenants happier and willing to spread the word to future prospects down the line.

April 22, 2022

One often utilized and effective strategy to secure a solid profit is to purchase a real estate property, repair and sell it as quickly as possible.  That said, one of the key factors to being successful is having proper access to the necessary capital. If you are looking to flip a property but lack the needed funds required to seal the deal, a hard money lender who provides fix and flip loans could be one smart financing option. These types of loans are generally structured in a way that allows the buyer to secure the property quickly and then have access to the necessary additional funds required for construction costs.  Below we will look at a few key benefits that fix and flip loans have to offer.

Making Upgrades Is Easy

When you purchase a fix and flip property, a large amount of your budget is often spent on construction and remodeling expenses. Fix and flip loan providers usually set up an allowance to cover necessary repair costs of the property as well as interest. This can take away a lot of stress and pressure for property developers without having to worry about spending their own money out of pocket for repairs or interest payments.

Fast Approval

Approval for a fix and flip loan is often a much faster process than securing a loan through the traditional banking system. Once you have submitted all of the required documentation, a private lender can often times approve and fund a fix and flip loan within a couple of days.  On the other hand, a traditional bank loan can often take at least a month to finalize and it is not uncommon for these loans to take much longer to be funded. Traditional bank loans commonly have much longer wait times and borrowers are required to submit numerous documents and jump through numerous hoops as part of the funding process.  These delays can often make or break an otherwise valuable fix and flip opportunity.

They Cover Most Property Types

Properties of all different conditions and locations can be funded with the use of a fix and flip loan.  Whether the property is in foreclosure, owned by a bank, or is old and run down with not a lot of public interest, a borrower can likely find a hard money lender willing to fund the right deal. Unlike with traditional loans where there are so many restrictions in place to prevent a borrower from funding these types of opportunities with a bank, as long as the deal makes sense, a hard money lender will often fund the project for you.

Prepayment Fees Are Uncommon

If you take out a traditional bank loan, it is possible you could be hit with penalties if you get the chance to pay off the loan before the date of maturation. Most fix and flip lenders do not impose these types of fees for replaying your loan early.  This is one of the main reasons why finding the right hard money lender is key to being successful with any flip and fix project you may wish to pursue.

It’s important that any hard money lender you choose to work with should have solid experience in the industry.  This alone can set you apart from the competition as efficiency, speed and quality are critical in the fix and flip world. The less time you have to spend vetting potential companies and contractors translates much of the time to simply more money in your pocket.

Last of all, you should check out what previous and current customers have to say about particular lenders. Hardmoneyhome.com is a great resource which provides more direct customer ratings and reviews than any other Hard Money Directory online. Using this resource along with other avenues when performing your due diligence will help you to ensure your success on your latest fix and flip project and hopefully many more to come.

April 8, 2022

Investing in real estate is often a solid strategy as it tends to be a consistent asset when it comes to delivering a higher return than many other investments. For seasoned investors looking to diversify their portfolios, they understand the need to be very cautious regarding pricing the markets, product under consideration in order to secure high returns consistently.  With that in mind, below we will discuss a few pro tips that will help yield higher returns from your investment long term, especially if you are considering adding one or more high end properties to your investment portfolio.

Clarify Your Purpose

Goal clarity is key prior to investing in a high-end property. It’s important to consider and have answers for all of the important investment questions. Are you investing for a strong ROI purpose or do you wish to require a dream property now to live in down the line?  Do you intend to rent out the property? Location becomes very important and you might need to invest in a more popular location if you plan on collecting the most amount of rent possible, quickly. If, on the other hand, your dream is to one day live in a high-end property, does the particular property you are considering have all the amenities suiting your future lifestyle?  Asking these types of questions ahead of time will help you identify the best property, at the most affordable price and in the best possible location.

Secure Funding

It is never wise to finance or spend more than you can comfortably afford. As tempting as it may be when searching for a higher end property to increase your spend to secure a place that has every possible amenity under the sun, it’s smart to have a clear understanding of where your finances stand and to not spend beyond your means. Your max spend needs to be clear in your mind before you begin seeking financing. If the purpose of your investment is to ultimately sale it down the line, you may be a good candidate for a short-term loan in order to fix up the property and then resell it. Short-term loans are typically easier to secure and repay than traditional financing. That said, the interest rates are generally higher and with the fed announcing recent increases are likely to continue to rise.

Location Is Key

The location of a property remains the single most important factor in the success of building equity in a property after you’ve squared away your financial road map. It is the location on which the ROI potential of the property depends. A high-end property without the necessary amenities or in the wrong part of town will almost always remain a liability and will not generate the necessary ROI needed to make the investment worth your while long term.  Any higher end property you choose should be as close to the city as possible and the neighborhood should match the class level of any future potential buyer. A high-end property in a poor location far from the cities center will in most all cases prove to be nothing more than a liability and a burden.

Do Your Research

The herd mentality can be very risky in cases of high-end property investment. Simply because your friends, family, or a co-worker have deep enough pockets or have decided investing in a location without do the appropriate research is a good idea, doesn’t mean you should do the same thing or are in the same financial situation as they are. Everyone regardless of circumstance should perform in-depth research about the properties history of appreciation and look at market trends to help predict the future expectations from the area. No matter how nice the property may be, at the end of the day it is simply an investment and you need to have a crystal-clear focus of everything that will ultimately be involved while it remains in your possession.

At the end of the day, high-end property investment is an expensive and serious investment decision and being confident of the location, pricing and amenities will help you go a long way in determining the ROI potential of the property before you get in to a deal that can quickly spiral out of control if you are not adequately prepared.

As the fed announces increasing interest rates for the first time since 2018, most new investors do not have a bunch of excess capital lying around to purchase a property without some type of mortgage loan.  While there are still many valid mortgage terms out there to meet the unique needs of the current borrowing community, there are some loan types that should be avoided at all cost. Below we will discuss some of the worst home loan types you should avoid as well as provide you with a few reasons why these are not as good as they sometimes sound.

Balloon Mortgages

Balloon mortgages may be structured in slightly different ways, but at their core they are all basically the same. After a small period of time passes, a large lump sum payment comes do.  With a balloon mortgage, you’ll normally make payments for around a 5-7 year term. After that you’ll owe the entire remaining balance of your mortgage loan, which can often mean a payment of several hundred thousand dollars.  Some balloon mortgages don’t charge monthly payments. Other times, the monthly payment is based on what you’d owe if you were paying your loan off over a longer period of time. Regardless, whatever terms these balloon mortgage offers, there will always be a large lump-sum payment.

A lot of borrowers sometimes will take out balloon mortgages because they offer lower interest rates or reduced monthly payments.  Generally, they hope to refinance their loan before the lump-sum payment is due.  Refinancing isn’t always possible, however, and if you can’t pay off your entire loan, the property could go into foreclosure and you could lose the property. This risk with these loans far outweigh the pro’s and this is why you should avoid balloon mortgages at all costs.

Interest-only mortgages

As interest rates continue to rise, understandably some may feel the need to consider more untraditional loans in hopes of offsetting the increased costs. Interest-only mortgages are structured so that you only pay for the interest on the loan and no principal. This means a lower monthly payment, however, the problem with these loans is that you don’t make any progress with paying off the property. You send interest payments every month without gaining any equity in your home.  Eventually, you’ll be required to start paying off your loan, or you’d be in debt forever. Here are a few ways this could happen:

Interest only loans are often structured as balloon loans. As discussed above, this means you pay interest only for several years and then owe a huge lump sum. Some terms may have a short interest-only period, afterwards, you’ll start to pay both principal and interest. These payments will be much higher than if you’d simply been paying principal and interest from the start. These loans carry a lot of risk. You could struggle to afford the higher monthly payments or balloon payments down the road. Since you aren’t building any equity in the property, you could be in trouble if property values decline. You could even end up owing more on the loan than the overall value of the home.

A 40-year fixed-rate loan

40-year fixed-rate loans are very similar to 20- or 30-year fixed loans. The difference, obviously, is that the loan repayment timeline is 10 years longer.  While these terms will lower your monthly payments, they also add a lot to your total interest owed. An extra decade is a very long time when someone is trying to be debt free. There’s a high probability you will carry your loan into your retirement years. This would also mean you will need to save additional funds for later. These loans may also reduce your ability to accomplish other financial goals because your interest costs would be much higher and you’d have to make that mortgage payment for an extra decade.

Instead of going with any of the above risky loan types as interest rates rise, it’s still best practice to stay with a traditional 15-year, 20-year, or 30-year fixed-rate loan. These loans have stood the test of time and remain the right options for most borrowers.  The above loan types often sound like good opportunities to potentially save on your mortgage. Chances are; however, interest rates won’t stay put for much longer and avoiding the above mortgage loan types will help keep you financial fit long term.

March 25, 2022

If you’ve invested in a rental property hoping to make money, you may find it hard to get a high return if you don’t have the right help. Selling your rental property requires proper timing, pricing, and marketing to the right audience.  Here are several tips to help you sell your rental property quickly and for the highest return on your investment.

Include Your Tenants

Having a tenant in the property could be an important factor in how much money you may make when it comes time to sell your rental property. You need to decide whether or not it’s best to wait until the lease expires, pay to relocate the tenant, or sell the property with the tenant still living in the home. These decisions can make a huge difference in how you sell your property. If you must wait until the current lease expires, you’ll be more at the mercy of whatever current market situations you face when it comes time to sell. If the market is hot, but your lease doesn’t expire for six months, you will likely have to wait to sell unless the tenant is willing to work with you. On the flipside, you won’t need the tenant’s help if you wait until the lease expires. When the tenant vacates the property, you can make any necessary repairs or renovations and get the home ready to sell. Without tenants in the house, you are free to market it as a primary residence or investment property.  If you’re selling the home with a tenant in place, you can sell when the market is hot, but you’ll need the tenant’s help.

Depending on the relationship, its often at least worth asking the tenant politely to allow scheduled contractors in to fix up issues the home may need repaired. If the tenant is staying until their lease ends, they likely wont mind someone enhancing the home.  Staging the home is also important to discuss with the current tenant.  Since you will likely need to market the property to other renters down the road, it’s worth trying to stage the home in a way that wont disrupt the tenant too much but also will enhance the appeal of the home.  Dont forget to work on the curb appeal as well. While you don’t want to ask your tenant for too much assistance to sell the property, having their help is valuable, especially when it’s time for the inspection and appraisal.

Know The Home’s Value

It’s easy to think a home is worth a lot more than it is without researching the current market trends. Researching the market value of newly sold homes in the area will help you understand how much you can make on the sell of your property.  Often, if you inflate the price because you believe your home is more valuable, lenders often wont approve the loan. Therefore, unless the buyer is paying all cash, you won’t likely get more than the home is worth.  You should look at several properties in the area that sold within the last six months and are similar to the home you’re selling.  It’s important to compare not only your properties size and location but also all of its features. Your property may have more or fewer features than the comparable properties, in which case, you’ll need to adjust accordingly.

Take Professional Photos

This seems minor, but bad pictures can often break a deal. The better the pictures you take of the home, the more potential buyers will look at your property, and the more interest you have in your home, the faster it will sell.  The majority of buyers nowadays will only see properties online because it’s more convenient or they do not live close to the property. Furthermore, investors often look to invest in other areas where real estate is cheaper or where home prices are increasing to get the best deal.  Needless to say, high quality pictures are an important part of the selling process.

Before taking photos, make sure the property is properly staged and decluttered. If you have tenants living there, ask them politely for their assistance to showcase the home properly. It’s also important that the photos are honest and realistic. There are many programs like Photoshop that will make it easy to manipulate photos, but this practice should be avoided. It is normal to utilize a wide-angle lens which allows you to capture more room in a picture without inflating its  true size. You should also use the sun to your advantage. Wait until the sun is behind your home to take exterior photos. You should also try to avoid shadows by taking photos at an angle.  It’s recommended to take interior photos mid-day, not too early, but not too late. Try to aim for around noon when the sun is the highest.

Learn The Market

As described above, it’s important to learn everything you can about the current market before posting your property for sell. Understanding what buyers want makes all the difference. If you’ve owned the property many years, it’s likely the market has changed. Knowing the latest trends will help you get the most for your home.  Don’t worry to much about making the necessary renovations.  You’ll make it back when you sell the home for more than you would have otherwise. If, for example, the kitchen or bathroom in the house is outdated, you may want to fix those areas now. Knowing what buyers/renters want will help you make the home more attractive for investors willing to pay more money for a property they plan to keep for a long time.

Making top dollar for your rental property requires that you do your research, price the house correctly for the area, and renovate and repair things before you place it on the market. It may take a little time to sell your rental property, but with the above tips, hopefully you will make the most profit possible and sell it faster than you would otherwise.

March 3, 2022

When investing in real estate there may be a better option for financing besides using a traditional loan every time. While it is true that traditional loans have been used to successfully secure many types of real estate investments, obtaining a traditional real estate loan comes with a lot of challenges. There are tons of boxes investors must check for a traditional lending institution to agree to fund their loans. Luckily, these challenges do not mean that investors who do not qualify for a traditional loan should give up on trying to invest in the real estate market. To the contrary, many investors do not even bother to go through the traditional loan process to fund their real estate investments. If you’re curious to learn what investors do when they need quick financing at affordable rates, the answer to your next investment funding could be in securing a hard money loan.

What Are Hard Money Loans?

Hard money loans are investment loans given by individual investors or companies who lend money to investors that are secured by the asset they are lending money on. The asset itself is used as collateral to reduce the risk for both the lender and the loanee.  Hard money loans are great for fast financing where investors need to purchase a fixer upper, quickly remodel the property and then sell it at a profit.  Most of the time, hard money loans are short-term loans lasting from 1 to 3 years. With the shorter loan terms, they also carry higher interest rates than traditional financing options like primary mortgages.  If you are considering whether or not a hard money loan is the right fit for you, here are three benefits you should consider before making a decision.

Processing Times

Traditional lenders usually take around 28 days to process and complete funding for a loan which is often way too long for fix and flip investors. If things are going well within those 28 days, investors could secure a hard money loan, purchase a property, and begin renovations.  For that reason, hard money loans have become a very attractive alternative to traditional bank loans.

High Approval Odds

One of the biggest challenges facing real estate investors today is simply being approved for a loan from a traditional lender like a bank or government agency. Lenders almost always evaluate the applicant’s credit status and annual income before deciding whether they will approve the loan.  A lot of times, banks will only provide a portion of the full loan amount, leaving the loanee with little to no choice but to find another way to fund the remaining balance of the loan in need.  Hard money lenders, on the other hand, don’t typically consider the investor’s credit or their income. The main requirement for determining approval for a hard money loan is whether or not the loan amount is equivalent to the collateral on the property value being purchased.

Flexible Repayment

You usually will have more flexibility when negotiating the loan terms for a hard money loan since they are funded by private investors as opposed to large financial institutions. You can usually customize the repayment options to suit your financial position which in return makes hard money loans very convenient, especially for someone who’s just getting started in the real estate business.

As an investor, you often have very few options with little turnaround time to secure the financing you need to purchase a property. A hard money loan can be a great fit because they do not typically come with all of the red tapes that come with traditional bank financing.  If you decide to fund your next real estate investment using a hard money lender, try to avoid making and quick decisions. Make sure you evaluate the terms of the agreement, any fees that may be included, and what interest rates will be involved, so you can make a wise decision that is best suited for your needs.

February 25. 2022

Bridge loans can often provide a worth wile solution for investors to take advantage of solid deals being offered especially when time is a competing factor. For example, often times when purchasing properties through an auction it is very important that buyers have fast access to funds as most auctions require funding within a month window.  In short, bridge loans are simply loans that help to “bridges the gap” between the selling of one property and the purchasing of the next one. There are other reasons and ways to use a bridge loan but this is the main one.  What few investors may not know, however, is that bridge loans can also be used to purchase and redevelop land in some scenarios.

The Basics

The basics of using bridge loans to purchase and redevelop land works the same way as if you were to purchase property. Either way you utilize a bridge loan you can expect higher interest rates compared to other traditional loans, but access to funds is typically a lot quicker than with other types of funding.

When it comes to purchasing land with a bridge loan, your exit strategy is of critical importance, and will likely be the deciding factor as to whether or not a lender agrees to loan you the necessary funds. A credit check, a significant upfront deposit as well has proof of previous experience will most likely also be needed.

What You Need?

While planning permissions are not an absolute requirement for obtaining a bridge loan, they can certainly help you to seal the deal. Lenders will generally have more confidence in the project’s completion if you have relevant permissions to proceed with any proposed enhancements ahead of time. The lower the risk of the deal you have the more lenders will likely be interested in your offer.

Increase Your Odds Of Success

Given their increased liability, lenders are often more conservative when it comes to approving applications for bridge loans for land purchases. In an effort to help guide our discussion on the specifics, in order to help increase your chances of being approved for a bridge loan for land development, you should focus on the following areas:

Property Portfolios — if you can show a portfolio with a proven track recorder of previous successfully completed projects, most lenders will be more inclined to approve you for bridge loan funding.

Exit Plan — A solid and detailed exit strategy is critical to secure a bridge loan for land improvements. A good exit plan should map out the specific ways you intend to pay back the loan by the end of the agreement.

Credit Score – While it is true that bridge loans are not only given to those with great credit, a higher credit score does offer a lender more assurance that you will be able to fulfill your financial obligations and therefore make you more likely to be approved for a bridge loan.

Planning Permission – You should plan ahead on most lenders requiring that you submit sufficient evidence of permission to develop any land before they will agree to fund your project with bridge loan financing.

Buying land with the use of a bridge loan is a valuable option for investors and land developers looking to acquire land, providing they have a clear exit strategy and sufficient evidence of any required permissions which may be needed.

February 18, 2022

Before entering into a new relationship with someone, it is not uncommon to ask yourself a series of questions first. Does this person’s values align with mine? Etc. It is no different when making a serious financial commitment like borrowing money from a potential new lender. There are some important questions you should always ask yourself and questions to ask the potential future lender before agreeing to anything in writing.  Below we will discuss several questions you should ask yourself before acquiring a new loan.

How Is Your Credit?

Make sure you have reviewed and understand your credit history as well as your credit score. The better your credit score, the lower the interest rate you will likely qualify for. Interest rate matters. If, for example, you were to borrow $25,000 for 60 months, the difference between how much you could pay with an excellent credit score and how much you might pay with a fair score, could be night and day. While a 100-point difference in credit score may not seem huge, it can be costly. With a fair score, your monthly payment could be hundreds of dollars higher, and you might end up paying thousands more for the loan over five years. Before taking out a loan, try to increase your credit score if you feel it is not where it needs to be. While it will take some time and effort, it is likely to pay off in a big way.

What’s Your Actual Budget?

The fact that you’re approved for a loan doesn’t mean you can actually afford it, particularly if you have lots of financial obligations that don’t show up on your credit report. For example, if you’re paying for your children’s education, monthly memberships, vacations, and several different hobbies, you may have trouble repaying the loan as agreed.  Even if you’ve been approved for a personal loan, take a hard look at your budget, including how much you spend on the things you enjoy each month. That way, you can make sure you can easily afford the monthly payments. In doing so, you may find you need to cut certain expenses in order to make way for a new financial obligation.

Is A Loan The Best Long Term Option?

We often spend money on things which provide great experiences and memories but no financial return. A great meal at a fancy new restaurant may be worth the price in terms of experience, but in terms of finances, you won’t likely see a return on this type of investment.  On the other hand, If you’re considering taking out a loan to remodel your bathroom or to install some new landscaping features, you could recoup your entire investment and then some. Before contacting a loan lender, determine whether or not you will likely see a return on your investment.  Now that you have a better idea of what you’re looking for in a loan, here are some more questions to inquire about with potential lenders:

What’s The Best Interest Rate Offered?

As the above scenario shows, monthly interest payments matter. A difference of 1%-2% can save you a lot of money long term. This is why it’s important to get comparative quotes from several lenders before settling on one.  The great thing about most loan lenders is that they will typically only run a “soft” credit check before letting you know if you qualify for a loan, and if so, what your interest rate will be. A soft check does not impact your credit score. It’s only when you decide to proceed with a loan that the lender runs a “hard” credit check that may ding your credit score a bit. Don’t worry, though. As long as you make regular payments on the loan, your credit score should rebound relatively quickly.

Is A Secured Loan Better?

Say you are interested in making several upgrades to your home to add to its overall value. If you’re trying to get the lowest possible interest rate, it pays to determine how much that rate would be if you opted for a secured loan rather than an unsecured loan. Most personal loans are unsecured, meaning you don’t put anything of value up as collateral.  On the other hand, a secured loan requires you to put up some form of collateral like a home or car in return for a lower interest rate. As long as its value is enough to pay off the loan if you fail to make the required payments, a lender may be interested.  Although a secured loan is likely to save you money, it’s worth remembering that If you don’t make payments as agreed, the lender has the legal right to repossess the collateral, sell it, and recoup their losses.

Are There Extra Charges?

With an excellent credit score there is no reason to pay for extras like an origination fee or an early payoff penalty. If your credit score makes you appealing to potential lenders, make sure to ask about fees. The difference between making a financial decision that works for you and one you may grow to regret is in asking questions before signing your name to a contract. Use the above guide to help make the right decision before you move forward on your next loan.