Why traditional banks aren’t ideal for real estate investment financing Whether you’re new to real estate investing or an industry titan, you know that banks are vital but often lack speed and flexibility. Add to that their focus on lending for owner-occupied, primary, or secondary residences, and it becomes clear that banks underserve the market when it comes to loans for investment properties.
It isn’t that banks are hard to find. You drive by them on your commute and hear their ads while listening to podcasts or watching tv. However, when an interesting opportunity comes along such as a fix-and-flip or a rental that needs some renovation before it cash flows, many of the banks that you have familiarity or a relationship with will say “no.” Or, and perhaps worse, they will give the thumbs up but then bog you down in a slog of a process to close on the deal. Banks just are not set-up for investment property financing. And that’s why non-bank or hard money lenders, like MoFin Lending, provide financing for flips and rehab-to-hold deals (or the strategy of buy, rehab, rent, refi, and repeat or “BRRRR”).
You can also acquire or refinance a multifamily property, do a ground-up construction project, or purchase/refinance a commercial property through a bridge or hard money loan with a non-bank lender like us. However, lenders that provide this type of financing are not as ubiquitous as banks so investors may not know their products, programs, and requirements.
Bridge or hard money financing might be what you’re looking for Bridge loans or hard money financing, is an asset-backed or asset-based loan, which has a short term, typically a 12-36 month duration. With these loans, there is no amortization: you make monthly payments of interest only with the principal due in a balloon payment at maturity. Bridge and hard money loans can be used interchangeably, to an extent. They are called bridge because the purpose of the loan is to be a path, or bridge, to more permanent financing (a longer-term loan) or a sale of the subject property.
Bridge or hard money lenders place the most emphasis on your track record and experience in investing as well your credit score and history. Some other factors are also important: like your liquidity and the numbers on the deal. In comparison, working with a bank usually means that your eligibility stands or falls on your personal income or debt-to-income (“DTI”) and tax returns—personal income and tax returns do not come into play with most hard money lenders.
There are several advantages of going the non-bank route. Such as:
- Quick turnaround times
- Flexible underwriting
- Appropriate for multiple property types and deals
- Useful for more than just one type of investment strategy
- Close in cash so the deal is not lost and get your money back out immediately through delayed financing
- Get your cash-out while you wait for a sale
Working with a lender like MoFin can yield even more benefits. While many of the requirements and terms associated with bridge or hard money are uniform across the industry, MoFin Lending has set itself apart from the industry.
Multifamily, Mixed-Use, and Commercial Property Types Are Eligible
Many hard money lenders lend only against 1-4 units, which is great but does not account for the real estate investor that wants to explore new opportunities or target bigger deals.
Flexibility during the underwriting process It is helpful to note whether the lender you are working with is a direct lender and/or will be table-funding at closing.
Speed is the name of the game in closing real estate investment deals so eliminating potential delays is paramount.
Ground Up Constructions
Our bridge loan for ground-up construction does not just cover 100% of your construction or building costs, but we can also lend for the purchase, or do a cash-out refinance, of the land.
The Bottom Line
Every investor deserves to work with a lender that will remove stress from the equation. The financing of your investment property should be a smooth process with communication and transparency from day 1. It is also important to work with a lender that understands the nature of the deal. While a bank’s terms may be attractive, its process and underwriting requirements do not facilitate the growth of your real estate portfolio. Hard money and bridge lenders exist for that very reason. The more knowledge and understanding you have about the various products non-bank lenders, like MoFin, can offer, the better served you’ll be as you seek real estate investment opportunities.
Check out the full guide bridge or hard money financing.