EXPERT ADVICE WITH NO STRINGS ATTACHED
Successful real estate investing is like winning a game of chess: strategy is everything.
At Murphy Developments & Funding, we want to use our experience to help you build a strategy that will allow you to achieve your goals. We have completed over a thousand projects in Central Florida, from property renovations and new construction to land acquisitions and developments. As you can imagine, we’ve made plenty of mistakes along the way, but the best part about mistakes is learning from them! We love sharing what we’ve learned with our clients by providing coaching, mentoring, and deal analysis.
One thing our experience has taught us is that there’s always “more than one way to skin a cat”, to quote the old adage. By thinking outside-the-box and applying our creative problem solving, we’re able to save deals and make them work. We take pride in the fact that we’ve mentored many people who are now successful real estate investors, and we’re thrilled to offer that same level of guidance to you.
FREQUENTLY ASKED QUESTIONS
Hard money loans, sometimes referred to as bridge loans, are short-term financial loans typically used by real estate investors to finance a real estate investment project. Most of these loans are issued by private lenders instead of banks or traditional lending institutions, but you can sometimes also get a hard money loan from institutional lenders who specialize in equity loans and/or bridge loans. However, there are huge differences in the borrowing criteria and qualification requirements when you are working with institutional lenders!
Banks can be difficult to work with because they don’t like to lend on a number of common real estate investments, such as land development, flips, rehabs, and more. Basically, it’s tough to get a bank loan for any investment property that doesn’t generate cashflow from rent. Hard money lenders came into existence specifically to provide funding for real estate investments that banks won’t touch.
Aside from that, bank loan approvals are extremely restrictive and based only on the current as-is value of the property, which doesn’t always work very well for investment properties that are being purchased especially for the purpose of renovation and resale.
The short answer is that these two terms are often used interchangeably, but there are actually differences in the details.
Both loans are short-term, primarily used for real estate investments, and have similarly flexible repayment terms. However, a bridge loan can be funded by either private or institutional lenders, can be secured by assets and/or equity, and has stricter guidelines for how the funds can be used. In contrast, a hard money loan is only funded privately, is secured only by the “hard” real estate asset itself, and can be used for nearly any purpose the lender approves.
These differences mean that a bridge loan can also be a hard money loan, and a hard money loan can also be a bridge loan, but not all hard money loans are bridge loans, and not all bridge loans are hard money loans.
Confused yet? 🙂
What’s the difference between getting a hard money loan from a private lender versus an institutional lender?
The biggest difference boils down to the information they use to make their lending decisions. Institutional lenders are typically “hard equity lenders”, meaning they make their lending decisions based largely on the property itself. Alternatively, private lenders make their lending decisions based on whatever factors they see fit, including nearly any aspect of your life, any component of the investment project, or a combination of both.
As such, private lenders tend to operate as “relationship lenders”, because their relationship with the borrower often factors into their decision. Essentially, private lenders have the freedom to choose to lend their money to whomever they want, but they typically make their decisions based on indicators like the borrower’s experience, income, capital, credit, and other personal or professional credentials, while also factoring the property into consideration as well.
These two very different methods of determining “worthy” borrowers result in other key differences as well. Most institutional lenders require inspections, surveys, and appraisals, because they are using the property as their deciding factor. These additional steps are costly, but they are also time-consuming and can cause a myriad of problems in a real estate investment transaction.
Further differences could be seen as part of the overall borrowing experience; a borrower will never get the chance to negotiate with the true decision-maker of a lending institution, but a borrower can sit face to face with a private lender almost anytime! Plus, even if the transaction goes silky smooth, funding through traditional institutions takes at least 15 days, and most often takes 30 to 45 days. Meanwhile, we can fund a loan in as little as 7 days!
I already have the funds for my real estate investment project, so why would I need a hard money lender?
If you’re self-funding your real estate investments, that’s great! You definitely don’t need a hard money lender, but having a good one in your digital rolodex certainly doesn’t hurt. If you plan on continuing to make real estate investments, having a relationship with a good hard money lender is likely to improve your bottom line in many ways.
For starters, having a hard money lender can allow you engage in multiple deals at the same time without tying up all your liquid assets, allowing you to quickly take advantage of favorable opportunities when you come across them. Furthermore, experienced hard money lenders know how to make almost any deal work, so you’ll never have to worry about your deal falling through due to an oversight.
In fact, hard money lenders are even useful after closing, because they just might be the source that leads you to your next lucrative investment!
What are the differences in the terms of a private hard money loan versus the terms of an institutional loan?
In general, institutional lenders have lower interest rates and higher closing costs, while private lenders have higher interest rates and lower closing costs.
The difference in interest rate is attributed to the amount of risk the lender is taking; institutional lenders operate within a system that has multiple safety nets for them to recuperate their money if the borrower doesn’t pay. Some of their safety nets are built into their borrowing conditions, which is why they typically loan only 65% to 75% of the property’s appraised as-is value. Another common loan clause that acts as a safety net for institutional lenders is a prepayment penalty, which is a fee you have to pay if you pay off the loan early.
Another difference in real estate investment loan terms of institutional lenders and private lenders is the fees. Institutional lenders are the cause of tons of additional closing costs because they have so many requirements, so even though appraisal fees, survey fees, inspection fees, and attorney fees don’t technically go into the lender’s pocket, those services are all required by the lender. But more important is the “junk fees” that most institutional lenders charge at closing. Junk fees are sometimes easy to recognize by their vague labels on your closing statement, ensuring that you have very little idea of what you’re actually paying for. Your closing statement might list junk fees as application fees, credit fees, administrative fees, rate lock fees, processing fees, underwriting fees, and so on.
So now you know a lot about the most common terms of a real estate investment loan from an institutional lender, but you may feel like you’re still in the dark about private lender loan terms, and that’s because there is no “average” or “standard” for private lenders. When it comes to the terms of a loan from a private lender, anything goes! Flexibility, leverage, and risk are elements that private lenders wield with as much or as little discretion as they choose, and every hard money lender is different. If they wanted to, private lenders could have completely different loan terms for every investment property they lend on!
With that being said, it’s fair to say that most private lenders don’t require appraisals, inspections, or surveys, and most private lenders don’t have junk fees. Some private lenders may base their maximum loan amount on the current as-is value of the property, but most base it on values and figures that are more relevant to the investment itself, such as rehabbed value, completed value, rehab cost, infrastructure cost, and so on. Some private lenders have a prepayment penalty clause in place, while others don’t. Most private hard money loan payments are interest-only, but the time frame allowed for repayment varies wildly from lender to lender, and many lenders will even shorten or lengthen the repayment term depending on the borrower and the project.
There’s no correct answer to this question because the word “better” is so subjective. What is “better” for one investor may actually be worse for another, and vice versa.
You don’t want to make the mistake of categorizing lenders as “good” or “bad”. You should always consider all funding options, compare them based on the terms and conditions, and choose the one that suits your situation best. In short: do the math!
For example, if you will be keeping the property for a longer period of time, then choosing an institutional lender could be more financially beneficial for you because they typically have lower interest rates. Alternatively, if your real estate investment purchase is going to be short-term, meaning you intend either to wholesale it immediately, or rehab and sell it quickly, then the terms offered by a private lender may be a better fit for your needs because the higher interest rate is usually outweighed by the expeditious turnaround time and the reduced fees.
But the truth is that both of the prior sentences make huge unfounded assumptions based on generalities and lending norms, and that’s something you should never rely on when you’re deciding which lending solution is best for you.
These acronyms stand for “special purpose vehicle”, and “single purpose entity” OR “special purpose entity”, which is a legal entity that is formed for the purpose of meeting a temporary predefined objective. Commonly formed as an LLC (limited liability corporation), an SPV/SPE can serve many purposes, but some of the most prevalent uses include risk sharing and loan securitization.
There’s no right or wrong answer here, but most private hard money lenders are evaluating the borrower more so than the investment property.
Most private real estate investment lenders typically want to lend to a borrower who is experienced and savvy in the field; someone who makes good purchasing decisions and who completes improvement projects for resale as quickly as possible. They are more likely to feel comfortable in lending money to someone who is reliable, stable, and mature; someone who has regional ties and isn’t locally known for personal drama, abandoning projects, or making rash decisions.
Like any lender, they also like borrowers who have a dependable source of income and good credit, but unlike traditional lenders, these qualities can be substituted with working capital, relevant training, successful prior projects, or any other factor the lender may consider relevant.
We actually answered this question in great detail on our blog, so please check out this blog post, titled “How To Choose the Best Private Lender for Hard Money Funding”!
Our office is located in Orlando Florida, and we focus on serving the Central Florida area, specifically Orange County, Seminole County, Volusia County, Brevard County, Lake County, Osceola County, Polk County, and Marion County. However, we will consider loans outside of these areas.
All of our financing options are intended for investment purposes, so we do not provide loans for personal residences, but we will consider purchasing the property and leasing it back to you with an option to purchase the property back from us. Feel free to apply, or simply contact us to explain your situation.
Yes! We provide funding for investment property renovations. Click here to learn more about our lending terms.
No. We will lend on any real estate.
No, we don’t.
It varies, but typically hinges on on the project and situation, and can be flexible depending on your circumstances. To reiterate previous FAQ answers, the best thing about being a private lender is having this kind of discretion and freedom with our lending decisions.
We have general policies in place, although we have the flexibility to bend, break, or change our own guidelines for situations where we feel it is warranted. Our general guidelines are as follows:
- We will loan up to 80% of the purchase and rehab costs on houses or commercial properties for the purpose of flips, cash outs, or income;
- We will loan up to 75% of the total cost on residential or commercial new construction;
- And we will loan up to 60% of the purchase and infrastructure costs on land developments.
No, we do not have a set minimum or maximum loan amount. To date, our smallest loan amount was $50,000 and our largest loan amount was $2,500,000.
It varies, but typically hinges on on the project and situation; we can be flexible depending on your circumstances. Generally speaking you will be required to fund 20% to 30% of your investment project, plus closing costs, from your own sources. However, every situation is different, so please click here to apply, or simply contact us and let’s chat about your circumstances!
We do require a survey; several years ago, we accidentally purchased half of a house! This was an incident we certainly would have avoided if there had been a survey, so we require this small expense to protect ourselves and our borrowers from getting into a difficult situation. We do not require appraisals or inspections. Typically, a member of our team will do an internal property valuation, and we conduct our own on-site inspections. We like to meet our clients to walk the property and try to help them through the process or answer any questions they may have. There are some specific commercial or land transactions which we may require additional inspections and/or a third-party appraisal.
We absolutely require property and casualty, and liability insurance on the property, as it’s a small price to pay for the protection. We may also require flood insurance if the property requires it.
We do not have prepayment penalties. You can pay off your loan at any point during the term of your loan with no penalties at all.
We have absolutely no junk fees or hidden costs. The only fee we charge is a loan origination fee, which is 2% of the loan amount for property flips/cash outs, or 4% of the loan amount on loans for new construction and land/developments.
Our primary goal is for property investors to borrow from us again and again, so shady lending practices are NOT in our best interest! We pride ourselves on clarity, transparency, and communication, so you will never encounter “hidden” costs when working with us. We always provide breakdown of all loan costs, known as a “good faith estimate” after your loan request is approved, so you will always be fully informed.
Thanks to our streamlined process and extensive transaction experience, we regularly close loans in as little as 7 days. Keep in mind that there is always the possibility for closings to be delayed, however this is almost never within our control. Typical closing delays are caused by title issues that need to be cleared up, but there are some other issues or circumstances that can cause closing delays as well.
The short answer is no.
The great thing about being an independent, private lender is that we have the freedom to analyze a potential borrower’s entire situation rather than having our considerations restricted to only a few specific details.
However, we do review credit score and credit history, and we factor that information in with MANY other components and credentials to make our decisions about a potential borrower’s eligibility, terms, and conditions.
Our lending decisions are typically based on the potential borrower’s capacity to succeed, combined with the overall likelihood of project success. We aren’t automatically scared away by flawed credit histories, low credit scores, or self-employment.
Like other private lenders, we consider all known factors about the potential borrower’s personal and professional life, plus facts and data that are known about the investment property project when making our lending decisions.
Of course! Everyone starts somewhere, and we truly enjoy working with new investors. The terms and conditions of your loan may be a bit different from that of an investor that we’ve completed multiple transactions with, but we look forward to turning you into a seasoned pro.
You don’t need to have a business entity in place to qualify for a loan, however we do require our loans to be made to such an entity, whether it’s an LLC or a corporation of some type. If you don’t have one, there’s no need to worry as we will provide all the guidance you need and it’s a fairly simple task. We occasionally make exceptions to this rule, but once we explain the benefits and purposes of it, we can discuss it further. This kind of thing goes by a few different names including SPV (special purpose vehicle), and/or SPE (single purpose entity OR special purpose entity).
Yes, we absolutely fund foreign nationals, and have worked with quite a few already!
Good news: it’s easy! Just click here to apply online, which will include uploading some documents. Uploaded documents can be image files (like .jpg or .png), or they can be an Adobe PDF (.pdf) file. If you have any questions or problems during your application, feel free to contact us!
We typically respond to a new loan application either the same day or the following day. It is always our goal to get a preliminary loan commitment to you within 48 hours of when you initially made contact with us, but sometimes this is delayed because we are waiting on documents.
Our standard document requirement is very simple:
- Loan application
- Credit authorization
- Purchase contract
- Proof of funds for down payment
- Two years of tax returns
- Copy of government-issued ID
We may require additional documents before closing, but this is all that’s required for us to provide you with a loan commitment.
Prior to closing, we will require a few more documents:
- Operating agreement (if applicable)
- Insurance declarations page
- Budget and Scope of work (if applicable)
- Property survey
- Title commitment with no exceptions
Additional documents may be required for closing, but every project is different so it’s tough to list all the possibilities. However, there’s no need to worry, as we will let you know in more than enough time for you to put these items together.
If I become a repeat borrower, will I always have to provide the same documents every time I request investment property funding?
As a repeat client, the process is super easy. Typically, repeat borrowers just send me the purchase contract and the amount they want to borrow, and almost everything else is handled by our team or the title company.
Can you provide a letter that I can present to the property seller that ensures them I have the necessary funding?
Yes! This is called a “proof of funds” letter, and we can create one for you upon request. We typically provide this to you the same day, but certainly within 24 hours of request.
One of the best things about our wealth of experience in Central Florida is that we’ve come to know the local tradesmen, craftsmen, service providers, contractors, and skilled companies quite well, and we’re happy to provide referrals to you for your project.
Absolutely! We work with:
- Property wholesalers
- Real estate brokers
- Mortgage brokers
- Loan originators
- Title companies
- …and more!
Our lending programs afford us the opportunity to compensate partnered real estate professionals for referring borrowers to us. We’d love for you and your clients to experience our streamlined process! Click here to get started.
Brokering deals with us is easy: simply click here to register using our online sign-up form, then click here to send a deal our way. We will do everything we can to help you quickly close transactions, and afterwards, we will continue to help your clients’ investments be successful.
If you have any questions, feel free to reach out to us. If you’re ready to start earning money by partnering with us, click here to register today.
RELEVANT BLOG POSTS
“We build entry level spec homes in Volusia county. We worked with one of they online lenders before finding Murphy Developments. What a change! The online lender charged all kinds to sneaky interest and sneaky fees. It was a disaster to get a draw from the online Lender. Murphy Developments makes the entire process easy. They get you a loan commitment in one day. We email pictures of the build and permit card to get draws paid. I call or text the owner with questions or asking for trade references and he always responds. We are big fans of Murphy Developments!”
“Jeff has financed several high-end spec homes in Winter Park and a restaurant in Orlando. Not only is he our go to lender, but I consider him a trusted resource and friend. As a lender he is the best – he’ll get you a commitment in a day and always does what he says. Because he is builder he understands the process and headaches you can run into. He will call his contacts at the city trying to get your plans approved, refer you trades, and generally do whatever he can to help. Another amazing thing is that Jeff sends me leads on lots on a regular basis.”
“I have worked with Mr. Murphy for 15 years. I have sold him houses; borrowed money; and referred borrowers to him. He always does what he says he is going to do. He is one of my favorite people to work with.”
“I have borrowed money from Jeff and brokered several deals to him. He is my favorite hard money lender to work with. He is creative and understands title better than most attorneys. Last year, I got a deal that another lender couldn’t close because a so-called title issue. While I was on the phone Jeff researched the issue and said it was a non-issue. Jeff gave a commitment and we closed in a week.”
“I have borrowed money, partnered and sold Murphy Developments houses. They know real estate – They are creative on figuring out deals – They are honest. I hope to work with them for a long time. They not only provide the capital, but they are an excellent resource on a property.”
“I have borrowed money from Murphy Developments. They are easy to work with and close quickly. I have also become friends with the owner and consider him a good friend. He reaches out to me on a regular basis to discuss deals and offer insights. I think his organization is amazing and I hope to be friends and do lots of deals together.”