Kansas city is witnessing some huge developments and construction projects right now. The residential housing market also looks positive, with prices up from 2021.
In Kansas City, there is still the possibility of the Armour-Main redevelopment happening. The plan for this is to build 385 apartments and develop a 40,000 sq ft commercial area. The Kansas City Business Journal’s Crane Watch feature shows just how many KC real estate projects are happening in the area now.
In the residential sector, house prices were up in August by 6.4% when compared to the previous year. House sales were down by 9.6%. Sometimes, when sales are slow or construction projects suffer from scope creep or expanding budgets, extra financing can be required.
Many real estate projects in Kansas City and other areas of the country have been saved by hard money loans. But what are they, and how are they used?
What are hard money loans used for normally?
A hard money loan is typically taken out when other lending options are not available or suitable. They are sometimes called a loan of last resort, but they are often used to save real estate projects when nothing else can.
One Kansas City lender, DFW-HardMoney, typically sees house flippers and real estate investors who need short-term loans to get their projects market-ready. Often, projects run over budget, or unforeseen expenditures cause a need for a cash injection.
When a traditional bank is not an option, a hard money loan is often used. The property that is being developed can be used as leverage for a hard money loan, and this makes them very suitable for rescuing any real estate project.
How can a hard money loan save a real estate project?
Getting into real estate investment has possibly never been easier as long as the financing is available. One of the easiest ways to get into the real estate business is to flip houses.
This is growing in popularity as individuals realize that they can buy distressed properties cheaply and, once renovated, flip them for a profit. However, many first-timers struggle to understand budgeting and the costs involved. When liquid cash dries up, a house-flipping project can come to a shuddering halt. With all the cash tied up in an incomplete project, no movement can be made.
Traditional banks may be wary about lending money to such a project, but a hard money lender won’t be. They will assess the LTV ratio, and a loan can be used to complete the project and put the house on the market.
This is applicable to land development, commercial construction, or any type of real estate project in general.
How is hard money helping real estate projects in Kansas City?
While it is unlikely that your typical hard money lender would be involved in the Armour-Main redevelopment, they can help small to large project owners.
The average amount lent by hard money lenders in Kansas City is under $300,000, but some lenders are willing to provide funds up to $5 million for larger projects. Typically, the LTV ratio is 65% to 75%, so the more value in the project, the higher the loan that can be requested.
There are around 50 Kansas City lenders operating today, and they can help save projects in the area when banks cannot be approached. Huge city-financed developments are happening such as the 140th St. Bridge and the Buck O’Neil Bridge project. But, most of the applicants for hard money loans will be smaller real estate investors such as house flippers or commercial businesses.
Why choose a hard money loan?
Many factors stop you from getting a loan in a traditional way from a bank. Credit checks need to be performed, income has to be assessed, your other debts will be taken into account, and you may not meet the borrowing criteria.
Hard money lenders are more open to those who cannot meet the requirements of traditional banks. Property is used as collateral to lessen the risk to the lender.
Apart from being easier to obtain, hard money loans appeal to many because they have fixed interest rates that can be negotiated, they are short-term, and they can be approved quickly. When a real estate project slows down, liquid cash must be found quickly. There can be penalties involved in construction projects going over their deadline. Employees need to be paid. And a return on the investment needs to be seen.
Summary
It isn’t just Kansas City that hard money loans are being used. While interest rates can be high, these loans do provide a short-term way to finish a real estate project. Especially when there are no other options.
For the individual who is flipping houses, having all their cash tied up in an unfinished home can be financially devastating. A hard money loan will help to bring that project to completion and then sale.
