Actium Lending is in the business of providing hard money and bridge loans to clients whose needs cannot be appropriately met through more traditional means. Idaho is one state we operate in, and a recent loan we made in the Gem State perfectly illustrates why clients genuinely appreciate what we do.

The loan in question went to an investor looking to purchase land that would be transformed into residential building lots. As we normally do, we assessed the value of the property and combined it with other information to determine whether we would approve. We ultimately made a loan offer based on the property’s value and went from there.

We are happy to report that the deal went through successfully. Another lender reached his financial goals, and we were happy to help. But let’s not leave it at that. It might be helpful for you to know why a hard money loan made sense in this particular case.

Banks Are Reluctant With Unimproved Land

Unimproved land is notoriously difficult to finance in Idaho through traditional channels. To a bank, unimproved land represents a risky proposition. Because it represents no immediate cash flow, bank underwriters tend to be skeptical. But we look at things differently.

Idaho land-use laws and local zoning ordinances can represent significant hurdles, especially to outsiders. The loan we made was on a piece of land in Preston (Franklin County) where investors face quite a process for turning a large parcel into residential building lots. That process includes:

• Subdividing Plots – The parcel has to be subdivided into plots, followed by the county approving the proposed layout.
• Infrastructure – A parcel must be improved by bringing in power, water, and either septic or sewer service.
• Water Rights – Water rights are a unique and vital aspect of purchasing real estate in Idaho. You must comply with all statutes and ordinances before moving forward.

Unlike national banks, Idaho hard money lenders understand the local nuances of purchasing large parcels in the Intermountain West. The value of such parcels isn’t just in the dirt under the investor’s feet. It is in the entitlements. As such, a private lender is often willing to fund a purchase even though a bank will not touch the parcel until it is shovel-ready.

Speed Is Usually a Consideration

Undoubtedly, speed was a consideration for this particular client. Even if a bank had approved his loan request, the investor was looking at a minimum of 45-90 days to close. Along the way, there would have been soft costs he would have had to pay. Unfortunately, the traditional funding timeline rarely aligns with an investor’s plan to purchase land and quickly move forward

Working with us was a completely different experience. On average, we can get from approval to funding in a week or two. When we can furnish an investor with a cash-equivalent offer including a 10-day closing window, he is in a good position to close the deal.

Given Idaho’s rough fall and winter weather, closing as quickly as possible works to the investor’s advantage. It allows him to maximize a shorter construction season, thereby reducing the amount of time before his investment starts showing a return.

Hard Money Is for Projects, Not People

When you compare how private lenders and banks normally work, you see an interesting contrast. Hard money lenders lend for projects. Banks lend to people. It is a significant difference that made a hard money loan the better choice for the Idaho land deal.

Had our client gone to a bank, the bank would have focused its underwriting process on him. They would have made an approval decision based on his credit, current debt load, income, and anything else pertinent to his ability to repay. But even a stellar loan applicant becomes a risk when he purchases land that isn’t already producing income. At least that’s how banks view it.

As private lenders, we hard money lenders don’t look so much at the person as we do at the project being invested in. We see inherent value in the land. We see value in the client’s plans for that land. Most importantly, we see a project capable of generating the kind of return on investment (ROI) we look for whenever we lend.

Because hard money invests in projects rather than people, the biggest factor in an approval decision is the value of the asset being purchased. In this case, it was a large parcel in Idaho. Based on the value of the land, we were able to make a loan offer that helped the client get where he wanted to go. We made an offer that a bank would never have put on the table in the same amount of time.

Hard Money Is Definitely More Flexible

Bank hesitancy is difficult enough to overcome in unique lending situations. But there is another challenge: a lack of flexibility. Traditional loans tend to be cookie-cutter loans. They are defined by rigid down payment requirements, fixed terms, and very little room for loan customization. As a side note, it is one of the reasons banks usually avoid unimproved land purchases in Idaho. Their loans aren’t built for that sort of thing.

On the other hand, we private lenders can approach each project with surgical precision. We can work with clients to come up with a loan package that meets every need while protecting both parties. Consider the interest-only structure of most hard money loans; that’s just one example.

Making only monthly interest payments allows our client to carry the cost of the land while he works through zoning and infrastructure processes. Once individual lots are ready to be sold to home builders, they will generate the income needed to repay the loan, thus avoiding bank penalties.

Overall, a hard money loan was more suitable for this project than bank funding. Like so many Idaho investors, this particular client was able to leverage a private loan to help him get to a place he could not have gotten to with a bank.

FAQs

Why is unimproved land so much harder to finance?

Unimproved land is considered non-income producing collateral. Banks prefer to lend on properties that are already generating income. Land without income represents too much of a risk.

Do hard money lenders charge points on deals like the Idaho land purchase?

Each deal is unique in what it offers. But yes, points are often part of the offer a hard money lender will bring to the table.

Does an investor need a high credit score to get a hard money loan?

No. While hard money lenders may check credit scores to verify no active bankruptcies or recent foreclosures, approval decisions are based on collateral value.

Can borrowers utilize cross-collateralization to get a loan?

Again, every deal is unique. But yes, hard money lenders are often willing to look at cross-collateralization if it is the most effective way to get a deal done.