Hard money is a form of lending that can be leveraged for any number of needs. Its most common purpose is obtaining commercial real estate. Investors turn to hard money to obtain properties that would otherwise be out of reach by way of conventional lending. Most importantly, hard money gives real estate investors access to fast cash. It is all about speed. And speed is hard money’s biggest advantage.
Applying for conventional financing is time consuming. While an investor might get preliminary approval in a day or so, he still needs to wait for the entire underwriting process to unfold. Actually closing and funding a conventional loan can take months. Hard money is different. Decisions can be made on the same day. In most cases, closing and funding can be accomplished in 3-5 days.
Do you see why hard money is so attractive to property investors? Speed is one of the primary competitive factors in investment property, particularly when you are talking about commercial properties like office buildings, shopping centers, warehouses, and the like.
Speed and Competitive Edge
Commercial real estate is extremely competitive industry. Rarely does a lucrative property remain on the market for a long time. Why? Because savvy investors know how to identify attractive properties quickly. And when they find them, they buy them. That means every investor is looking for a competitive edge. Speed gives them that edge.
In commercial real estate, beating out multiple bidders is almost always a matter of getting to closing first. Whoever can come up with the money first gets the deal. No wonder investors do not like to deal with banks. It is no wonder they prefer hard money.
Speed and Portfolio Growth
Financing speed also plays a direct role in how quickly an investor can grow their portfolio. Think of it this way: an investor cannot put time and effort into a new acquisition until he finishes working on his current project. As such, obtaining financing through traditional sources slows down portfolio growth. Hard money’s speed allows for much faster growth. Investors can quickly move from one property to the next.
Speedy financing even gives investors greater flexibility to negotiate deals. For example, an investor might be able to knock a little bit off the sale price by offering to close in five days. A seller hoping to get rid of a property quickly might jump at the offer. Not only does the investor win the deal, but he also gets the property at a lower price. Both parties win because hard money lenders do not need months to do what they do.
Exiting a Hard Money Loan
Although hard money is fast money, it is also short-term financing. Investors must keep that in mind. At Actium Partners in Salt Lake City, UT, a typical loan offers terms of 24 months or less. Borrowers need to come in with an exit strategy in order to get approved.
For the real estate investor, exiting often means obtaining conventional financing after the fact. The investor gets a hard money loan in order to complete the acquisition. Later, he applies for conventional financing to pay the hard money loan. The point here is that hard money does not necessarily eliminate conventional financing. It just provides fast cash to get deals done.
There are other things about hard money that make it attractive to real estate investors. But when push comes to shove, speed is hard money’s biggest advantage. It is what separates hard money from conventional financing. And since real estate investments move quickly, hard money is ideal.