Hard Money Options In Todays Real Estate Market

January 16, 2008

 Hard money financing offers a wide range of borrowers options that may otherwise not be available. With traditional lenders tightening their standards, and with many property owners in foreclosure or in danger of foreclosure, the hard money lenders are filling a niche. Additionally, in the declining market we are now experiencing, private money and hard money options can help with land acquisitions, commercial property financing needs and foreclosure bailouts.
 
 Traditionally, hard money has been much more expensive than institutional money.  In recent years, this money has been a stop of last resort for borrowers with major credit issues or for transactions far outside the box. In today’s environment, however, we are finding that hard money is a solution even for very credit worthy borrowers.  Additionally, we are finding hard money with similar cash flow numbers, without the strict guidelines that traditional lenders typically adhere to. Typically these options are interest only, and they have become increasingly available without the long prepayment penalties that many institutional and sub prime lenders require.
 
 Commercial properties financed with hard money are increasingly yielding similar payments to that of institutional money. Some of the reasons for this include institutions wanting fully amortized payments and/or amortizing these payments over a shorter time frame than the traditional 30 years. Even as the prime rates have changed, many private investors are still offering the same rates they did years ago. Additionally, for acquisition of commercial property, the main concern with private investors is the collateral value, not the debt service of the property, making the approval process simpler.  Even a property that does not have an acceptable debt coverage for a bank is a candidate for financing through the private money world.
 
 Raw land and construction are additional  transactions turning away from institutional funding. In a declining market, it can become increasingly difficult to finance raw land and construction, both horizontal and vertical. Hard money can fill this niche, lending on raw land that institutional investors may not be interested in. Additionally, construction projects are being viewed more and more as speculative ventures.  Bank financing is very tough to obtain, even for the most well qualified borrowers.  Hard money may be more expensive than bank financing, but it is much cheaper than a partner or a dead project.  Although the market is very tight for land and construction transactions today.  There is still money available if you know where to look.
 
 Finally, with the declining market and the rise in foreclosures, hard money offers a fix that many institutional lenders will not touch. From hard money seconds and thirds, to new first trust deeds, hard money can offer a way out of foreclosure without filing for bankruptcy.  Times are changing, and hard money is increasingly becoming a legitimate option for more and more borrowers.

Posted in Hard Money, Loan Types