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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   August 2014

Hard Money: Is It the New Normal?

Private funding becomes an often-used tool in the arsenal of mortgage professionals

The latest commercial real estate boom has had a much different dynamic than those witnessed in the past. One big difference from past booms is that, in many cases, banks still aren’t lending.

With this in mind, how are so many real estate investors finding their way into the capital necessary to acquire commercial or industrial properties? The answer is often simple — hard money. These secured loans are bringing real estate speculators and capital investors together to help bridge the financing gap and fund the latest real estate explosion. In fact, hard-money loans have become so popular in some high-end markets that one can’t help but wonder if it isn’t time to begin adding training in these emerging private-money loan types to the licensing curriculum for mortgage originators.

Capital requirements

Capital is obviously a necessity for investors to pounce on opportunities in the real estate sector. Without hard-money loans during a time when many conventional lending sources had dried up, many markets would not have seen such a rapid recovery after the initial real estate market fallout. By keeping the cash flowing, hard-money lenders continued to gain traction in the industry, helping thousands of investors access pools of capital with relative ease.

Back before the crash, when large banks were lending with impunity, it sometimes seemed like a free-for-all in the commercial real estate market. This obviously had disastrous repercussions, leading many to question the techniques associated with funding property-acquisition endeavors and a dramatic subsequent decline in available capital. The availability of hard-money loans has helped fill the gap created by these restrictive lending policies.

Quick financing

The strongest argument for adding this type of lending to mortgage-training curriculum may be because of the benefits that come with the comparatively rapid application and approval process associated with hard-money funding.

As with most business endeavors, timing is everything in the real estate market, and any time lost due to processing a loan application may cost an investor thousands of dollars, or even the entire deal. In many cases, there are several investors vying for a single property, meaning that the first to show up with the necessary capital leaves with the deed.

Mortgage originators who understand how to take advantage of the expedited process that hard-money lending often offers over its conventional counterparts will likely find themselves in a position to finalize more deals and move on to the next ones. This timeliness is a frequent benefit of hard money that cannot be overstated.

Distressed properties

Hard-money financing provides a great opportunity for investors who are interested in quickly closing deals on distressed properties. Because these assets are usually offered by sellers motivated to move their property immediately, the rapid processing time and quick availability of capital associated with hard-money lending means deals may be turned around in mere days rather than weeks.

Some commercial real estate brokerages are already recognizing this, offering themselves to the marketplace as distressed-property specialists. These brokerages have recognized the vast business potential in this niche, which combines an opportunistic buyer, a motivated seller and, by using hard money, a comparatively simple way to secure the necessary capital.

Find an edge

New commercial brokers enter the marketplace every year. Many of these originators are looking for any edge to make their mark and get ahead in an already highly competitive industry. But because of the number of experienced originators and agencies that have already established their presence and reputations, finding a competitive edge is difficult. Fortunately, the emergence of hard money in the commercial sector provides a great opportunity for up-and-coming mortgage originators. By becoming experts in the nuances and processes of hard-money lending, new originators have a valuable tool available to help generate more interest in their burgeoning businesses. Commercial borrowers are looking for mortgage facilitators who truly understand the modern real estate marketplace, and part of that involves expertise in alternatives to conventional funding.

Learning more about this financing option is simple. A number of companies offer hard-money training via the Web, videos, books and other sources. Taking advantage of the opportunities that hard-money financing provides could mean the difference between stumbling out of the proverbial starting gate in the mortgage business and hitting the ground running with a funding option that offers clients unique investment opportunities and speedy closes.

No one is sure whether or not the large lending institutions will reopen their coffers any time soon, leaving the commercial real estate industry in an ongoing state of flux. As a result, it appears that hard money’s impact on the current commercial property boom isn’t going to abate anytime soon.

It may be just a matter of time before hard-money lending knowledge becomes part of the standard curriculum in mortgage-industry training. Why not take advantage of the competitive edge available by becoming an expert in it before it becomes a requirement?  


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