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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   March 2015

Unearthing Hidden Hard Money Gems

Expand your client list by looking beyond commercial real estate investors

Ordinary lenders continue to be guarded about their investments in today’s fragile real estate world, so hard-money loans have become increasingly common. Right now, there is an incredible amount of opportunity in the market for hard-money brokerages and capital investors — you just have to know where to look.

Many hard-money brokers are limiting their opportunities, however, by only focusing on commercial real estate investors. Several client types are perfectly suited for hard-money loans. To assist in expanding your brokerage’s client list, consider aiming your hard- money at the following borrower types.

Real estate developers

Establishing a relationship with a developer or development company may provide lending leads for a broker or brokerage for years. Developers provide an incredible opportunity for a hard-money brokerage to expand its client list because they are often involved in large development projects.

One overlooked aspect of lending to developers involves leverage. Developers know exactly how to leverage debt, so they may not mind higher interest rates or shortened repayment windows. In many cases, they simply need a patch loan to get them through a development phase. Brokers who are seeking new clients should research local real estate developers and their upcoming projects.


Like developers, contractors have a large client base of their own, so lenders may be able to establish a profitable relationship quickly. Some contractors, if they are helping to facilitate loans, might want a finder’s fee. Do not rule out contractors that charge a fee; it is a nominal expense if you are looking at the bigger picture.

From a borrowing standpoint, some contractors might have an interest in borrowing directly instead of on behalf of clients to help meet their own deadlines. Because settlement payments usually come at the end of a project, contractors are often in dire need of short-term financing. For many brokerages, the focus tends to be on chasing the biggest client, but those who neglect contractors miss solid revenue streams that can provide returns.

Property flippers

Property flippers have long made use of hard-money loans. According to a fourth-quarter report by economists at , a majority of house flippers, 69 percent, were holding homes for rent.

On the other side, a majority of real estate investors, 51.3 percent, were flipping properties. Proxies who were “working on behalf of an investor” flipped homes about 59 percent of the time, and held homes for rent  38 percent of the time.

The highest frequency flippers — ones who were buying 50 or more homes per year — held homes for rent only about 40 percent of the time, and flipped homes 56 percent of the time.

Some companies are going further by creating detailed lending programs for different types of flippers, which is a wise move because it allows brokers to show off their ability to customize loans for specific situations. These loans are not wholly different from standard hard-money loans, but instead use language that soothes the concerns and needs of  flippers.

Developers know exactly how to leverage debt, so they may not mind higher interest rates or shortened repayment windows.

Typically, house flippers are only interested in getting adequate financing to renovate properties just enough to turn a profit when they sell. To make a deal work, house flippers often need to sell a property that is in better shape than when they bought it.

After the flipper completes a deal, they are usually able to pay the hard-money loan quickly. By taking this angle on lending, hard-money brokers can begin targeting the house flipper segment to develop better relationships and generate larger client bases.

Real estate investors

The difference between real estate investors and property flippers is slight, but very important. Investors conduct business on an entirely different scale, often working in groups to acquire desirable properties and renovate them. Investors will often lease the finished commercial or residential property to turn a profit.

Lenders earn money when they help with financing during the acquisition and renovation process. The investors, who likely are experts in leveraging debt, can limit their own exposure to risk while preparing the property for lease. By the end of 2014, nearly 70 percent of investors were buying properties to hold for rent.

Similar to contractors, real estate  investors can be a hard-money lenders closest ally. They often make moves quickly on distressed properties, and have plenty of capital to back up their plays.

•  •  •

Hard-money brokers and investing companies must understand opportunities that are ripe for profitability. By continuing to develop specific programs that can service each of these different borrower types, lenders can properly position themselves for success today and well into the future. 


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