Hard money is largely misunderstood due to a combination of consumer ignorance and misinformation found online. Truth be told, hard money lending is both a viable business and a welcome tool to property investors looking to find new additions to their portfolios.
Officials at Actium Partners, in Salt Lake City, Utah, explain that hard money is the first choice for many of their customers. Hard money lending offers distinct advantages including fast approval and funding, minimal paperwork requirements, and an asset-based lending model.
How valuable is hard money to real estate investors? The best way to answer that question is by providing five ways hard money is put to work in the real estate game.
1. Purchase Multi-Unit Apartments
Although apartment buildings serve as residential housing, they are considered commercial property for investment purposes. The challenge of funding such a property through a traditional bank lies in bank reticence. Banks are not sure they want to tolerate the risk. But a hard money lender will typically approve a loan if there is enough value in the property being acquired.
Investing in multi-unit apartments is essentially investing in a money-making machine. As long as units stay rented, they return income every single month, year after year. And once financing is paid off, you are looking at pure profit – less maintenance and upkeep.
2. Invest in Office Buildings
Office buildings are the commercial equivalent of multi-unit apartment buildings. Most office properties are triple net leased, so the potential for even more profit is always there. A bank may scoff at the amount of money needed to obtain such a property. After all, office buildings do not come cheap. Hard money lenders tend to be more friendly with these types of properties.
3. Invest in Retail
Retail properties are the way to go for some investors. As the thinking goes, there will always be renters for retail space. Rents will always go up as well. Unfortunately, if we have learned anything from the economy over the last few years, it is that retail is not as rock solid as it once was. But an investor willing to take a risk can make a lot of money in retail property.
4. Pursue a Fix-and-Flip Strategy
The next option for using hard money to fund real estate investments is to pursue a fix-and-flip strategy. With this strategy, an investor purchases distressed residential homes at discounted prices. Then he repairs and upgrades them. As soon as the work is done, the homes go back on the market. Hopefully, the investor sells them for more than he paid.
It is interesting to note that not all hard money lenders get involved with fix-and-flip investments. Actium Partners is a good example. They stay away from fix-and-flip because they don’t like the risk involved. But there are other hard menu lenders who specialize in this form of real estate investing.
5. Invest in Land Development
Land developed is something else Actium doesn’t get involved in. But again, there are other hard money lenders that do. Land development can be especially tricky when dealing with banks, as they do not like the risk involved. But find a hard money lender on board with your development aspirations and you could make quite a bit of money buying vacant lots, improving them, and then building on them.
There are certainly other ways to make money in real estate. Some of them are ideal for hard money lending while others are not. Just know that hard money is an important tool to most real estate investors.