Hard money is smart money in uncertain times because its availability and reliability remains constant regardless of the economic winds.
It’s one of the biggest reasons so many proeprty flippers and developers turn to hard money to finance their projects.
Banks and traditional lenders are easily spooked.
At the first sign of troubled waters, they contract their lending activities.
If interest rates rise, they reduce their pool of borrowers by turning away applicants, often with good credentials.
If the housing market drops, borrowers risk early foreclosure on their loans and a sizeable loss.
Hard money lenders are more robust.
Here are all of the reasons why hard money is smart money.
Fast money
Hard money loans are typically approved much faster than traditional bank loans which can take weeks or even months.
That is time flippers and developers can rarely afford.
They prey on distressed properties, foreclosures and auctions that demand immediate action.
The ability to secure finance fast gives hard money borrowers a competitive advantage over their rivals who deal with conventional lenders.
Lending criteria
In uncertain times, traditional lenders tighten their lending by making it more difficult to gain loan approval based on factors such as your credit score and financial history.
But hard money lenders base the worthiness of a borrower on their collateral – the asset they are using to guarantee their loan.
They put more weight on the potential profitability of a project rather than credit scores and financial history.
Short-term financing
Hard money loans only run for the duration of a renovation project.
They are closed as soon as the property is sold and the loan repaid.
This is usually somewhere between three and nine months.
The short-term nature of the loan makes borrowers far less susceptible to market volatility for three reasons:
Falling property values – Hard money financing allows investors quick exit strategies, protecting them from property market corrections.
Interest rate fluctuations – Hard money loans typically come with fixed rates. While they are higher than conventional loans, they are not susceptible to rising rates over the longer term. They are also less likely to be affected by changes in Federal Reserve policies.
Changing buyer preferences – Hard money loans incentivize quick turnovers and shorter holding periods. These helps protect the seller from changing buyer preferences which may evolve over the longer term, potentially leaving them with a less attractive and profitable property.
Finance for high-risk projects
Traditional lenders baulk at lending money for properties that require significant repairs or are located in high-risk areas.
But hard money lenders are not afraid to finance distressed or undervalued properties which have the potential to produce big profit margins in a volatile market.
It is that very volatility in the market which tends to produce more distressed properties such as foreclosures and short sales.
Hard money loans give investors the chance to capitalize on market declines and flip properties before prices recover.
It also gives them the chance to purchase in a temporary dip and sell when the market stabilizes, often for a handsome profit.
Greater flexibility
Hard money lenders are generally more flexible than traditional lenders.
Flippers and developers are their primary business and hence they tailor their loans for that specific purpose.
They may offer interest-only payment options or balloon payments which help investors manage their cash flow in uncertain times.
Hard money lenders will continue to offer loans in volatile markets where traditional lenders will tighten their requirements, making it harder to obtain loans.
Less red tape
Traditional lenders make it much more difficult to borrow money in uncertain times, tangling borrowers up in red tape and regulatory processes in an attempt to reduce their market exposure.
Hard money lenders have far fewer bureaucratic constraints allowing them to move more swiftly and lend money regardless of the economic conditions.
Property diversification
The speed with which a hard money loan is usually approved allows investors to diversify geographically.
This is important in uncertain times because California is a vast state with a multitude of markets that all behave differently.
It gives investors the opportunity to target areas which are responding better at any given time rather than be tied to any one geographic region.
Your next steps
The only certainty in uncertain times is that banks don’t want to lend you money.
But hard money lenders have no such qualms.
They offer the speed, flexibility and risk mitigation for investors to prosper in a challenging economic environment.
They are more concerned with the size of your asset and your ARV than your credit score or financial history.
In California, the hard money lender with one of the longest and most enviable reputations is Equidy.
At Equidy, our founders have an intimate and personal history with property, covering all aspects of real estate and property development in California for more than four decades.
We stand by our core belief that anything is possible and we try to prove it every single day.
Even in uncertain times, we reward entrepreneurship and strive to help you crystallize your wealth creation dreams.
We work creatively with you every step of the way, providing our wealth of knowledge and support network as your project takes shape.
We enjoy long and established relationships with serious investors, sellers and real estate professionals while leveraging our reputation and trust and using clear communication to minimise the risk to all parties.
Apply now … it only takes a few minutes. You can also book a free, no obligation strategy call with one of our experts to talk about the finance options available for your project.