The Quick & the Profitable: Hard Money Equals Opportunity in CRE

In the dynamic world of commercial real estate (CRE), the ability to seize opportunities quickly can be the difference between a lucrative deal and a missed opportunity. For many CRE investors, hard money loans have become the go-to solution when traditional funding sources dry up. One of the most compelling advantages of this alternative financing is the potential to purchase properties at a significant discount. Let's delve into the benefits of using hard money for commercial property acquisitions, emphasizing the power of buying at a discount.

Speed of Funding

Traditional Lenders vs. Hard Money Lenders: Traditional banks and financial institutions typically have a lengthy approval process, often taking weeks or even months to finalize a loan. In contrast, hard money lenders can often approve and fund a loan within days.

Consider a commercial property that's just hit the market at a 20% discount due to a distressed sale. While a traditional lender might take weeks to process a loan application, a hard money lender could provide the funds in a matter of days, allowing the investor to capitalize on the discounted price before others can.

Flexibility in Terms

Traditional Lenders vs. Hard Money Lenders: Banks usually have rigid criteria and standardized loan structures. Hard money lenders, being mostly private entities or individuals, can offer more flexible terms tailored to the specific deal.

An investor might find a commercial property with a short-term leaseback opportunity. A hard money lender could structure the loan to accommodate this, perhaps offering interest-only payments for the initial period, whereas a traditional bank might not be as accommodating.

Leveraging Asset Value

Traditional Lenders vs. Hard Money Lenders: Banks often focus on the borrower's creditworthiness. Hard money lenders, on the other hand, primarily consider the value of the property being purchased. This means that even if an investor has less-than-stellar credit, they can still access funding based on the asset's value.

An investor identifies a commercial building in a prime location, priced 30% below market value due to the seller's urgent need for liquidity. Even if the investor has recent credit issues, a hard money lender might still approve the loan based on the property's inherent value and potential for appreciation.

Negotiation Power

Traditional Lenders vs. Hard Money Lenders: Having quick access to funds gives investors a strong negotiation position. Sellers are often more willing to negotiate on price if they know the buyer has the means to close the deal swiftly.

An investor approaches a seller with a hard money loan pre-approval in hand. Knowing that the investor can close quickly, the seller might be more inclined to accept a lower offer, further increasing the discount on the property.

Bridging the Gap

Traditional Lenders vs. Hard Money Lenders: Hard money can serve as a bridge, allowing investors to secure a property quickly and then refinance with a traditional loan at a later date.

An investor uses a hard money loan to purchase a commercial property at a 25% discount. After making some minor improvements and increasing the occupancy rate, the property's value rises. The investor can then refinance with a traditional bank loan, benefiting from a lower interest rate and longer term, all while having secured the property at a significantly reduced price.

In a competitive commercial real estate market, where opportunities can vanish as quickly as they appear, having access to fast and flexible funding can be a game-changer. Hard money loans offer CRE investors the chance to capitalize on discounted properties when traditional funding sources are scarce. By understanding and leveraging the benefits of hard money, savvy investors can position themselves for success, maximizing returns and expanding their portfolios.