Hard Money: One of the Real Estate Developer’s Secret Weapons
Spend a few hours driving around Salt Lake City, Utah and you will see a ton of residential and commercial construction. As one of the hottest real estate markets in the country, Salt Lake City has been a prime target for real estate developers for a decade. They know developing land in that corner of the world is profitable.
Believe it or not, real estate developers have a number of secret weapons that help them do what they do. If they had to jump through all the same hoops that residential home buyers jump through, getting their projects done would take a lot longer. There would also be a lot more hassle involved.
A case in point is hard money. It is one of the least talked about secret weapons in the real estate developer’s arsenal. Without it, real estate development would look a lot different.
A Definition of Hard Money
Hard money gets its name from the fact that it is backed by hard assets. If a developer were to contact Utah‘s Actium Partners in hopes of securing a loan to obtain a piece of property, Actium would expect that developer to back the loan with a valuable asset. In most cases, the land being acquired is the backing asset.
Asset-based loans are different from traditional bank loans in that they are based exclusively on the value of the collateral being offered. Hard money lenders place very little emphasis on things like income verification and borrower credit history. As long as the asset in question is valuable enough, hard money lenders are willing to consider a deal.
Hard Money Moves Quickly
Just the fact that hard money loans are asset-based is a big win for real estate developers. But it gets even better. Hard money also moves more quickly. A lot more quickly. Where a bank can take up to 90 days – or more in some cases – to fund a real estate loan, companies like Actium Partners can have funding in a borrower’s hands in a week.
That is big in the real estate game. In a market like Salt Lake City, you might have multiple developers looking at the exact same piece of land. They all want it, and they all want it badly. The winner will be the developer who can come up with funding first. Therefore, speed is of the essence.
Traditional Funding Still Plays a Role
None of this is to say that real estate developers do not utilize traditional financing. They actually do. But traditional financing is slow and clunky. It takes time to arrange. Traditional financing cannot keep up with the brisk pace real estate development is known for. That is why hard money is so valuable to so many developers.
Hard money is to real estate development what a turbocharger is to a drag racer. It provides that immediate burst of power when a developer needs it most. Hard money offers a quick infusion of cash more than capable of jump-starting any project a developer has on the table.
Later on, a developer may arrange traditional financing to keep the project going and simultaneously payback a hard money loan. But that type of funding is not obtained until much further down the road. Hard money gets things rolling in the early stages. That is its strength. That is what makes it a secret weapon to real estate developers.
Next time you spy a new construction project while driving around town, consider that hard money might be funding it. The chances are pretty high in competitive markets.