Buy low, sell high. That’s the goal of real estate investing, right? Even investors who hold properties for years want them to be worth a lot more when it comes time to sell. One way to achieve the buy low and sell high strategy is to look for distressed properties that can be brought back to life.
A distressed property with enough potential value can offer a healthy return over time. And what better way to acquire such properties than through a hard money or bridge loan provided by a private lender. I am no expert, but hard money seems to be the perfect tool for resurrecting distressed properties.
Hard Money in a Nutshell
Hard money is a form of private financing offered by lenders like Salt Lake City’s Actium Lending. Actium specializes in both hard money and bridge loans made to real estate investors in Utah, Colorado, and Idaho.
Because hard money lending is private lending, lenders are subject to less strict regulatory controls. They can offer more flexibility and approvals based on a set value rather than the borrower’s creditworthiness. Hard money is also faster to obtain. Loans can typically be approved and funded in under a week.
Distressed Properties in a Nutshell
In residential real estate, a distressed property is typically a property either in danger of foreclosure or already in the process of being foreclosed upon. But the term ‘distressed’ means something different in commercial real estate.
To an investor, a commercial property is distressed if it is facing any significant challenges threatening its financial viability and/or market value. Any number of things could contribute to a property’s distress:
- Poor physical condition
- Negative cash flow
- Underperformance in rental income
- Unpaid tax liabilities
- Financial difficulties being faced by the owner
The key to all distressed commercial properties is that they are not performing as well as they should in terms of their investment potential. Resurrecting such a property is a matter of acquiring it and then effectively addressing whatever problems are holding it back.
Why Hard Money and Bridge Loans
The obvious question is why investors should turn to hard money to acquire distressed properties. There are several reasons, beginning with the fact that banks are often nervous about financing such transactions.
Distressed properties are referred to as such for clearly defined reasons. Banks don’t like to risk their funds without knowing that said funds will be reasonably safe. They get no such assurances on distressed properties.
Hard-money lenders operate on a different plane. They evaluate a property based on its value. If they see enough value to cover the amount a borrower is requesting, they can usually find a way to make a loan happen. Hard money lenders are willing to take greater risks because the payoff for them is also greater.
Some other reasons to utilize hard money include:
- Fast approval and closing
- Lender flexibility
- Fewer document requirements
- Less emphasis on a borrower’s credit
As a side note, bridge loans are like hard money loans but with one noted difference: they bridge the gap between an investor’s current financial need and an expected future source of funding.
Made for One Another
Watching real estate investors leverage hard money to resurrect distressed properties makes it seem like the two were made for one another. Perhaps they were. But even if not, there is no better way to fund the acquisition of a distressed commercial property than with a hard-money loan. Hard money is fast, easier to obtain, and flexible enough to work even for the most distressed properties.