For Some Real Estate Investors, Hard Money Is All About Choice

Real estate investors gravitate toward hard money for a number of different reasons. Some love the speed at which hard money lenders work. Others are thrilled with a hassle-free nature of hard money lending. Still others relish the fact that hard money offers so many choices.

At a time when people value choice over so many other things, real estate investors often need choices to make the best use of their capital resources. Hard money offers that choice by virtue of the fact that it is private lending. Both lenders and borrowers have a lot more flexibility in the private arena.

How Private Lending Works

Under a strict definition, private lending is any type of lending that is conducted outside the confines of an established financial institution. An independently wealthy uncle willing to finance homes purchased by his nieces and nephews is participating in a form of private lending.

Peer-to-peer lending is another form. But when we talk about private lending in the realm of real estate investing, we are normally talking about hard money firms like Salt Lake City’s Actium Lending. These are firms that specialize in lending money contributed by a small pool of investors.

Private Lenders Are Not Banks

Getting a handle on hard money and its ability to offer choice requires understanding that private lenders are not banks. As such, they play by different rules.

Banks, credit unions, and other institutional lenders are bound to a strict set of regulations administered at the state and federal levels. Institutional lending is tightly controlled in order to protect consumers.

Private lenders are bound to rules as well. But the rules are considerably less restrictive. They give lenders and borrowers a lot more flexibility in everything from loan structure to rates and terms. This is what allows hard money lenders to be more accommodating.

Hard Money Loans Are Customizable

Increased flexibility allows lenders to tailor loans to each unique need. Another way to phrase it is to say that hard money loans are customizable. Unlike traditional lending, hard money lending is not tied to a strict set of policies and criteria.

Actium Lending could offer one borrower a 12-month term on a loan designed to acquire a commercial office building. Another client might need a similar loan but not as much time to repay. So he is offered a 6-month term. It is no problem for Actium.

Hard money lenders can be flexible in nearly every aspect. They can flex on interest rates, terms, payment structures, loan-to-value (LTV) ratios, down payments, and on and on. This gives them the ability to meet unique needs that banks and credit unions simply will not go near.

It’s the Nature of the Beast

All of this makes a lot more sense when you understand that the vast majority of hard money loans go to real estate investors. Here is the most important thing you need to know about this sort of investing – no two deals are exactly alike.

Variety is the nature of the beast in commercial real estate. Every commercial deal is unique in some way, shape, or form. Vast differences between transactions is one of the main reasons institutional lenders do not like to get involved in property investing. There is too much variation, and variation equals risk.

Hard money lenders are not afraid of either one. They have the ability to adapt, remain flexible, and offer choices. More important is the reality that a borrower unhappy with the options one lender offers can simply choose another lender offering different options. That kind of choice is attractive.