2 Things That Kill Real Estate Investments and How Hard Money Helps

Real estate investing is not for the faint of heart. Purchasing commercial properties as investments is a far cry from purchasing a residential property as your primary residence. More importantly, every investor knows that there are two things capable of killing just about any deal under the sun. But they also know that hard money can keep a lot of deals alive.

Deal Killer #1: A Failure to Close Quickly

For right or wrong, the commercial real estate business has become competitive enough that sellers expect to close quickly. There are often multiple investors interested in the most lucrative properties. They compete with one another to snatch up whatever properties they think offer a strong enough return.

What does all of this mean to the deal? It means that failure to close quickly is a tremendous disadvantage. Let us say you have three investors all bidding for the same property. They are bid prices or slightly different. One is prepared to make an all-cash offer, one is hoping to secure conventional financing, and one hopes to line up a hard money loan. Who is going to win the deal?

All things being equal, the investor looking to arrange conventional funding will not get the deal. A seller will not wait 60 days or longer when he doesn’t have to. As for the remaining two investors, the one who can get to closing the quickest is likely to win.

How Hard Money Helps

Actium Lending is a Utah firm that makes hard money and bridge loans throughout Utah, Idaho, and Colorado. They explain that hard money loans can usually be approved and funded in a matter of days. Actium has been known to fund in as little as 24 hours when emergency circumstances dictate.

Compared with conventional lending, hard money lending is lightning fast. But what about hard money going up against an all-cash offer? Cash offers are nice, but it could take an investor several days to liquidate assets. The higher the price tag, the more likely it will take the investor at least a few days to come up with the cash. A good hard money lender should be able to give the all-cash investor a run for his money in terms of speed.

Deal Killer #2: Contingencies

The second deal killer is an offer filled with contingencies. It is normal to stipulate contingencies in a residential transaction. They represent an excellent tool for bargaining between the parties. But contingencies in commercial real estate are an entirely different matter. Sellers really do not like them.

Your typical commercial sale is a ‘what you see is what you get’ transaction. If sellers can avoid contingencies, they will. Contingencies only slow up the process. Sometimes they even threaten to scuttle a deal.

How Hard Money Helps

Hard money helps by giving investors the opportunity to buy properties straight up with no strings attached. Remember that being approved for a hard money loan demonstrates that the lender believes the property already has enough value to cover the cost of the funding. That means the lender has confidence.

On the other hand, an all-cash buyer might be a bit apprehensive because he is looking at tying up a tremendous amount of cash in a single sale. One way to improve the situation is to add contingencies to the offer. Any such contingency would ultimately lower the investor’s total costs.

Delayed closings and contingencies are two things commercial real estate sellers just do not like. Hard money is a good deal because it helps investors overcome both.