Real estate investors with access to Short-Sales, Foreclosures, and REOs rely on hard money to take advantage of rare opportunities.  When flipping a property, hard money is just a tool to acquire it and make a decent buck quickly. However, unless these same properties are resold at fire sale or deeply discounted, they come with a high risk. Particularly if the investor has no chance of getting long-term financing in place.

For those who plan on buying and holding, particularly in the case of commercial properties, hard money is just a band-aid to get the deal done.  Investors who are taking down commercial properties using hard money, are even more at risk than SFR flippers.  This is because long-term commercial financing is a process that requires a broker who has access to multiple lending sources, and one who moves quickly.  Without this, the 90 hard money term is a nail-biting countdown.

But it isn’t just as simple as that.  Sometimes investors have to get creative with hard money.  A recent example was two weeks ago when a commercial real estate investor friend was able to take down a rare triple net lease opportunity. The seller was the bank, and it was desperate to get the property off its books before the end of the year.  This experienced investor was able to take down this 50% LTV commercial property days before the New Year and he did it by leveraging hard money more creatively than most.

In this case, the investor needed to come to closing with 10%.  Because he was cash poor, he needed hard money for the 10% but of course couldn’t get a hard money lender to take 2nd position to the bank.  With a ton of equity in another commercial property he owned, he took out the first on it with a hard money loan and took cash out in the amount of the 10% he needed for the triple net lease.  With a strong balance sheet and credit history, the investor will be able to secure long-term commercial financing relatively quickly to cover the hard money loan.  This, once again, is the catch. Putting long-term commercial financing in place is a process that requires an experienced broker with multiple commercial lending sources.

Is there anyone out there who has recently had to leverage hard money in a creative way to take down a short-sale or foreclosure? We’d love to hear your story…..

Posted by Corey Curwick on January 11, 2009