Timing is everything when it comes to high-end real estate. In-demand luxury properties often sell before they even hit the market.
Since exclusive deals can attract multiple offers, making your bid stand out is essential to increase your chances of landing an attractive deal.
Delays from conventional bank financing can work against investors trying to acquire these prized assets due to the long, drawn-out approval process.
This has caused savvy investors to rely on hard money lenders to obtain quick financing to scoop up these deals.
Fast Action Matters in Luxury Real Estate
Unique and luxurious properties will potentially draw attention from a vast pool of deep-pocketed international buyers, resulting in these properties being sold in a matter of days.
Buyers need a way to make their offer shine. One of the easiest ways to do this is to obtain a loan from a hard money lender to purchase the property.
Hard money loans (also sometimes called bridge loans) are short-term loans, typically backed by real estate, and are commonly used to acquire properties and businesses.
Making an offer on a property using a hard money loan is typically considered an all-cash offer, which is essentially the strongest type of offer one can make.
Hard money lenders can often finance deals in as little as 5 to 7 days, helping to eliminate the red tape that borrowers might encounter when dealing with a bank or larger financial institution.
Since hard money lenders are typically individuals or small companies that primarily focus on the collateral being loaned against, they do not require extensive paperwork from borrowers.
The Power of Flexibility in Real Estate Financing
Hard money loan terms are flexible and can be tailored to meet borrowers’ needs.
Old, large estates sometimes have deferred maintenance. Hard money lenders can provide borrowers with the capital they need to make property renovations, helping them transition more easily into long-term bank financing.
Most hard money loan term durations range from 6 to 24 months, allowing borrowers to terminate the loan via a sale of the property or using conventional financing whenever they deem necessary.
Example Scenario
- An investor saw his dream home in San Diego, California, listed for $9 million on a Friday.
- Over the course of the weekend, numerous interested parties had toured the home.
- The investor had only $3 million in liquid cash and knew that a bank would take 30 to 45 days to provide funding for the remaining $6 million.
- Rather than risk going through a lengthy bank approval process, the borrower turned to a hard money bridge lender to supply the $6 million loan.
- The loan approval was approved, and the borrower received the $6 million in just 7 days.
- The investor was able to make an all-cash offer and ultimately secured the winning bid.
- After the 3-month pre-payment penalty on the hard money loans was complete, the investor refinanced into a traditional bank loan.
Risks Associated with Hard Money Loans
The advantages of hard money loans come with a few tradeoffs, including higher interest rates, shorter terms, and the need to have a solid exit strategy to obtain the loan.
Hard money loans are associated with higher interest rates (8 % to 15%). These loans are intended for short-term use only; it is neither sustainable nor feasible to hold them for more than a few years.
Length of terms usually falls between 6 and 24 months, with most lasting a year. If a borrower cannot complete their refinance into a traditional bank loan within this timeframe, they will have to either find a new hard money lender or refinance with the same hard money lender and pay more origination points, which vary between 1% and 5% of the total loan amount.
Conclusion: Move Fast, Reap Rewards
High-demand markets with sophisticated real estate investors can be challenging to compete in.
Real estate investors need a competitive advantage to capitalize on golden opportunities.
Hard money loans enable investors to outpace the competition with quicker, faster, and more attractive offers.
Purchasing high-end assets does not have to be a headache; using a hard money loan will help you solve the financing part of the equation.
So in short, if you find a property you can’t live without and are short on liquid cash, don’t risk it; call a hard money lender like Crescent Lenders https://www.crescentlenders.com/ (located in California) to help you make the winning offer.
