One of the things that sets hard money and private bridge loans apart from traditional funding is speed. A private lender like Salt Lake City’s Actium Partners can approve, underwrite, and fund in a matter of days. But why the rush? Why do hard money borrowers seem to be in such an urgent need of cash?
It helps to know who makes up the largest share of hard money borrowers. According to Actium, the majority are real estate investors looking to acquire commercial properties. One investor might be a landlord who specializes in office buildings. Another might prefer industrial and warehouse space while still another investor is really into fix-and-flip.
The one thing they all have in common is the need for funding to get their deals closed. Therein lies the answer to why their cash needs tend to be so urgent.
Real Estate Doesn’t Wait
Urgency in commercial real estate deals it is hard to grasp if all you know about real estate pertains to the residential market. There isn’t such a sense of urgency for buyers looking to purchase a home because closing generally takes three months or more anyway. Buyers have plenty of time to arrange financing.
That is not the case with commercial real estate. Commercial properties go very quickly. Not only that, but sellers are also generally not interested in waiting months to close. They don’t have to be. There are enough buyers competing for properties that sellers have a liberty of going with whoever can get a deal done the fastest.
Putting Earnest Money on the Line
Imagine you are a real estate investor. You have your eye on a lucrative property you believe would be a perfect fit for your portfolio. You make an offer, it is accepted, and you put down your earnest money. All is well except for one caveat: the seller is expecting to close within a week.
If you’re not ready to close by the seller’s deadline, you could lose your earnest money, lose out on the deal, or both. That’s a hard pill to swallow. It’s especially hard if the amount of your earnest money is sizable. You certainly don’t want to lose it just because you could not arrange financing quickly enough.
For a firm like Actium Partners, a week is plenty of time. Most hard money and bridge loans are approved and funded within a couple of days. Actium has even been known to get clients to closing in one business day when circumstances warrant.
The Competition Is Fierce
Urgency takes another form in commercial real estate by way of competitors. Needless to say, the commercial market is highly competitive. Battles over the most lucrative properties can be fierce. The last thing a competitive investor needs is trouble arranging his financing.
With that in mind, an investor does himself a big favor by developing a solid relationship with one or two lenders. The more solid those relationships, the more confidence an investor has on every new deal he executes. He knows one of his lending partners will be there with financing when the time comes.
That sort of confidence gives the investor an edge. It gives him the ability to make an offer and guarantee he will come through at closing.
Urgency Is Par for the Course
Urgency is par for the course in commercial real estate. Private lenders know this, and they are up to the task. Arranging a hard money or bridge loan doesn’t have to take months. Hard money lenders can do it in days, meeting a borrower’s urgent need.
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