Making money in real estate can differ greatly from investing in stocks and bonds. In fact, property investment is longer term by nature. Investors also need quite a bit of capital to get started. But what many do not realize early on is the value of financing with hard money and bridge loans. As private funding, both types of loans can turbocharge an investor’s property portfolio.
Hard money’s big secret is that it facilitates more deals, faster deals, and an investment cycle that uses each acquired property as leverage to obtain the next. As a portfolio grows, hard money and bridge loans ensure that it grows faster. It picks up speed like a ball rolling down a hill.
Leveraging to Scale Quickly
Getting a portfolio to scale as quickly as possible is the key benefit of successful real estate investing. The core principle is taking advantage of scale to increase both investments and returns. Hard money is the foundation in the sense that it gives investors access to short-term, high-leverage capital they can utilize to buy and stabilize properties. These are properties that a conventional lender either will not touch or simply cannot close on quickly enough.
Meanwhile, the investor forces appreciation through rehab, repositioning, lease-up, etc. The property can then be refinanced by way of a more conventional long-term debt, thereby allowing the investor to pull out all of his cash. He can take that cash and apply it to acquiring the next property.
How Hard Money Accelerates Growth
Although hard money and bridge loans are often thought of as being the same, they are not. Real estate investors know that. They use the two types of loans to meet different goals. Let us start with hard money, explaining how it accelerates portfolio growth. There are three things in play:
- Speed to Close – Hard money loans can typically be approved and closed in a matter of days. Conventional lenders require 30-60 days. With hard money, investors can focus on off-market and distressed properties that conventional lenders typically will not touch.
- High Leverage – Hard money is considered high leverage because properly structured loans allow an investor to spread his cash resources across many projects simultaneously. More projects working at the same time means more equity being built.
- Creating a Loop – Financing with hard money allows investors to create a loop. Properties are purchased, stabilized, and refinanced time and time again. Each property added to the portfolio creates equity that could be funneled into acquiring new properties.
The loop is the most attractive aspect of funding portfolio growth by way of hard money. The loop is self-sustaining once it is established. That is where real profits are made over the long term.
How Bridge Loans Keep Things Moving
A bridge loan is a short-term, asset-based loan intended to bridge the gap between an immediate need and a future financial resource. In the real estate investing space, bridge loans are normally used for acquisition purposes.
Salt Lake City-based Actium Lending frequently makes bridge loans to investors looking to add new properties through their portfolios even while other properties they own are up for sale. The bridge loans keep the investors going while they wait for those less desirable properties to sell.
The importance of the bridge loan in keeping things moving can’t be underestimated. Access to bridge loans means investors can meet short-term financial needs without interrupting the overall strategy they have for building their portfolios with hard money. Having access to both types of loans makes a significant difference. It turbocharges portfolio growth like nothing else.
