Hard money and bridge loans are utilized mainly to acquire property. For the record, this is investment property rather than individual primary residences. Investors of all types turn to hard money lenders for loans they can get quickly and with as little fuss as possible. That gets them to closing faster.
The next question is, what types of properties do the loans finance? There are two things to consider. First, hard money and bridge loans could theoretically fund any kind of property acquisition. The type of property matters not. However, the second consideration is the fact that lenders tend to be particular about property types. Lenders prefer to settle into particular niches and stick with them.
Commercial Property Investments
Actium Partners is a Utah hard money lender based in Salt Lake City. The firm also lends in Colorado and Idaho. Their niche is commercial real estate with existing structures. They do not fund undeveloped land. They also do not provide construction loans.
There are other hard money lenders that are happy to finance land development and construction projects. Again, it is up to each lender to determine its own priorities and policies. Risk aversion plays an important role in both.
Here are just some examples of the types of commercial properties hard money can finance:
- Industrial buildings and parks
- Office buildings and multi-building campuses
- Warehouses, storage facilities, etc.
- Retail properties including plazas and strip malls
- Multi-unit apartment properties
- Medical facilities including clinics and hospitals
- Hotels, motels, and other hospitality properties
For hard money lenders, it is all about finding a variety of property types that appeal. Then a lender leans in and specializes in those property types. Gaining experience and knowledge makes a lender more profitable over time.
Residential Property Investments
My guess is that most hard money and bridge loans fund commercial acquisitions. But there are hard money lenders amicable to residential property. The only thing here is that the opportunities are more limited. As a general rule, the only residential properties hard money lenders will fund are:
- Vacation rentals
- Single family rentals
- Multi-unit single family homes
Private lenders do not provide hard money or bridge loans to obtain a primary residence. In other words, you cannot get a traditional mortgage from a hard money lender. Mortgages are the domain of banks and credit unions.
Residential properties are considered riskier as investments. This could be why hard money lenders are more reluctant to fund their acquisition. And yet there are some lenders who specialize in these sorts of properties.
Distressed and Vacant Properties
The last category of properties tends to see the least amount of business from hard money lenders: distressed and vacant properties. Why are hard money lenders reluctant to finance them? Because, by their nature, they are high-risk properties.
Distressed properties need significant renovations before they are marketable. Renovations only add to a borrower’s financial burden. Lenders are concerned that expenses will get too high and a borrower won’t be able to keep up.
As for vacant properties, their value is automatically in question. Vacant properties are vacant for a reason. There may not be enough value in such a property to justify a hefty hard money loan. Nonetheless, there are a small number of lenders willing to take their risks on distressed and vacant properties.
Hard money and bridge loans represent two of the best ways to finance investment real estate. By financing, investors preserve their cash for other expenses. The trick is finding a lender willing to finance a risky project. A borrower may have to dig to find one.