While hard money lending has been around in one form or another for centuries, it really came into its own immediately following the housing crash back in 2008. Hard money’s rise was the result of a fundamental banking principle: where there is opportunity, there is also money. The housing crash and subsequent financial crisis created a perfect environment for hard money to emerge.
Today, hard money lending is more attractive than ever before. Borrowers from real estate investors to companies looking to make acquisitions turn to hard money lenders. They have discovered that hard money opens doors to opportunities otherwise kept closed by banks. Salt Lake City’s Actium Partners make the case that where opportunity exists, so does hard money.
A Genuine Banking Crisis
The 2008 housing crash is often described as a housing crisis. In reality, it was a banking crisis. Housing was just the tool that exposed the crisis. It was a crisis caused by government leaders and banking officials working together to convince Americans to buy homes. The goal was to facilitate as many mortgages as possible.
Lenders relaxed their requirements to get more people on board. Indeed, they loaned to untold numbers of people who really couldn’t afford to borrow. Washington did its part by changing the rules so that banks could package mortgages and sell them to unsuspecting investors. This eliminated most of the risk that came with making questionable loans.
This government-banking sector charade lasted the better part of a decade. However, it did not last. It couldn’t. Real estate prices artificially inflated to the point that many of those homeowners who could not afford to borrow found themselves underwater and unable to repay. Foreclosures began cascading, even as investors who purchased the bad loans suffered irreparable losses. It wasn’t long before the whole house of cards came tumbling down.
Hard Money to the Rescue
In the aftermath of the housing crash, lenders pulled back to unprecedented levels. Investors who previously relied on free-flowing credit from their banks no longer have access to funding. Hard money stepped up and came to the rescue.
Hard money lenders are not subject to the same types of restrictions that govern banks. They have a lot more freedom and flexibility. They were able to say to investors – primarily real estate investors – that they had the willingness and means to make deals. Investors began lining up for hard money loans.
Hard money largely fueled the house flipping boom of the early 2010s. It enabled a lot of first-time investors to become both residential and commercial landlords. You might even say that hard money kept the real estate market from tanking even further.
Opportunity Is Self-Perpetuating
Enterprising hard money lenders did not view the housing crash as an opportunity lost. In fact, they viewed it as opening up a whole host of new opportunities to fund real estate investment projects. Because they were willing to lend, investors were able to buy distressed properties at bargain basement prices. The end result was investment activity that stabilized property prices enough to actually start rising again.
A decade after the recovery began, banks are finally back in the game. They are beginning to lend for business opportunities once again. However, they have lost out on a lot of business over the years because they failed to see opportunity where it existed. Hard money was the primary beneficiary.
Where there is opportunity, there is also hard money. Private lenders with hard money to lend seek out the best opportunities wherever these can be found. For that, they deserve a lot of credit.