If you’re looking to grow your real estate business, it’s important to consider howa diverse capital stack could benefit your current investing strategy. “
cess much less stressful and oner- ous. As a business partner, they’ll work to understand the details of your project as well as you do, giving you a personalized underwriting and closing experience. While hard money loans are an attractive option for investors look- ing for fast, flexible capital, they do come with some potential cons you’ll want to consider. The main con of using a hard money lender is typically a higher interest rate; due to the convenient, short-term nature of these loans, the interest rates do tend to be more than those of a bank or private money. As a result, it’s important to make sure you’re confident your project can be com - pleted and become profitable in that short time frame. In this way, a good lender will be transparent about whether your project is profitable and beneficial for both of you, even if it means they pass on that partic- ular deal. The reliability and speed of access to large amounts of capital and stress-free underwriting makes it a perfect choice for many investors who specialize in residential rehab at high volume. If you’re looking to grow your real estate business, it’s important to consider how a diverse capital stack could benefit your current investing strategy. Private money, traditional bank loans, and hard money all have unique pros and cons and depend - ing on your business, any of these options--or a combination of the three--can be useful for you as you grow your business. By understand- ing the main sources of capital and when to deploy each one, you can create the optimal capital stack for your business and take it to the next level of growth. •
MATT RODAK, FUND THAT FLIP
they can also lack the flexibility that a high-velocity real estate inves- tor needs when executing multiple projects and strategies at once. They can be useful when financing longer-term and lower-risk projects, but naturally, banks may not share your urgency when financing your investment project. HARD MONEY The last major source of funding are what are referred to as “hard money loans,” sometimes used synonymously with “short-term bridge loans.” This method of fund- ing provides a short-term lending solution that real estate investors use to finance their rehab and new construction projects. These loans are provided by lenders who typically specialize in real estate rather than a traditional financial institution or independent investor. This financing method is most often leveraged by seasoned real estate investors who
value speed, reliability of funds, and are looking to increase the velocity of their real estate investment busi- ness. Many successful real estate investors find themselves most prof - itable when they can move quickly on projects, keep capital in circula- tion, and use leverage. In this way, one of the most notable advantages of using hard money is the ability to grow your real estate portfolio without running into a funding short- age; while private money is often limited, hard money lenders tend to have an expansive pool of capital that can help you fund more projects and scale your business. More- over, banks often miss the mark for high-volume real estate investors due to their rigid underwriting stan- dards. A good hard money lender will focus on the asset, the scope of the project, and the borrower’s investing experience rather than their finan - cial position or liquidity, making the underwriting and administrative pro-
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