Hard Money Definition

May 6, 2014

Quite a few commercial loan investors will, in time, come across the idea of getting a bridge loan or hard money loan. In this article we will focus on bridge and hard money apartment loans.

An important question to ask yourself is, “Should I get into bridge and hard money apartment financing?”

First, you need to be sure you know what bridge and hard money apartment financing is used for. Here are some reasons people get bridge and hard money apartment financing:

1. A property doesn’t cash flow enough to qualify for a loan because the occupancy is too low. You get bridge or hard money financing for a year to get the occupancy up. Once the occupancy is at the required amount, you attain permanent financing.
2. The property doesn’t qualify for a permanent loan because it has serious repair issues. You get bridge or hard money financing to give you time to do the repairs.
3. Your credit score is too low to qualify for a permanent loan. You get bridge or hard money financing to give you time to raise your credit scores to be able to attain a permanent loan.

But should you get bridge or hard money apartment financing if the above situations apply to you? In our opinion, do not get into bridge or hard money apartment financing unless you are an experienced multifamily investor or unless you are working with a partner who has quite a bit of experience in multifamily investing. One reason is that bridge and hard money loans are an expensive way to go, and if you do not have experience, you may greatly underestimate money and time requirements and end up losing a lot of money. Bridge and hard money apartment investments are an advanced investment strategy. With experience, you are much more likely to have a profitable outcome.

Things can go wrong in bridge financing. What if you don’t increase the occupancy enough to get a permanent loan? What if the cost for repair is far greater than what you thought it would be? These things happen, especially with inexperienced apartment investors.

Apartment bridge and hard money loans are an important tool for the experienced apartment complex investor. Make sure you have quite a bit of apartment complex ownership experience, or partner with an experienced apartment building owner, before you decide to venture in this direction,.

If you have any questions, call me at 214-695-7310, or email me at bruce@businessloanstore.com for all your multifamily loan needs.

Bruce Painter, Director of Marketing
Apartment Loan Store and Business Loan Store