Property investors are known to invoke a strategy that involves purchasing distressed properties and then either rehabbing them for sale or holding them as landlords. It is a strategy that can be deployed on either a small or large scale. More importantly, hard money can be the fuel that drives such a strategy.
Hard money lending is private lending capable of facilitating property acquisitions that banks would stay away from. An example that immediately comes to mind is the large numbers of distressed properties now available along Florida’s west coast. After two hurricanes, a significant number of local residents have decided to leave. There are tons of houses for sale.
Investors Are Scarfing Them Up
Real estate investors appreciate distressed properties because such properties represent value. By definition, a distressed property is one that is being sold well below market value. Distress is normally due to either foreclosure or an owner facing some kind of circumstance dictating a short sale. However, significant damage from a natural disaster can also distress a property. That is exactly what has happened to homeowners in Florida.
Hurricanes Milton and Helene caused extensive damage along the west coast near the end of the 2024 hurricane season. All the damage has not been lost to investors. According to multiple news reports, investors are now scarfing up distressed properties dozens at a time.
The reports do not say whether investors are using hard money to do so. But I would not be surprised if that were the case. Hard money is the perfect tool for obtaining large volumes of properties at discounted prices.
Fast and Easy to Arrange
Although Salt Lake City-based Actium Partners does not do business in Florida, they can explain why hard money works so well for investors looking to buy up distressed properties. For starters, Actium explains that hard money loans are typically faster and easier to arrange than bank loans.
Hard money lenders are private lenders. Their document requirements are less stringent, and their approval processes are more streamlined. Where it could take a bank months to approve traditional funding, lenders like Actium can get everything in order in a matter of days.
For an investor looking to purchase large numbers of distressed properties, hard money represents the opportunity to purchase more properties with less cash. An investor can use a small portion of his cash reserve to arrange a hard money loan on an attractive property. And he can continually repeat the process for as long as he has cash to make the necessary down payments.
Once properties are acquired, the investor can work on refinancing with traditional loans. Refinancing allows him to take his cash back out of each deal and put it toward another distressed property. In essence, hard money becomes the fuel for an ongoing cycle of acquiring distressed properties.
What Happens After Acquisition
Another advantage hard money has is that lenders are less concerned about what happens with properties after acquisition. As long as a borrower has a solid exit plan for repaying his loan, it doesn’t matter to the lender whether he holds that property as a landlord or rehabs it and puts it back on the market.
Some may not appreciate investors purchasing large volumes of distressed properties. That is understandable. But for property owners who have lost everything in a natural disaster, being able to sell often represents the first step in return to normalcy. Selling allows the property owner to start over without having to abandon a property he cannot afford to save on his own.
