Real Estate Investors Turning to Private Equity and Hard Money as Banks Begin to Meltdown

Post author:Ryan Thaler
Post published:May 25, 2023
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Home » Blog » Uncategorized » Real Estate Investors Turning to Private Equity and Hard Money as Banks Begin to Meltdown

Bank Meltdowns See More Real Estate Investors Turning to Private Equity and
Hard Money Lenders for Financing

The Federal Reserve’s continuous increase in interest rates following the Covid-19 pandemic have turned up the pressure on banks and made the global economy extremely volatile. The Signature Bank was the most recent of multiple bank failures in recent months. For many of the failing banks, it is due to the value of the bank’s assets falling below the market value of the bank’s liabilities.

Real estate investors nationwide are now sitting in a stalemate with their banking institutions. Unable to receive loans from their usual bank, investors are turning to private equity and hard money lenders for the financing they need. Throughout this article, we will go into depth on how private equity and hard money have stood strong after multiple bank failures and the almost-guarantee of more to come.

What Causes Bank Meltdowns?

A banks failure can be rooted in multiple causes. One being the bank failing to meet its obligation to the depositors and creditors. Other reasons include fraud, liquidity, undercapitalization, and safety and soundness. If severe enough, just one of these can cause the failure of a well-established bank.

The ongoing banking failures remind us of the history of such. For example, the failure and closure in 2008 of Washington Mutual. This bank had around $310 billion in assets. This bank failure led to a massive spike in tension among real estate investors, not knowing their next steps or what to do, private equity and hard money proved to be a savior.

Let’s dive into more about the availability and benefits of hard money and private equity for real estate investors through these volatile times.

How Private Equity Is Opening New Doors for Real Estate Investors?

Any capital investment from or to companies not publicly traded is considered private equity. Many private equity firms look for and accept investments from high-net-worth individuals, accredited investors, family offices, and/or successful private equity managers.

Let’s take a look at a few of the advantages Private Equity has over traditional-bank financing.

Comparably Low Volatility

Private Equality Real Estate (PERE) or hard money lenders returns tend to have lower volatility than other major class assets, and these have remained competitive in the long run. The National Council of Real Estate Investment Fiduciaries (NCREIF) has an annual return of 9.3% that’s proceeded by stocks only. Making it hold the highest risk-adjusted performance with the lowest volatility.

Exceptional Performance in Down Markets

History shows that PERE has a much lower correlation compared to the traditional asset classes. This led to PERE performing remarkably well during down markets. This trend is expected to continue and repeat itself, despite the national housing crisis.

Stable Performance Long-Term

If you are an institutional investor, you can benefit even more from the competitive returns private equity real estate has produced while providing diversification. Taking a deeper look at the statistical details, you will learn that the NCREIF returns are very consistent compared to other asset classes.

Protection Against Inflation

Private equity real estate offers many protections against high inflation but excels in respectable returns during times of low inflation. Just another reason why real estate investors are keen to investing with private equity.

How Is Hard Money Benefitting Real Estate Investors?

Contrary to its name, hard money is not hard to obtain. ‘Hard’ in hard-money refers to the tangible assets that one has used to back up the loan’s value. Hard money financing gives the opportunity of secured, short-term loans with swift turnaround timeframes. With hard money, real estate investors get the opportunity to acquire short-term, secured loans with swifter turnaround times. Here is your guide to why real estate investors use hard money.

It’s Super Quick!

The real estate industry as a whole is a time-sensitive business. Deals can be held up by 30-to-90-day period that is takes traditional bank financing to secure. While with hard money loans, the loan can be secured within a few days to a couple of weeks.

It’s Convenient

When applying for a traditional loan, real estate investors have to provide detailed info about the tax returns or W-2s. However, with hard money loans you can skip the hassle of time-taking paper-based processes and slow human decisions with hard money loans.

It’s Quite Flexible

Hard money loans are available with flexible loan terms. It’s because, unlike traditional loan lenders, the hard money lenders aren’t bound to the rules and restrictions of bank financing. In addition, hard money lenders tend to structure loans that are best suited to your project to help them insure a successful exit.

Opportunity for Deals

Hard money lenders can offer beneficial programs that banks cannot or, at least, do not. If a distressed asset is available for a good price a hard money lender can lend on both the purchase and for the fix-up/rehab dollars. For example, CambridgeHomeLoan.com can lend up to 90% on fix and flip and multifamily properties and provide 100% of the rehab cost.

The Focus is On the Asset

When getting a hard money loan, the thing that matters the most is the value of your property, neither your personal finances nor employment history are heavily considered. Hard money programs like the ones provided by CambridgeHomeLoan.com, will investigate your property’s ARV (As Repaired Value) or the value of the property after the rehab is completed, to estimate the property’s worth.

Where to Go From Here?

After reading the details above and wondering where to go to find a hard money lender, CambridgeHomeLoan.com has got you covered! This amazing financing platform offers different types of real estate investment loans, ranging from Fix & Flip, Hard Money Loans, Fix to Rent, Ground Up Construction, and Cash Out Refinance.

Working with different real estate investors to focus on maintaining Fix and Flip loans up to 90% of the purchase price and 100% of rehab, multifamily, and ground up construction. Moreover, Rental loans and Cash out refinancing up to 80% LTV. Visit CambridgeHomeLoan.com for an in-depth look at the deals and loans offered.

Wrapping It Up!

Conclusively, where private equity and hard money prove life savers for real estate investors’ financing, these types of loans also prove more convenient, quick, reliable, and flexible with consistent returns than relying on banks.

CambridgeHomeLoan.com along with their expert loan officers are available to provide you assistance throughout the entire process and point you in the right direction. If you are looking to discuss your loan scenario, begin your application process, or have any questions, click or call today!

View and learn more about our investment and commercial financing at CambridgeCapital.org

With the utilization of an abundance of private lenders, CambridgeHomeLoan.com is able to provide turnkey solutions to real estate investors and developers that are not available through traditional, conventional lenders.