What is a Hard Money Loan in Utah Real Estate?

Are you new to commercial real estate investing in Utah? If so, perhaps you’ve heard the term ‘hard money’ floating around. Now you need to know what it means and how it works. Know this: what you are accustomed to in the world of traditional home mortgages does not apply to hard money.

There was no need to fear hard money. Do not assume it is some form of underground lending either. Hard money lending is a perfectly legal and highly regulated form of financing that is essentially the pillar of Utah’s commercial real estate investing environment. Without it, a lot of the deals done over the last decade or so would never have gotten done.

It’s About the Asset, Not the Investor

Borrowing from a conventional bank or credit union means being willing to be looked at under a microscope. The lender will look at your borrowing history, your credit score, your W-2 income, and even your current debt-to-income ratio. Not so with a hard money lender.

Actium Lending is a Utah hard money lender based in Salt Lake City. They explain that hard money lenders are less interested in you and more interested in the properties you want to acquire. Those properties act as hard assets that back loans as collateral. Here is what that means in a nutshell: conventional lenders make approval decisions based on you. Hard money lenders make their decisions based on the property.

You should also know that hard money is a short-term proposition. Lending firms and private individuals tend to keep terms in the neighborhood of 6-24 months. If a property you want to acquire has enough value, and your exit strategy falls within the designated term, a lender like Actium is likely to approve. Bank approval will not be so easy.

How Things Work in the Beehive State

Utah has a unique and thriving private lending market. So whether you are looking at vacation properties in Ogden or commercial warehouse space in Salt Lake City, lending mechanics tend to be based on a familiar pattern:

• Quick Closing – Speed is hard money lending’s hallmark. Where a bank or credit union might need 60 days or more to close, Utah hard money lenders can generally get to closing in 3-7 days.

• Total Costs – In exchange for that speed, be prepared to accept a somewhat higher interest rate than you would otherwise get from a bank. Also expect higher origination points at closing.

• Shorter Terms – As previously explained, hard money loans come with much shorter terms. But they tend to be structured as interest-only loans, translating into lower monthly payments while you work your way toward exit.

• Lower LTVs – Private lenders require loan-to-value (LTV) ratios that are lower compared to banks. That means you will need a higher down payment or significant equity.

Do not be scared away by higher interest and shorter terms. In the end, your total cost of borrowing could actually be less with a hard money loan. Remember that you are paying less total interest by getting out of a loan more quickly.

Why Utah Investors Love Hard Money

With a few properties added to your portfolio, you will begin to understand why Utah real estate investors love hard money. Many of them rely on it as their first option for new acquisitions because it:

• Beats out all-cash offers.
• Finances distressed properties.
• Acts as a bridge to stability.

Finally, note that Utah has specific laws designed to regulate how hard-money firms do business. Don’t believe the myth that hard money is completely unregulated and highly predatory in nature. It’s not.