Real estate investments can be the most lucrative types of investment. Getting loans for such investments are, however, sometimes difficult, especially if the property is in a bad state of repair or the investor has a problematic credit history. Even in the best cases, getting a loan quickly from a large bank can be a challenge. This is where real estate investors may turn to a private lender, particularly a hard money lender. And hard money lenders can make a healthy income from such investments.
In this article, you will learn what a hard money lender is, the advantages and disadvantages of being a hard money lender, and how you can become one.
Why Real Estate Debt Funds Should Be Part of Your Investment Portfolio
Real estate debt funds are relatively new players in the investment field, having blossomed in the wake of the 2008 financial crisis. Traditionally, investors have been recommended to look at a blend of investments, including equities, with a view to realizing capital growth over the medium to long term. Yet, real estate debt funds now form the core of many portfolios; in his blog post, Private Real Estate Debt: The Pandemic’s Impact and the Industry’s Future, Craig Solomon, CEO of Square Mile Capital writes:
Real estate debt funds first emerged in the wake of the 2008 financial crisis, providing an efficient way to connect lenders with developers needing short-term capital for a range of commercial real estate projects. Following the crisis, traditional lenders tightened regulations and liquidity requirements for borrowers. Banks were resistant to offering loans for commercial real estate and, if they did offer loans, they placed greater focus on income and cash flow than on equity and assets. Real estate debt funds were able to service a small but potentially very profitable niche market.
New amendments from the Securities and Exchange Commission (SEC) will expand the pool of eligible investors available for private offerings, benefiting both would-be investors and companies looking to raise capital. Towards the end of last year, the SEC proposed amendments to its definition of “accredited investor” in Securities Act Rules 215 and 501(a), and to the definition of “qualified institutional buyer” (QIB) in Rule 144A.3 T. The amendments, confirmed on August 26, make more investors eligible, as “accredited investors,” to participate in private capital markets.
The original definition of “accredited investor” limited investment in private offerings to those people with specific income or net worth. Previously, would-be investors were assessed on their financial profile, usually requiring a minimum income of $200,000 (or $300,000 for spouses), or a minimum net worth or asset ownership of $1 million, either individually or jointly. With the new amendments, both individual and institutional investors who don’t pass the existing tests for income or net worth but meet defined measures of professional knowledge, or expertise, may now qualify to be “accredited investors.”
Tax Breaks Offer Relief for Commercial Real Estate Owners Needing to Repurpose or Reconfigure Existing Space to Accommodate Social Distancing
The current crisis is forcing many rapid changes to be made in the use of commercial real estate space – at considerable expense. Now, there is at least some good news for those struggling with the cost of making major interior changes to their commercial space, thanks to generous tax incentives for qualified improvement property (QIP) under the umbrella of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. These tax breaks can help alleviate the financial costs of redesigning and repurposing commercial space. The key to benefiting from these incentives is the interpretation of QIP, which now includes any non-structural improvement to the interior of an existing building, necessitated by the need for social distancing.
What will the post-COVID economic scene look like? What will be the best way to invest money when the economy starts to recover and where to invest money to get good returns? With America’s economic future subject to so many variables, investors must consider all likely scenarios when planning potential investment strategies.