Anyone who has purchased a house understands the closing process. Homebuyers also know that closing can take months. Between underwriting, the lender doing its due diligence, and unending document requests, closing can seem like a process with no real conclusion. But when it comes to property investing, things are different. Sellers tend to want to close as quickly as possible.
Closing speed really matters in property investing. Once a seller agrees to accept a given offer, he does not want to wait around for months to get the deal done. He wants to close as quickly as possible in order to protect the sale. The longer things linger, the greater the chances the sale will fall through.
That being the case, the buyer capable of closing the deal faster than the rest is almost always the one who prevails. This makes a buyer’s source of funding critical. The two fastest funding sources are cash and hard money loans.
The All-Cash Purchase
Funding real estate investments with cash isn’t unheard of. However, it is not the preferred funding method for most investors. All-cash deals tie up funds that could be put into other investments. Nonetheless, paying all-cash is a way to guarantee a quick close. Sometimes it is necessary to secure a good deal.
In an all-cash scenario, a seller will often ask for proof of financial resources. The buyer needs to show that he has the cash on hand. He could do that with bank statements or any other documentation that does the trick. Once his financial resources are verified, closing can generally occur in a couple of days. It is really just a matter of how quickly the title company can get its ducks in a row.
The Hard Money Purchase
Hard money is the next best thing to cash in terms of closing speed. A hard money lender is a private lender whose decisions are based primarily on asset value. Unlike banks and other lenders, hard money lenders do not have to follow a complicated underwriting process that takes weeks or months. Most of the time, they will not.
Actium Partners out of Salt Lake City, UT, is the perfect example. Actium’s underwriting process is short and sweet. It works so well that they have been known to approve and fund loans within 24 hours. They did just that a couple of years ago when a client contacted them on a Friday morning.
The client was scheduled close on his investment on Monday morning. But for some reason, the bank got cold feet and backed out on Friday. Actium Partners was able to step in and save the deal. They sent an appraiser to check the property on Friday afternoon. Before the close of business, they had drawn up loan documents that would be delivered, along with funding, to the title company on Monday.
Fortunately for the client, the deal was saved. Had Actium Partners not come through with the funding, closing never would have happened. It is very possible that another buyer would have stepped in and acquired the property.
Speed Really Does Matter
The point here is that speed really does matter in the commercial property game. Multiple investors are often competing for the same properties. Those who can close most quickly win most of the best properties. That is just the way it works.
This leaves investors with one of two options: all-cash or a form of lending that can guarantee fast closing. No lending option except hard money can do that. Perhaps that’s why so many property investors swear by hard money and bridge loans.
