It’s no surprise that the Washington DC real estate market is an excellent choice for investors. Conditions that favor investment in new and redeveloped property include:
- Constrained supply: Demand for housing continues to exhibit strong demand coupled with depleted available inventory.
- Faster sales: Sales have accelerated over the last two years, with dropping average days on market. The suburbs saw the steepest drop in days on market, spurred by low interest rates, and relatively more inventory compared to closer-in neighborhoods.
- Seller reluctance: The demand for new and redeveloped units is extremely high, in part due to the reluctance of homeowners to sell. Apparently, price appreciation over the last several years has not been sufficient to stimulate sales of existing properties.
These factors point to a golden, if perhaps short-lived, opportunity to invest in housing throughout the D.C. region. Demand far outstrips supply, yet inventory remains low and homeowners are staying put. Renovation of apartment buildings and single-family-homes would help increase the demand for housing.
The window of opportunity is also defined by the relatively low costs for labor and materials that currently apply. The fiscal stimulus, which is targeting 4 percent annual growth in GNP, will inevitably stoke inflationary pressures, meaning a year from now it might be more expensive to flip residential property than it is today. In other words, the cost of capital will be going up.
To sum up the reason to use a hard money load instead of a bank loan:
- Banks are slow: The pressure to quickly begin renovation projects provides investors with a unique opportunity for returns, because the need for speed creates demand for hard-money loans. Time-sensitive projects need fast and flexible funding, not the strong suit of bank financing.
- Banks are fussy: Banks present hurdles, such as required debt-to-income ratios, credit scores, existing investments, and verification of income, assets and down payments. All this red tape wastes a lot of time and creates uncertainty.
- Hard money loans are flexible: Hard-money loans are funded by private investors who have the flexibility to loosen certain constraints in order to facilitate good-looking deals. Investors thus have the opportunity to enter into deals that banks can’t because of their concerns about risk, short timelines and flexibility.
- Hard money loans offer investors higher returns: Naturally, the benefits of hard-money financing also require higher costs of capital, meaning that investors can expect higher returns by funding hard-money loans. Risk can be reduced by spreading investments over a portfolio of properties and by careful selection of each project.