Hard money lending requires firms to have an excellent gauge on the local market. Because real estate market trends generally take place with a certain amount of lag time, lenders have a chance to adjust their practices with proper understanding of the space they live and work in to continue providing safe and effective financing.
An often overlooked section of hard money lending comes in the groundwork laid early on in the company’s existence. Selecting a market can be one of the most important decisions a lender makes, determining whether they will be successful in the future. A cornerstone of these markets are the cities they revolve around. Metros with greater marginal growth patterns make excellent candidates for hard money lending. With higher marginal growth, you can be assured house flipping and construction activity with be pouring in soon.
Selecting the appropriate market for hard money lending is a choice that will have ramifications on the rest of the business’s existence. It is one of the reasons why so much growth has been seen in the Sunbelt real estate markets versus those further north and east. With a large migration shift towards the Sunbelt, construction and other real estate businesses have followed, making hard money an obvious player in these markets as well. While lending can still be successful in less “hot” markets, it puts unnecessary constraints on the lender, making it more difficult for them to be successful. Less volume means less activity, which gives lenders less time to react in a shifting market. And that can spell the end of lenders who aren’t vigilant.
All in all, it is the groundwork that plays an outsized role in determining a business’s success. Making sure the market you are in is the correct one can help alleviate a lot of growing pains in the future!