Commentary
As of April 2022, experienced syndicators (those who raise money from investors to invest in real estate) stopped using hard money to secure deals. At the time, many investors were questioning this practice as not going hard on the money made those of us more experienced lose out on some potential cash-flowing properties. However, this decision came from years of experience. I have been through turbulent markets before and knew going hard on the money in an environment where interest rates were changing could have some negative consequences for investors.
What is Hard Money? Before I explain why I stopped going hard (nonrefundable earnest money) with money to secure deals, let me first explain what that means. When you put an offer on a multi-family property and are accepted you have to put down earnest (money put down to secure real estate during the due diligence process) money. This earnest money is refundable if you decide to back out of a deal for any reason in the allotted time frame. In multi-family deals, the total of earnest money is normally about one million dollars. In a competitive market, some buyers will go hard on the money. This makes the earnest money non-refundable, so the seller gets to keep it even if the buyer decides not to close on the deal. This is really enticing to the seller for obvious reasons and as a buyer going hard on the money really gives you a competitive edge over other offers. If you do your due diligence, going hard on the money is a great strategy in a stable market….