As a real estate professional that specializes in California hard money lending, I work with many different sources of funding. One thing most of the loans that we assist with have in common, however, is that at the end of the day there are private individuals doing the funding. This is beneficial to our clients as it avoids many of the underwriting requirements of the big banks (which have become increasingly stringent).
With a new vote by the SEC, this pool of money available is poised to potentially grow. For eighty years there has been heavy regulation on how these private funds can be raised. This is not only true for the hard money lending industry, but it has also been true for hedge funds and syndicates. The rules on advertising to accredited investors were in place to protect investors, but it also skewed things so that the smaller funds and players were at a disadvantage.
As of July 10, this ban on advertising to accredited investors (basically those investors with a liquid net worth of $1,000,000 or more) will be lifted. This is good news for the hard money lending industry as it has the potential to greatly increase the availability of funds. It has been estimated that the lifting of this regulation could lead to as much as $1.4 trillion in additional investment capital being raised. Now not all of that is going to be devoted to funding California hard money loans, but a portion of it will be.
This is a big change in how advertising for investors works, and could reduce the cost of private capital as a result. For the moment it is too soon to see any real impacts, but it is interesting to take note of. As long as the banks continue to have tightened criteria for lending there will be an increased demand for private money capital to fund real estate projects, and this deregulation will inject some additional capital into the lending markets we deal with.
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