For those who are interested in commercial real estate investment, it’s becoming increasingly difficult to obtain financing from traditional lenders. While investing with cash can be more straightforward and less expensive than hard money loans, it can also limit the diversity and scope of your portfolio in addition to increasing the risks. Here are three situations in which hard money loans can be worth more than they cost:

1. You want to purchase multiple properties at one time. One of the most obvious advantages of financing is that it gives you more money to invest. If you use cash for all of your real estate investments, then you can only invest as much as you have currently. Obtaining hard money loans for 50% to 65% of each property’s value lets you buy at least twice as many properties. In this way, you can expand your portfolio in a much shorter time. The cost of the loans can be offset by the increased returns from multiple properties.
2. You want to diversify your risk. Obtaining financing for part of your investment means that you share the risk with your lender, and if the worst happens, you will still have some of your money left. Also, since responsible hard money lenders will only agree to underwrite loans that they think will get them their money back, their approval can also serve as a double-check that your deal is a good one. Therefore, if your loan request is rejected by a private lender, it might be a good idea to re-evaluate it and whether it’s actually as good a deal as you initially thought it was.
3. Your investments have high margins. Hard money loans aren’t cheap; paying higher interest rates and origination fees is the cost of using someone else’s money. (In fact, if a hard money lender is offering rates and fees that seem too good to be true, they probably are. This is a red flag that they may not be a reputable private lender but, instead, merely a fee collector masquerading as a lender.) These increased costs can be balanced out by your ability to make more high-margin investments by using hard money in addition to cash. If you are able to buy a property for $300,000 and then sell it for $390,000, you earn a 30% return on investment (ROI), whereas if you purchase two properties at that price with loans, and then sell them for the same amount, you make twice the ROI, which more than covers the costs of using hard money loans.