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R AISING M ONEY

have annual inflation exceeding 100 percent. Don’t think that could
never happen here.

Lessons on Leverage and Time

How can you minimize risk when financing real estate? Remember
another cardinal rule: Don’t make long-term investments with short-
term money. Therefore, when you get a mortgage, negotiate for the
right to extend the term even if there’s a payment attached for the
privilege of doing so. Say you have investors and you promise to pay
them off in whole or in part in three years. Insert a safety valve pro-
vision in the loan documents: If it’s not paid back in three years, you
have the right to extend it for a period of up to six years at a higher
rate of interest. This way you have the luxury of an additional three
years if you need it.
Bridge loans are another way to protect against the unavailability
of money at a future date. It’s possible to get one type of financing (a
bridge loan) to cover a certain activity (e.g., construction or renova-
tion of a property). At the same time, you get a commitment for an-
other loan (the takeout loan) that is contingent upon the completion
of that activity and meeting certain criteria that the takeout lender
sets forth in the commitment to determine the amount of money
that will be paid out when the takeout loan is funded. The fees that
the takeout lender will require to issue the loan are highly negotiable
depending on the foreseeable degree of risk. If, after the renovation
or construction is completed, the property will be sold, there is a dis-
tinct possibility that the amount to be funded by the takeout lender
will be minimal but the fee for the commitment is based on the pos-
sibility that the entire amount of the takeout loan will be funded.
That’s how takeout lenders make a lot of money, especially if there’s
a long time before completion of the construction or the renovation.

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