Picture this: you’ve just walked a property on a Friday afternoon. It’s an outdated three-bed ranch with good bones and an under-market price. The seller has five other offers and wants to close in two weeks. Your bank lender shrugs—they need 45 days and a stack of paperwork. Without fast money, the deal’s dead before Monday. This is where hard money lending steps in.
Hard money isn’t cheap. Rates are higher, fees are upfront, and the timeline is tight. But it’s designed for speed, flexibility, and situations where conventional lenders freeze up. Used well, it can turn a deal you’d lose into one you close—and profit from.
What Hard Money Really Is
Hard money is private capital, lent primarily against the asset and the plan, not your W-2 income or DTI. Lenders look at purchase price, rehab scope, ARV (after-repair value), and your ability to execute. If the numbers pencil and you’ve got a path to exit, they’ll fund in days, not months.
Where Hard Money Makes Sense
- Fix & flip: Buy, rehab, sell—especially when timing is critical.
- Auction deals: Need cashier’s check at closing? Hard money can close in 7–10 days.
- Bridge to DSCR: When income isn’t stabilized yet but will be post-rehab.
- Unique assets: Properties banks call “unlendable” (vacant, deferred maintenance, mixed-use).
Typical Terms in 2025
Market ranges vary, but here’s the ballpark:
- Rate: 9–12% (private), 7–9% (institutional programs)
- Points: 2–4% origination
- Term: 6–18 months, interest-only
- LTC cap: 70–85% (purchase + rehab)
- ARV cap: 70–75% of stabilized value
- Collateral: 1–4 unit residential, small multifamily, some mixed-use
Case Study 1: The Cosmetic Flip
Ken landed a $210k ranch needing $35k of updates. He used hard money at 11%, 3 points, and finished in 6 weeks. Total carry was ~$25k. He exited with a $43k net profit. Without the loan’s speed, the deal would’ve slipped to a competitor. His lesson: model the carry up front, not as an afterthought.
Case Study 2: The Heavy Rehab
Maria bought a $260k duplex needing $95k of rehab. She budgeted 16 weeks, but permit delays pushed the project to 7 months. Extension fees (0.5% per month) plus added carry cost $18k more than expected. Her ARV was still strong at $430k, but her net shrank dramatically. Lesson: always model an extra 30–60 days of carry and extension fees.
Case Study 3: Bridge to DSCR
James grabbed a four-plex with under-market rents at $520k. Hard money covered $360k of purchase + $80k rehab. Once stabilized at $7,200/mo rent, he refinanced into a DSCR loan at 75% LTV, pulling most capital back. The bridge cost him ~$40k, but without it, no bank would’ve touched the deal. Lesson: bridge loans buy you time to create bankable income.
Total Cost Breakdown (Example)
Loan: $280,000 at 11% IO, 3 points, 6-month hold, avg outstanding $260k.
- Points: $8,400
- Interest: ≈ $14,300
- Third-party fees: ~$2,500
- Total carry: ≈ $25k
Draw Schedules Explained
Rehab funds aren’t wired upfront. They’re held back and released in draws after inspections. That means you need float money for materials and deposits. On a $95k rehab, expect 4–6 draws. Plan your subs around inspection timing so no one sits idle waiting for cash.
Risks You Can’t Ignore
- Liquidity gap: Don’t start with your last dollar. Float at least 2–3 weeks of work.
- Over-optimistic ARV: Use comps that sold, not just listed.
- Scope creep: Nail finishes up front; hold 10–20% contingency.
- Extension bleed: A “cheap” loan can become expensive if you drift past term.
Comparing Hard Money vs. Bank Loans
Banks: cheaper but slow, paperwork heavy, rigid on condition. Hard money: expensive but fast, flexible, and execution-focused. The key is not whether hard money is “good” or “bad”—it’s whether the spread between cost and profit supports it.
Common Mistakes
- Underestimating carry and only budgeting points + rate.
- Assuming draws are instant reimbursements.
- Thinking extensions are automatic (they’re not—request early).
- Failing to line up an exit plan before close.
60-Second Pre-Offer Checklist
- Three sold comps (not listings) with ≤60 DOM.
- Scope line-items + 10–20% contingency.
- Draw schedule mapped to inspector cadence.
- Carry modeled: points + rate + fees + extension risk.
- Exit plan modeled with cushion (sale or DSCR refi).
Bottom Line
Hard money is not the enemy of investors—it’s the partner that lets you move fast when banks won’t. The investors who win with it are the ones who treat it like a scalpel, not a sledgehammer: used precisely, with math that works even if things take longer and cost more. Get that right, and “expensive” capital becomes the cheapest tool in your kit.
