Why Hard Money Works for Investors
When a great deal hits your inbox, the clock starts ticking. Hard money lets you move at that dealmaker’s pace. It’s short-term, asset-based financing secured by the property itself, designed for flips, rehabs, and time-sensitive acquisitions where conventional banks move too slowly. Expect faster approvals, flexible underwriting, and funding that matches the rhythm of value-add projects—often in days, not months.
Hard money isn’t “cheap money,” but it’s tactical. You pay more for speed and flexibility and trade strict bank requirements for a lender who underwrites the property, your plan, and your execution. Used wisely, it’s a lever that turns opportunity into profit.
Run the Numbers Like a Pro
Before you ever speak to a lender, map the entire deal. Your confidence—and your approval odds—rise when your numbers are tight.
- Purchase price and closing costs
- Rehab budget with contingency (10–20% is common)
- Holding costs: utilities, insurance, taxes, interest
- Professional fees: permits, inspections, title, attorney
- Carry time: realistic timeline to complete and sell or refinance
- Exit value: conservative ARV (after-repair value) supported by comps
- Profit targets and margin of safety
Many hard money lenders size the loan to a percentage of purchase price or ARV. Typical ranges:
- 70–85% of purchase price (LTC)
- 65–75% of ARV for rehab loans Bring your own equity for the rest (cash or a gap partner), and make sure the spread after all costs supports your margin.
Build a Tight Deal Package
Treat your application like a pitch deck. Make it easy to say yes.
- Executive summary: what you’re buying, what you’re fixing, how you exit
- Photos and a brief property condition narrative
- ARV comps with adjustments and days-on-market
- Scope of work, budget, and timeline (with a 10–20% contingency)
- Contractor credentials and bid (or your crew’s track record)
- Entity documents (LLC/Corp), IDs, and proof of funds for your down payment
- Insurance plan (builder’s risk or vacant property policy)
- Exit plan: sell vs. refinance (with takeout lender options)
Shop Lenders Strategically
Not all hard money is created equal. You want a lender that knows your market and your strategy.
- Find local and regional lenders that actively fund your asset type
- Ask other investors and agents who’s actually closing
- Read recent reviews and look for transparency and responsiveness
- Verify turnaround times: term sheet, appraisal/BPO, clear-to-close, funding
- Confirm draw process for rehab funds and who inspects
A lender who understands your submarket and product (e.g., mid-tier flips vs. high-end renovations) can be the difference between smooth draws and a project stuck in molasses.
Compare Terms Beyond the Headline Rate
Don’t fall in love with a low rate and ignore the fine print. Compare the complete cost of capital and the friction of working with each lender.
- Interest rate: fixed, interest-only is common
- Points: origination fees (1–4+ points typical)
- Term length: 6–18 months standard; extensions available?
- LTV/LTC/ARV limits: how the loan is sized to your deal
- Draws: frequency, inspection fees, reimbursement timeline
- Appraisal/BPO: required? Who pays? Rush options?
- Prepayment penalty or minimum interest: know your runway
- Junk fees: admin, doc prep, wire, underwriting, extension
- Recourse: personal guarantee or non-recourse with carve-outs
- Rehab holdback: what’s funded at close vs. via draws
Model two or three term sheets side-by-side with your timeline and see which one actually maximizes your net profit and decreases operational drag.
What Underwriting Really Looks At
Hard money is lighter than bank lending, but it’s not a blank check. Expect focus on:
- Collateral: current value, ARV, condition, and marketability
- Business plan: scope realism, comps, and timeline credibility
- Sponsor profile: experience helps; new investors can still qualify with a strong plan and team
- Equity: skin in the game
- Reserves: enough liquidity to carry the project
- Title and liens: clean chain and insurable title
- Permits and zoning: feasibility, especially for heavier rehabs or additions
Some lenders will check credit and income lightly to gauge discipline and capacity, but the asset and exit drive the decision.
From Application to Funding: Your Timeline and Checklist
A crisp process keeps your deal on rails.
Typical timeline (varies by lender and market):
- Same day–48 hours: soft quote/term sheet after you submit the deal package
- 3–7 days: appraisal/BPO, title open, entity/doc collection
- 5–14 days: clear-to-close and funding, contingent on inspections and title
Your checklist:
- Completed application and entity docs
- Purchase contract and any addenda
- Rehab budget, scope, timeline, and contractor details
- Insurance binder (builder’s risk/vacant)
- Title report, payoff statements (if refi), and closing attorney/escrow details
- Wiring instructions verified through a safe channel
Pro tip: line up insurance, title, and contractor availability the moment your offer is accepted. Those are the pacing items.
Managing the Rehab and Draws
The project lives or dies in execution. Lenders usually reimburse completed work through draws.
- Set milestones aligned with real construction sequences (demo, rough-in, inspections, finishes)
- Keep dated photos, invoices, and permits organized for each draw
- Schedule inspections early to avoid idle crews
- Protect cash flow: never front your entire contingency on noncritical upgrades
- Communicate timeline shifts; lenders hate surprises but tolerate informed adjustments
If you’re new, lean on a seasoned GC or hire a construction manager for your first deal. The fee is often cheaper than mistakes.
Plan Your Exit on Day One
Every dollar you borrow expects an exit. Choose it early and design the project around it.
- Fix-and-flip: price for speed, not ego; watch micro-market trends weekly
- Refinance to rental: pre-qualify with a takeout lender (DSCR or conventional), verify seasoning rules, and confirm the appraisal landscape
- Wholetail/light rehab: if the spread is there and the house is clean, a light-touch approach can boost velocity and reduce risk
Model your exit sensitivities: ARV minus 5–10%, timeline slippage, and rate variance. If the deal still works, you’ve got a runner.
Common Pitfalls to Avoid
- Overestimating ARV using aspirational comps instead of true like-kind sales
- Underestimating holding costs and permitting timelines
- Choosing the cheapest contractor rather than the most reliable
- Ignoring lender fees and minimum interest, which can dwarf a “low” rate
- Starting work before insurance binds and permits are in place
- Waiting to plan the exit until after the rehab is finished
Professionalism is an edge. Clean numbers, steady updates, and calm problem-solving make lenders want to fund your next deal, often on better terms.
FAQ
What credit score do I need for a hard money loan?
Many lenders are flexible, but a mid-600s score helps; stronger collateral and experience can offset a thinner profile.
How fast can I close with hard money?
Well-prepared investors often close in 5–14 days, depending on appraisal, title, and responsiveness.
How much down payment is typical?
Expect to bring 10–30% of the purchase price plus closing costs and initial rehab reserves.
Are hard money loans interest-only?
Usually yes; payments are interest-only during the term, with principal due at sale or refinance.
Will the lender fund renovations?
Yes, via a rehab holdback disbursed in draws after work is completed and inspected.
Are there prepayment penalties?
Some lenders require a minimum number of months of interest, so confirm before signing.
Can first-time investors get approved?
Yes, if the deal is strong and the team is credible; partnering with an experienced GC boosts confidence.
What insurance do I need?
A builder’s risk or vacant property policy naming the lender as mortgagee is standard.
