Hard money loans are the engine of active real estate investing. They're fast, flexible, and asset-based — meaning the lender cares about the property value, not your W2. For fix-and-flip investors and BRRRR operators, hard money is often the only financing that moves fast enough to compete.
How Hard Money Loans Work
Hard money lenders are private individuals or companies that lend against real estate collateral. Unlike banks, they:
- Approve in days, not weeks
- Base the loan on property value (and ARV), not personal income
- Fund 70-90% of purchase price and often 100% of rehab costs
- Charge higher rates (10-14%) and fees (1-3 points) in exchange for speed and flexibility
Hard money math example: $150,000 purchase + $40,000 rehab. Hard money at 12% interest, 2 points, 6-month term. Interest: $150,000 × 12% × 0.5 = $9,000. Points: $150,000 × 2% = $3,000. Total financing cost: ~$12,000. Factor this into your 70% rule calculation.
When to Use Hard Money
- Fix and flip deals — Speed is competitive advantage. Hard money closes in 5-10 days; banks take 30-45.
- BRRRR acquisition — Buy distressed properties that don't qualify for conventional financing due to condition.
- Bridge financing — Bridge between purchase and permanent financing while you rehab and stabilize.
- Competitive situations — Win offers against conventional buyers by eliminating financing contingencies.
How to Qualify for Hard Money
Most hard money lenders evaluate: property ARV (primary), your experience (more experience = better terms), your down payment/skin in the game (typically 10-30%), and your exit strategy (flip vs. refinance). Credit score matters less than with conventional loans, but most lenders still run a credit check — expect 600+ minimum.
Hard Money vs. Conventional vs. DSCR
Hard money: fastest approval, highest rates, short terms (6-24 months). Use for acquisitions and rehab.
Conventional: best rates, strictest qualifications, 30-45 day approval. Use for stabilized long-term holds.
DSCR: no income verification, 30-day approval, medium rates. Use for refinancing stabilized BRRRR properties.
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