Hard Money Loans Explained

Hard money loans are short-term, asset-backed loans used to purchase and rehab investment properties. They fund the first two phases of BRRRR (Buy + Rehab) and are designed to be refinanced into a long-term loan once the property is stabilized. They are not cheap — but they enable deals that conventional financing cannot.

Typical Terms (2026)

  • Interest rate: 10-14% annually (interest-only payments during term)
  • Origination fee: 1-3 points (% of loan amount, paid at closing)
  • Term: 6-18 months
  • LTV: 65-80% of purchase price; some lend up to 90% ARV with experience
  • Rehab draws: Many lenders fund rehab in draws (you submit receipts, they release funds in stages)
  • Down payment: 10-25% of purchase price, depending on experience and deal
  • Closing speed: 7-14 days (vs 30-45 for conventional)

The True Cost

Hard money is expensive when measured by annual rate, but BRRRR investors hold these loans for months, not years. The total cost is:

  • Origination points (paid once at closing)
  • Monthly interest (interest-only, no amortization)
  • Carrying costs during rehab (insurance, taxes, utilities)

On a $96,000 hard money loan at 12% with 2 points, held for 5 months: origination = $1,920; interest = $4,800; total hard money cost = $6,720. That cost is baked into your total cash invested and reduces capital recovery.

Evaluating Hard Money Lenders

  1. Rate + points together. A lender at 11% + 3 points may cost more than 13% + 1 point depending on hold period.
  2. Rehab draw process. Fast draws (2-3 days) vs slow draws (2 weeks) affects your contractor relationships and timeline.
  3. Extension policy. If rehab runs long, what does an extension cost? Some charge 1% per month extension.
  4. Prepayment penalty. Most hard money has no prepay penalty. Confirm.
  5. Seasoning requirements of your refi lender. Confirm your DSCR lender's seasoning starts from purchase date, not rehab completion.

Hard Money vs Private Money

Private money comes from individuals (friends, family, other investors) rather than institutional hard money lenders. Terms are negotiable. Rates are often lower (8-10%). But private money lenders have less infrastructure — no draw process, no standard contracts. As your track record grows, private money becomes more accessible and more cost-effective than hard money.

Model Hard Money Carrying Costs

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