What is Hard Money?

What is Hard Money?

If you invest in real estate, you’ve probably heard the term “hard money”. But what, exactly, is the difference between hard money and any other type of funding?

In fact, what are some of the various types of funding for your real estate deals?

  1. Traditional bank or lending institution – only loan for a limited number of deals before they cut you off. Many will not loan on investment properties at all.
  2. Your own personal money – which most of us can go through quickly! Besides, it’s best to keep your personal money to live on and use for your personal and business expenses.
  3. Private money – comes from friends, family, even strangers who have money to lend for real estate. The problem with private money is that it’s often not available when you need it and you never want to miss a deal for lack of funds!
  4. Hard money:
      1. To begin with, I don’t know why it’s called hard money because it’s actually so simple: short term funding secured by your property.
      2. Hard money is great for fix-and-flip properties as these loans are typically for only 3 to 9 months. Perfect if you’re planning to wholesale or renovate and resell quickly. Bank loans are 15-30 years or more.
      3. Hard money lenders understand ARV (after repaired value) and will consider your planned repairs when lending. Banks, on the other hand, only consider current property condition when lending.
      4. Hard money loans cover both the purchase price and cost of the rehab. Banks, on the other hand, require the property to meet specific underwriting requirements. It may cost a great deal to bring the property up to the condition necessary to meet those requirements before the property qualifies for their loan.
      5. Hard money loans are faster than a traditional lender, usually only two weeks, because their requirements are less.
      6. Hard money lenders typically charge points plus interest. Because the loan is for such a short time, lenders would not make enough without charging points. Points are basically interest up front. Because the loan is for such a short time interest is not much of a concern but points are something you need to pay attention to, especially how often they are recharged.
      7. Hard money is not good for long term holds. Fees for hard money are based on a certain time frame. If you need an extension, you may be charged the points again which can dramatically reduce your profit.

    Why would you choose to use hard money?

    • To keep your personal funds for running your business
    • Hard money covers your cost of both purchase and rehab
    • Increases your return-on-investment
    • Minimizes your out of pocket expense
    • Hard money is faster & requires fewer qualifications than conventional loans
    • Hard money allows you to compete for more deals – because it’s
    • Always there when you need it!

    I am a hard money lender and I’m curious, do you use hard money? What’s been your experience?

This post has 4 Comments | Would you like to leave a comment?


  1. Thank you for taking the time to leave your comment, Ernie.

    And everyone should do exactly what you say, beware of the details.

  2. Just as a cautionary note, be sure to read all contracts you sign and/or ask your real estate attorney to read them and provide you with the legal interpretation and ramifications. Within the past few years I have witnessed two situations on hard money loans that did not turn out well for the investors. On the first example the interest rate accelerated to 30% because the loan was not paid off in the first 6 months as stated in the loan docs. The second example had a cross-coleteralization clause that required the proceeds of one loan to be applied to the balance of other loans the investor had with the hard money lender. The investor had 5 outstanding loans with the lender and did not receive sale proceeds until he sold his 4th house.

  3. I’m glad you found me and welcome to real estate investing!

  4. I just watched Brandon Turners Webinar for the first time last night and I am new to biggerpockets.com. I have watched several of their most recent podcasts over the last week and have noticed they are all men.
    I was so happy when I went on YouTube, looked up their first 2 episodes and there you were! I was so happy to hear your story, listen to your success and see that you started with the sole plan to provide for your retirement. I feel like it is a sign! I really am so happy to have unofficially met you ???? That is the main reason I am so interested in persuing real estate investing. I am a 49yr old woman and was beginning to wonder if investing was a boys club (not that I particularly care). I am just glad to be able to hear from a woman’s perspective!! So excited!!

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