What is Hard Money Loan?
A hard-money loan is a short-term, asset-based loan used by investors to acquire and renovate properties — typically 6-18 month terms at 9-13% interest with 2-4 origination points. Used when conventional financing doesn't fit (speed, condition, or borrower qualification).
Hard money is the financing of choice for fix-and-flip operators. Lenders underwrite primarily on the deal's after-repair-value and the borrower's flip experience, not on personal income or credit. Approval can happen in 7-14 days vs. 30-45 for conventional, with funding to follow shortly after.
Typical structure: 70-75% loan-to-cost (purchase + rehab combined), 9-13% annual interest rate (paid monthly), 2-4 points at origination, 6-18 month term, no prepayment penalty. Some lenders advance the rehab budget in draws as the work progresses; others fund the full rehab upfront.
Hard money is expensive but enables deals conventional money can't touch. A flipper paying 12% on a $200,000 loan held for 6 months pays $12,000 in interest — meaningful, but acceptable on a deal projecting $40-60k in profit.
Concepts that connect.
Flipping is the strategy of buying a distressed property, renovating it to retail standard, and reselling at full market value within 4-9 months. Profit comes from the spread between all-in cost (purchase + rehab + carry + closing) and net sale proceeds.
A private lender is a non-institutional individual or small company that lends money on real estate deals — typically friends, family, or local high-net-worth individuals deploying their own capital. Less regulated and more flexible than hard money or institutional lenders.
Debt Service Coverage Ratio (DSCR) is the ratio of a property's annual net operating income to its annual debt service. A DSCR of 1.20 means the property generates 20% more income than it needs to cover the loan payment. Most DSCR lenders require 1.10-1.25 to underwrite.
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