Hard money loans are short-term, asset-based loans secured by real estate. Unlike conventional mortgages that emphasize borrower credit and income, hard money lenders primarily evaluate the property's value and the investor's exit strategy. They charge higher interest rates and fees in exchange for speed, flexibility, and higher risk tolerance.
Hard money loans are a tool, not a last resort. They enable investors to close quickly on distressed properties, fund rehabs, and bridge the gap until long-term financing or sale. Understanding when and how to use hard money separates active investors from those who miss deals waiting for bank approvals.
Key takeaway
How hard money loans work
- Loan term: Typically 6–24 months
- Interest rates: 10–15% (sometimes higher for riskier deals)
- Points: 2–5% of loan amount upfront
- LTV: Usually 65–75% of after-repair value or purchase price
- Collateral: The property itself secures the loan
When hard money makes sense
- Speed-to-close competitions. Cash or hard money offers often beat conventional financing in competitive situations.
- Distressed properties. Banks avoid properties in poor condition; hard money lenders embrace them.
- Bridge financing. Acquire with hard money, rehab, then refinance into conventional or sell.
- Short-term holds. Wholesale assignments and fix-and-flips where the loan term matches the hold period.
The true cost of hard money
A $150,000 hard money loan at 12% interest with 3 points costs: $4,500 in points upfront + $1,500/month in interest. On a 6-month flip, total interest = $9,000. Total cost = $13,500 or 9% of loan amount. Compare this against your projected profit to ensure the deal still works.
Factor in extension fees (if the project runs long), draw fees for rehab disbursements, and prepayment penalties. Read the full loan agreement—terms vary significantly between lenders.
Finding hard money lenders
- Local real estate investor meetups and referrals
- Online hard money lender marketplaces
- Mortgage brokers who specialize in investor loans
- Private individuals (friends, family, accredited investors)
Hard money and deal screening on OffMarket Deck
When evaluating deals on OffMarket Deck, factor hard money costs into your MAO calculation. A deal that works with cheap capital may not work with hard money. Screen live deals by strategy and price, then model your financing before making an offer.