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When most investors think about scaling a portfolio, they often focus on conventional buy-to-let mortgages or commercial financing. However, there is a powerful and frequently overlooked lever that investors can pull when they need to move quickly to secure a great deal: hard money loans. Used wisely, hard money lending can accelerate acquisitions, unlock equity you already own, and create new cash-flow streams.
So, what are hard money loans and how can you use them to scale and optimize your portfolio? In this article, we’ve broken down the basics of hard money, how these loans can work for borrowers, and even how investors can leverage equity in existing assets to become hard money lenders themselves. By the end, you’ll have a solid foundation for understanding how hard money functions in the real estate investment ecosystem.
What Is a Hard Money Loan?
A hard money loan is short-term, asset-based financing secured by real estate. Unlike conventional mortgages which are long-term loans based on borrower credit, hard money loans are underwritten using the property being acquired as collateral. Lenders base financing on a percentage of the after-repair-value (ARV) of the property rather than the borrower’s own repayment capability. Hard money loans typically carry high interest rates and short repayment periods of 3-36 months (usually ~6 months). Because hard money lending does not require the same extensive background checks as conventional lending, the approval process usually takes less than two weeks.
Hard money can be the ideal financing option for situations where a short-term infusion of funding is needed to get a deal rolling. Investors most often use them to:
Move fast on deals where traditional lenders are slow
Bridge from purchase / rehab to long-term financing (e.g., DSCR or conventional)
Fund renovations and value-add projects tied to ARV
The key word to remember when it comes to hard money loans is fast. Lenders approve them quickly and they must be repaid quickly. Investors get the most out of hard money loans when they utilize them for fast-moving deals.
When Hard Money Loans Make Sense
What kinds of deals work best with hard money loans? Here are the most common types of situations where investors will leverage hard money:
Wholesale: Wholesale just might be the ultimate hard money deal. Use a hard money loan for fast cash to secure a deal under contract; repay quickly after you transfer the contract.
Wholetail / Light Rehab: If the plan is a quick disposition after making light improvements, you can use hard money to secure a discounted property and finance the rehab. Remember to limit scope– the closer you get to a full renovation, the more time things take and the riskier a high-interest loan becomes.
BRRRR Strategy: If you’re following the Buy, Rehab, Rent, Refi, Repeat method, you can sometimes use hard money as a bridge to DSCR or agency. This can work well if you’re in a landlord friendly submarket with strong rental demand and you know you can refi quickly.
Common Mistakes (and How to Avoid Them)
Short-term, high-interest loans can be risky when incorrectly applied. That’s why it’s important to stay grounded, do your homework, and use these loans for the right kinds of deals. Here are some of the most common mistakes borrowers make when it comes to hard money, and how to avoid them:
Over-leveraging the ARV Don’t borrow as much as you can based on top-of-market ARV and end up biting off more than you can chew. Stay disciplined at ≤ 75% ARV total exposure and use conservative comps in your assessment.
Underbudgeting rehab When it comes to rehabbing properties you should always expect the unexpected. Add contingencies (10–15%) and make incremental draws based on milestones.
Skipping market due diligence Keep your finger on the pulse of the local market to ensure you’re working with the most accurate numbers. Drive the streets; verify rents and resale depth.
Weak documentation Stay organized to avoid mistakes and ensure lender confidence. Get the seller contract, scopes, permits, insurance, lien waivers, etc.
Poor communication Build strong relationships with lenders that lead to future business deals. Update them weekly and document progress with photos / video.
Quick Start: Using Hard Money Loans to Grow Your Portfolio
What does the process for a deal underwritten with hard money look like? Here’s a simple step-by-step to give you an idea:
Define Your Strategy Identify at least two exit strategies and choose your Plans A and B; wholesale, wholetail, BRRRR, or bridge to long-term hold.
Assemble Your Team Get together a local hard money lender, GC / crews, inspector, title / closing.
Source Deals Find discounted properties. Aim for discounts that pencil at ≤ 75% ARV all-in (sale + rehab).
Underwrite & Verify Secure financing and make sure that you have your scope, comps, and desktop appraisal nice and tidy.
Execute with Discipline Make conservative, incremental draws based on milestones. Show lenders you’re on top of the project with weekly updates and tight change-order control.
Refi or Sell Lock in permanent financing or list the asset strategically.
Rinse & Repeat Roll profits and available credit into the next project.
The Three Types of Hard Money Lenders
If banks don’t offer hard money loans, who does? Here are the three types of hard money lenders that investors work with:
Private Individuals
These can be doctors, farmers, small business owners, anybody really. Anyone who has the cash and is willing to offer short-term financing can be a hard money lender.
Pros Private individuals can be very flexible. It is often easier to negotiate lower interest rates and / or simpler terms.
Cons The pockets of private individuals generally aren’t as deep as professional lenders so capital can dry up faster. Borrowing from someone who is not a professional money lender can also mean a less consistent and streamlined process.
Local Operator-Lenders
Local Operator-Lenders are a kind of middle ground between private money lenders and large institutions. Like institutions, they are professional lenders with more capital at their disposal, but they also operate relationship-driven businesses and have a strong presence in the community.
Pros Local lenders have specialized knowledge of the local market, which usually allows them to offer pragmatic draws and operate with greater speed and flexibility.
Cons Local lenders will often charge higher interest rates than private or institutional lenders.
National / Institutional Lenders
These companies have a large footprint and operate in multiple states throughout a region or nationwide. Unlike with private money or local operators, borrowing from these types of lenders will involve a very prescribed, corporate process.
Pros National lenders have a lot more resources and can sometimes offer better rates. You can also work with them across multiple states if you invest in more than one area.
Cons Working with large corporations means heavier paperwork, slower draws, and stricter inspections.
For many investors, a local hard money lender strikes the best balance of speed, service, and reliability.
Building Durable Banking & Lending Relationships
Long-term partnerships beat short-term rate shopping. Cultivating a relationship with the same lender can give you access to better rates and even more flexibility once you’ve proven that you borrow with integrity and know how to deliver. A good relationship with a local lender can easily be the key that unlocks your ability to scale your portfolio.
The secret to building strong relationships with hard money lenders is simple: pay on time and communicate. Show lenders clean books, a clear plan, and consistent execution, and more capital will become available as you scale your real estate investing.
Portfolio Optimization Through Hard Money Lending
Anyone can be a hard money lender; even you! Say you know a fellow investor who has found a great deal and needs quick funding in order to secure it. If you have free-and-clear assets, you can use them as collateral to open up lines of credit that can then be used to fund other deals. In this case, you could draw on one of these lines of credit to offer the other investor a hard money loan. Your borrower takes the loan, does the deal, pays you back at a higher interest rate than you owe to your creditor, and everyone makes money.
This can be a great way to unlock capital and increase the productivity of property that you already own; in other words, optimize your portfolio. Leveraging equity to open up lines of credit allows you to create liquidity from assets without selling them. You can then use this liquidity to make your own acquisitions or to lend hard money and generate more cash flow.
Case Study: Turning Equity Into a Lending Engine
Our recent podcast guest, Dan Butler, shared an example of how he was able to leverage the value of an asset towards portfolio optimization. Dan paid off a 19-unit building, then used it as collateral to open up a line of credit that enabled him to start his own hard money lending business. As a result, he was able to leverage his equity in a paid-off asset that was already generating thousands of dollars per month as a rental property and nearly double its return without selling it.
Having underwritten a few successful deals using this method, Dan was then able to draw up balance sheets and approach banks with a solid proof-of-concept. Impressed by the numbers and reassured by the fact that these lines of credit were backed by the personal guarantees of both Dan and his borrowers, as well as assets, banks were more than willing to open more lines of credit against Dan’s free-and-clear properties to put toward his lending business.
How to Underwrite a Hard Money Deal
Leveraging assets in order to become a hard money lender may sound simple enough, but it’s important to do your due diligence in order to minimize risk. A solid underwriting framework ensures protection for the borrower, lender, and project. Here are some of the key steps you’ll need to take when assessing borrowers and assets for hard money deals:
Borrower– Character & Capacity
Even though hard money loans rely on the ARV of the asset rather than the bankability of the borrower, it’s still important to know who you’re working with and have a sense of their capabilities when it comes to executing a deal. Here’s what you need to consider:
Reputation / Referrals Do you already know that your borrower can deliver? Is someone credible willing to vouch for them? When you begin lending, start with trusted introductions.
Cash Reserves Make sure the borrower has factored in contingencies and has access to something like ~$25k–$50k+ to handle surprises.
Credit Baseline While borrower credit isn’t relevant for hard money loans, you might want to consider it if refinancing is a potential exit strategy. Around 650+ often unlocks better take-out options.
Communication Work with borrowers who show proven responsiveness and follow-through.
Asset– Collateral & Plan
Whether you underwrite a hard money loan ultimately comes down to some simple calculations. Make sure the numbers you have in front of you are based on solid comps and that the exit strategy is well-defined with a realistic scope before deciding you’ve got a deal.
Leverage Make sure you’re working with a conservative ARV. Target loans that are ≤ 75% of ARV all in (purchase + rehab).
Scope & Budget See that the scope of the project aligns with the budget and repayment timeline. Ask for a line-item description of the rehab with milestones and draw schedule.
Comps / Appraisal Get a desktop appraisal or local comp analysis before closing.
Exit Strategy The borrower needs to show a clear path to sale or refinance (lender identified if it’s refi) with at least one backup plan.
Pro Tip: Tie draws to completed work (e.g., roof done = roof draw). Weekly micro-draws keep contractors moving and reduce risk.
Hard Money FAQs
Are hard money loans a good idea for beginners?
Yes—if you have a clear plan, conservative leverage (≤ 75% ARV), a reliable contractor, and a defined exit. Partnering with a local lender who can mentor you through the process helps.
What are typical hard money loan rates and points?
Rates and points vary by market, deal risk, and lender type, but will typically be around 8%-15%. Expect short-term interest plus origination points; local operators tend to trade higher prices for speed and flexibility.
How fast can I close with a hard money lender?
Local lenders can often close in days once title is clear and the scope / comps are verified. Institutional lenders usually take longer due to inspections and underwriting layers.
Hard money vs. DSCR loans—what’s the difference?
Hard money is short-term and asset-based (great for purchase / rehab). DSCR loans are longer-term and qualify based on the property’s debt-service coverage—ideal for the refi “R” in BRRRR.
What documents will a hard money lender ask for?
Purchase contract, scope / budget, entity docs, insurance binder, rehab schedule, bank statements / reserves, and often an appraisal or desktop valuation.
Final Thoughts
Hard money loans are a powerful tool for investors who require speed and flexibility to secure great deals. They are perfect for exit strategies that involve projects with limited scope and short disposition timelines such as wholesale and wholetail, or for BRRRR deals where a bridge is needed to get from sale / rehab to refi. Hard money lending can also provide investors who have free-and-clear assets with a path toward portfolio optimization if they have solid credit and strong relationships in their local real estate investment ecosystems.
It’s important to keep in mind that hard money lending is a people business. Although hard money loans are underwritten based on the ARV of assets rather than the credit of borrowers, fruitful lending relationships are based on honesty and communication. Investors who come to the table with solid numbers, consistent transparency, and disciplined execution will have the most success scaling their portfolios with hard money loans as lenders will be willing to work with them again and again.
Interested in growing your portfolio with hard money loans or other financing options? We’re here to talk strategy. Just search up your local market and get in touch with one of our agents to find out how Evernest can help you get started.
