When I funded my first flip, I didn't know the difference between hard money and private money. I borrowed from a hard money lender at 12% plus 3 points and thought that was just how it worked. It is how it works - until you build relationships with private lenders who fund deals at 8% with no points. The difference on a six-month flip can be $15,000 or more. Knowing your options matters.
Hard Money Loans: What They Are
Hard money is institutional lending from companies that specialize in short-term real estate loans. They lend based primarily on the asset - the property value - rather than the borrower's credit or income.
Typical hard money terms in 2026:
Interest rates: 10-14% annually, often higher in expensive markets.
Points: 2-4 points upfront (1 point = 1% of the loan amount). On a $150,000 loan, 3 points is $4,500 in fees at closing.
Loan-to-value: Most hard money lenders go to 70-75% of ARV, and many will fund rehab draws on top of that.
Terms: Usually 6-18 months. You're expected to sell or refinance before the loan matures.
Speed: This is the main advantage. Hard money lenders can close in 5-10 business days. Some faster.
Hard money lenders typically don't care much about your credit score or tax returns. They care about the deal. If the property is worth significantly more than you're borrowing, they'll lend.
Private Money: What It Is
Private money comes from individuals, not institutions. These might be friends, family members with retirement accounts, local dentists or lawyers who've built up capital and want returns better than a savings account, or fellow investors who've sold properties and are sitting on cash.
Private money is almost always cheaper than hard money and often has more flexible terms. But you have to build those relationships before you need the money.
Typical private money terms:
Interest rates: 7-12% depending on the relationship and deal.
Points: Often none, or 1 point maximum.
Terms: Negotiable. Some private lenders prefer 12 months, others are comfortable with 18-24 months or longer.
Speed: Can close as fast as the title company can schedule.
The downside of private money is that it requires trust-building before it's available. You can't call up a stranger and get private money for your first deal. You build those relationships over time through networking, delivering on commitments, and demonstrating that you know what you're doing.
Comparing the Real Cost
Let's run the numbers on a flip funded by hard money versus private money.
Property purchase: $130,000. Rehab: $35,000. Total project cost: $165,000. ARV: $220,000. Timeline: 6 months.
Hard money scenario:
- Loan amount: $165,000 (purchase + rehab draws)
- Rate: 12% annually = $9,900 interest for 6 months
- Points: 3 points = $4,950
- Total financing cost: $14,850
- Loan amount: $165,000
- Rate: 9% annually = $7,425 interest for 6 months
- Points: 0
- Total financing cost: $7,425
Building Your Financing Bench
The investors who consistently win deals have a bench of 3-5 financing sources they can call on depending on the situation. Here's how to build yours:
Start with hard money. Use it for your first few deals to build a track record. Most hard money lenders become easier to work with after 2-3 successful deals - they may offer better rates or terms to repeat borrowers.
Understanding your total project cost upfront is critical for sizing your loan correctly - borrowed money you don't use costs interest, and gaps in funding can stall a project.
Simultaneously, start building private money relationships. Join your local REIA and meet people who mention they have capital sitting around. Attend real estate conferences. Be open about what you do and that you're looking for lending partners.
When you do get private money, treat those lenders exceptionally well. Pay on time. Send monthly project updates. Invite them to see the property at completion. People who have a great experience lending on one deal almost always want to lend on the next one.
When to Use Each Option
Use hard money when:
- You need to close fast (under 2 weeks)
- You don't have an established private lender relationship
- The deal terms are tight and you need rehab draws funded
- You're early in your career and still building credibility
- You have time to work through a lender's process
- You want to reduce carrying costs on a larger deal
- You have a proven track record to offer the lender
- The deal size makes the cost savings significant
- You're holding the property as a rental after renovation
- You have 20-25% to put down
- You have time for a 3-4 week close
- Your deal doesn't require speed to win
Analyzing Deals With Financing Costs Included
Model Your Flip With Real Financing Costs
Most investors run their flip numbers before accounting for financing costs, then get surprised when profit shrinks at closing. DealBeast builds carrying costs and financing into the deal analysis so your projected profit reflects what you'll actually net.
Your Maximum Allowable Offer calculation should always include estimated financing costs - they're a real expense that eats into margins.
BRRRR investors use hard money for the acquisition and rehab phase, then refinance into conventional financing - understanding both types of lenders is critical for this strategy.
FAQ
Do I need good credit for a hard money loan? Most hard money lenders have minimal credit requirements - typically a 600+ score. Some will lend to borrowers below 600 on very strong deals. Credit matters far less than the deal quality and your experience level.
How do I find hard money lenders in my area? Ask at your local REIA. Search "hard money lenders [your city]." BiggerPockets has a lender directory. Most markets have 3-10 hard money lenders operating. Get quotes from several before committing.
Can I get a hard money loan with no money down? It's possible on certain deals if you're bringing a deeply discounted property with strong ARV. Most hard money lenders want you to have some skin in the game - typically 10-20% of the purchase price.
What happens if my flip takes longer than the loan term? You'll need to extend the loan (usually at a cost) or refinance into another loan. Budget for this possibility, especially on large renovations. Hard money lenders generally prefer to extend rather than foreclose on a performing property.
Is seller financing an option for fix-and-flip deals? Sometimes. If the seller is motivated and has equity, they might carry a note on the property rather than requiring all cash at closing. This is essentially private money from the seller directly, often with more flexible terms.
How much do I need to save before I can start flipping? It depends on your market and deal size, but plan on having enough for a down payment (10-20% of purchase), your share of closing costs, and a contingency reserve. On a $150,000 deal, that might mean having $30,000-$50,000 ready.