Hard Money Loans for Rental Property Investors: What They Cost, How They Work, and When to Use Them

What Hard Money Actually Is

A hard money loan is a short-term, asset-based loan secured by real property. The “hard” refers to the hard asset — the real estate itself. Unlike conventional mortgages that underwrite the borrower’s income, employment, and credit history, hard money lenders underwrite the property. Their fundamental question isn’t “can this borrower afford the payment?” It’s “if this borrower stops paying, can we recover our capital by selling the property?”

That distinction changes everything about how these loans work. Approval is fast because there’s less to verify. Credit requirements are minimal because credit isn’t the primary risk factor. Damaged or distressed properties qualify because the lender is evaluating what the property will be worth, not what it looks like today. And the entire process — from application to funded deal — can happen in days rather than weeks or months.

Hard money lenders are typically private companies, small funds, or individual investors who specialize in short-term real estate lending. They’re not banks. They don’t answer to Fannie Mae. Their capital comes from their own balance sheets, investor funds, or credit facilities, and they set their own terms. That independence is what allows them to move fast and fund deals that institutional lenders won’t touch.

How Hard Money Lenders Evaluate Your Deal

Two numbers drive every hard money decision: LTV and ARV. Understanding both is non-negotiable if you’re going to use this product effectively.

LTV — Loan-to-Value Ratio

LTV measures how much the lender is lending relative to the property’s current market value. If a property is worth $200,000 and the lender offers $140,000, that’s a 70% LTV. Most hard money lenders cap LTV between 65% and 75% on the as-is value. The remaining 25% to 35% is your skin in the game — your down payment, your equity, your assurance to the lender that you won’t walk away because you have real money at risk.

The formula is straightforward:

LTV = Loan Amount ÷ Current Property Value × 100

A lower LTV means less risk for the lender, which often translates to better terms for you. If you’re putting 35% or 40% down, you’ll typically see lower rates and fewer points than a borrower stretching to the maximum LTV.

ARV — After-Repair Value

ARV is where hard money gets interesting for investors doing value-add deals. The after-repair value is what the property will be worth once renovations are complete. Hard money lenders will often lend based on a percentage of ARV rather than just the as-is value, which means you can finance not only the acquisition but also a portion of the rehab costs.

Most lenders cap total lending at 65% to 75% of ARV. Here’s how that works in practice. Say you’re buying a property for $120,000 that needs $50,000 in renovations and will be worth $250,000 when the work is done. A lender willing to go to 70% of ARV would lend up to $175,000 — enough to cover your full purchase price and the majority of the rehab budget. You’d bring the remaining capital out of pocket.

The formula:

Maximum Loan = ARV × Maximum LTV Percentage

$250,000 × 0.70 = $175,000

Lenders typically verify ARV through a broker price opinion or a full appraisal, and rehab funds are usually disbursed in draws as work is completed rather than all at once at closing. That draw process protects the lender from funding a renovation that never happens.

What Hard Money Actually Costs

Hard money is the most expensive mainstream financing product available to rental property investors, and understanding the true cost requires looking beyond just the interest rate. There are three components that drive total cost.

Interest Rate

Hard money rates typically range from 9% to 14%, depending on the lender, the deal, the LTV, your experience, and the local market. These rates are quoted as annual rates but applied to a loan you might hold for only six to twelve months. On a $150,000 loan at 12%, you’re paying $1,500 per month in interest alone. That adds up fast, which is why hard money is designed to be a short-term bridge — not a product you hold any longer than necessary.

Origination Points

Points are upfront fees charged as a percentage of the loan amount. One point equals one percent. Most hard money lenders charge between two and four points at closing. On that same $150,000 loan, three points costs you $4,500 at the closing table before you’ve made a single payment. Points are the lender’s profit regardless of how quickly you pay off the loan, which is why some lenders are willing to accept lower interest rates in exchange for higher points, or vice versa.

Additional Fees

Beyond rate and points, expect appraisal or BPO fees, document preparation fees, wire fees, inspection fees on rehab draws, and potentially an extension fee if you need more time beyond the original term. These individually look small, but they add up. Budget an additional $2,000 to $5,000 in miscellaneous lender fees on a typical hard money deal.

Total Cost Example

A $150,000 hard money loan at 12% interest, three origination points, held for nine months with $3,000 in additional fees:

Interest: $150,000 × 12% × (9/12) = $13,500
Points: $150,000 × 3% = $4,500
Fees: $3,000
Total cost of capital: $21,000

That $21,000 is the price of speed and access. The deal needs to generate enough value — through appreciation after rehab, through rental cash flow, through a refinance into cheaper permanent debt — to justify that cost and still leave you profitable.

The Advantages of Hard Money

Speed to Close

This is the primary reason hard money exists. While a conventional lender is scheduling an appraisal and a DSCR lender is verifying your rent roll, a hard money lender can have you funded and at the closing table in seven to fourteen days. Some will close in five. When you’re competing against cash buyers, bidding at auction, or working with a motivated seller who wants to close this week, that speed wins deals.

Property Condition Doesn’t Matter

Conventional and DSCR lenders require the property to be habitable. If the roof is caving in, the plumbing is gutted, or the property would fail any standard inspection, those lenders walk away. Hard money lenders walk in. They’re evaluating what the property will become, not what it is today. This is the loan product that makes distressed property investing possible — you buy the ugly house, fix it, and either hold it as a rental or sell it at full market value.

Credit Flexibility

Most hard money lenders have a minimum credit score, but it’s typically in the low 600s — sometimes lower. A borrower with a 620 credit score who has a strong deal and reasonable experience can get funded. Compare that to conventional financing, which effectively requires 720 or higher for competitive investment property rates, and the accessibility gap is significant. Your credit score affects your terms but rarely kills the deal entirely.

Rehab Financing Built In

The draw-based rehab funding structure means you don’t need to have the entire renovation budget in cash at closing. The lender holds back the rehab portion of the loan and releases it in stages as work is completed and inspected. This preserves your cash for other deals, other expenses, or reserves. It’s a built-in construction financing mechanism that no other standard loan product offers as cleanly.

No Income Verification

Like private money and DSCR loans, hard money doesn’t require proof of personal income. No tax returns, no W-2s, no pay stubs. The property is the collateral and the property’s value is the underwriting. Self-employed landlords, investors between jobs, or anyone with a complicated tax picture can access hard money based on the deal alone.

The Disadvantages of Hard Money

The Cost Is Real

There’s no sugarcoating this. Hard money is expensive. Double-digit interest rates plus origination points plus fees add up to a significant cost of capital that eats into your returns. Every month you hold a hard money loan is a month you’re paying a premium for the privilege. If your rehab runs long, your refinance gets delayed, or the market shifts and your exit plan stalls, those carrying costs compound and can turn a profitable deal into a break-even or a loss.

Short Terms Create Pressure

Most hard money loans have terms of twelve to eighteen months, sometimes twenty-four. That clock starts ticking at closing, and it doesn’t care about your contractor’s timeline, your tenant placement process, or the appraisal backlog at your refinance lender. If you can’t execute your plan and exit the loan before maturity, you face extension fees at best and default at worst. The term length imposes discipline, which is healthy, but it also creates pressure that can lead to rushed decisions.

Not Designed for Long-Term Holds

If your strategy is to buy a stabilized, rent-ready property and hold it for fifteen years, hard money is the wrong tool. The rates, the terms, and the cost structure are all designed for short-term execution. Using hard money as permanent financing is like renting a U-Haul for your daily commute — technically possible, financially absurd. Hard money is a bridge. You cross it, then you refinance into a long-term product like a DSCR loan or a conventional mortgage.

Predatory Lenders Exist

The hard money space is less regulated than conventional lending, and that attracts some operators whose business model depends on borrowers failing. Excessive fees, hidden prepayment penalties, unreasonable draw inspection requirements designed to slow your rehab, and terms structured to make default more likely than success — these practices exist. Vet your lender carefully. Ask for references from other investors. Read every line of the loan documents. If the terms don’t feel right, walk away. There are enough legitimate hard money lenders that you never need to work with a predatory one.

Requires a Clear Exit Strategy

A hard money deal without an exit strategy isn’t a deal. It’s a gamble. Before you close, you need to know exactly how you’re paying off this loan. Are you refinancing into a DSCR product once the property is stabilized and rented? Are you selling the property after renovation? Do you have private capital lined up to take out the hard money if your first exit doesn’t materialize? Having one plan is necessary. Having a backup plan is smart. Going in without either is how landlords lose properties.

When Hard Money Makes Sense for Landlords

Hard money earns its place in a landlord’s toolbox in specific situations. You’re acquiring a distressed property below market value that needs significant renovation before it can generate rental income. You need to close fast to secure a deal — an auction, a wholesaler assignment, a motivated seller with a deadline. You’re executing a BRRRR strategy where the plan is to buy, rehab, rent, refinance into permanent debt, and repeat. Or you’ve found a deal that no institutional lender will fund due to property condition, but the after-repair numbers are strong enough to justify the temporary cost of hard money.

In every one of those scenarios, hard money is a means to an end, not the end itself. The profit in the deal comes from the value you create through renovation and management, not from the financing. The financing is just the mechanism that gets you access to the opportunity.

Finding Hard Money Lenders Who Work With Landlords

Not all hard money lenders are created equal, and not all of them understand the buy-and-hold investor’s needs. A lender who primarily funds fix-and-flip deals may not structure terms that work for a landlord who needs ninety days after rehab to place a tenant and season the property before refinancing. Look for lenders who explicitly serve rental property investors, who understand the BRRRR timeline, and who have reasonable extension options if your stabilization takes longer than projected.

Our Lender Directory includes hard money lenders searchable by state who actively work with landlords and rental property investors. Start there, compare terms from at least three lenders before committing, and always have your deal numbers tight before you pick up the phone.