Hard Money Loan

A hard money loan is short-term private financing backed by real estate, where the lender cares most about the property's value and much less about the borrower's income. It is the standard financing for the buy and rehab phases of BRRRR, because it closes fast and accepts property in poor condition.

Typical terms: 85 to 90% of purchase funded, sometimes rehab in draws, 10 to 12% interest-only, one to three points, six to twenty-four months. On a $270,000 loan at 11% with 2 points, six months costs about $14,850 of interest and $5,400 in points, both of which are cash the refinance has to return.

The loan is meant to be paid off at the refinance. Its cost is the main reason a BRRRR bought at exactly the 70% rule leaves a little cash in the deal, and the reason the holding period matters: every extra month is another $2,475 of interest on this loan. Cash buyers skip it and pay closer to the 70% rule with the same result.