Hard Money Loan

A hard money loan is a short-term loan from a private lender secured by real estate and underwritten mainly on the property's value rather than 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 $135,000 loan at 11% with 2 points, six months costs about $7,425 of interest and $2,700 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 $1,240 of interest on this loan. Cash buyers skip it and pay closer to the 70% rule with the same result.

Further reading: Hard Money Loan on Wikipedia.