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The Fix and Flip Loan - Understanding Hard Money Lending

By: Doug- Kace Mobile Notary Intern


Hard money lending refers to loans secured by real estate, provided by private investors or

companies rather than traditional banks or credit unions. These loans are typically short-

term, with terms ranging from a few months to a few years, and are used primarily for real

estate transactions. Hard money loans are asset-based, meaning the loan amount is based

on the value of the property being used as collateral, rather than the borrower’s

creditworthiness. Lenders assess the property’s value and the borrower’s experience in

real estate, often making a decision within days.


Hard money loans usually have higher interest rates compared to conventional loans, often

ranging from 8% to 15%. Additionally, lenders may charge points (a percentage of the loan

amount) as upfront fees. Loan-to-value (LTV) ratios typically range from 60% to 80%,

meaning the borrower must cover a portion of the property’s cost.


Repayment terms for hard money loans are short, generally between 6 months and 3 years.

Monthly payments can be interest-only, with the principal due at the end of the loan term

(balloon payment). This structure allows investors to manage cash flow during the

property’s renovation or resale phase.


The short repayment period of hard money loans means borrowers must have a clear exit

strategy, such as selling the property or refinancing, to avoid financial strain when the loan

comes due. If a borrower defaults on the loan, lenders can seize the property used as

collateral.


Hard money lending is ideal for real estate investors looking to:

• Quickly secure financing for property purchases or renovations.

• Acquire properties in competitive markets where speed is essential.

• Invest in properties that require significant repairs or improvements.

• Leverage capital to undertake multiple projects simultaneously.


Hard money lending can be a powerful tool for real estate investors seeking fast, flexible

financing. While the higher costs and shorter terms require careful consideration and

planning, the benefits can outweigh the drawbacks in the right circumstances. By

understanding how hard money lending works and evaluating your investment goals, you

can determine if this financing option aligns with your real estate strategy. If you’re new to

real estate investing, consult with experienced investors or financial advisors to

understand the risks and benefits fully.


Happy investing!

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