Why a 12% Hard Money Loan Can Cost You LESS Than 8.5%

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At first, it sounds crazy. Why a 12% Hard Money Loan Can Cost You LESS Than 8.5% does not seem to make sense. However, once you break it down, it becomes very clear. The truth is, the interest rate is only one part of the total cost. You also have to look at fees, points, and most important, time. Because of that, a higher rate loan can actually put more money in your pocket on the right deal. So, let’s walk through a simple example to show you how this works and how you can use it to protect your profits.

What Is Hard Money (and Why It Matters)

Hard money is simple. It is a loan backed by real estate. However, it works very different than a bank. Instead of focusing only on your income, it focuses on the deal itself. Because of that, it can move fast, which helps you win deals that others miss. In addition, it stays flexible, so it can fit projects that do not fit inside a bank’s rules. So, while banks stay inside the box, hard money works outside the box. And because of that, it becomes a powerful tool for investors who want speed, flexibility, and more control over their deals.

The Big Myth: Lower Rate = Lower Cost

Most investors believe that a lower interest rate always means a cheaper loan. However, that is not always true. In fact, sometimes a 12% loan can cost less than an 8.5% loan. At first, that sounds backwards. But once you look at the full picture, it starts to make sense. The truth is, the rate is only one piece of the puzzle. You also need to look at fees, time, and how long you will hold the property. Because of that, focusing only on the rate can actually cost you money.

Real Deal Example (Simple and Clear)

Let’s walk through a real example so you can see how this works. In this deal, the purchase price is $450,000, and the rehab is $50,000. The after repair value is about $700,000. The lender will fund 90% of the purchase and 100% of the rehab. Now, there are three loan options to choose from. The first option is a hard money loan at 12% with one point and almost no extra fees. The second option comes in at 9.75% with higher points and added fees like draws and inspections. The third option has an 8.5% rate but includes even more fees and processing costs. At first glance, the lower rate looks better. However, we need to look deeper.

Now Let’s Look at Time (This Changes Everything)

Time is the key factor that changes everything. First, if the project takes about three months, the 12% loan actually comes out cheaper by about $2,600 to $4,000. This happens because you avoid many of the upfront fees and extra costs tied to the lower rate loans. Next, if the deal stretches to six months, all three options come very close in total cost. This is the break-even point where rate and fees balance out. However, if the deal goes longer, such as nine to twelve months, the lower rate loan becomes the better option. This happens because interest has more time to build, and over time, the lower rate saves more money.

The Simple Rule (Easy to Remember)

So, here is the simple rule you can remember. If the deal is short, a higher rate loan can often cost less. On the other hand, if the deal is long, a lower rate loan will usually win. Because of that, you always want to match your loan to your timeline. This one shift in thinking can save you thousands of dollars on every deal.

Why This Happens (Plain English)

Now let’s break down why this happens in simple terms. First, points are just prepaid interest. So, when you pay points, you are paying part of the interest upfront instead of over time. Next, fees like draw fees, inspection fees, and processing costs can add up quickly. Even though they may seem small, they slowly eat away at your profit. Finally, time multiplies everything. The longer you hold a deal, the more interest you pay, and the more those costs grow. Because of that, time plays a bigger role than most investors think.

A Quick Example You Can Feel

Let’s make this real. Imagine you expect to make $40,000 on a deal. Now, each extra month you hold that property costs you about $4,000. So, if your project runs three months longer than planned, you lose $12,000. That is a big hit. And in many cases, those delays happen because the funding was not set up correctly from the start. Because of that, having the right loan and enough funds ready can protect your profits.

Why Hard Money Can Be the Best Choice

Even though hard money often has a higher rate, it can still be the best choice for many deals. First, it allows you to move faster, which helps you finish projects sooner. Next, it reduces delays, which keeps your costs down. In addition, it often has fewer hidden fees, which means more money stays in your pocket. Finally, it allows you to complete more deals each year. And when you do more deals, your total profit grows.

Protect Your Profits with Better Funding

You may have heard this before: you make your money when you buy, but you protect it with your funding. What this really means is that you need to choose the right loan for each deal. You also need to match your loan to your timeline. In addition, you should always look at the total cost, not just the rate. Because every deal is different, your funding should be different too. When you take the time to do this right, you keep more of your hard-earned profit.

The Smart Move: Run the Numbers First

Before you move forward with any deal, take the time to run the numbers. First, compare at least two or three lenders. Next, look at the full picture, including rate, fees, and time. Then, test different timelines to see how the cost changes. When you do this, you can clearly see which loan is best for your situation. This is exactly why tools like a loan optimizer are so valuable. They help you make smart decisions based on real numbers, not guesses.

Final Thought

So, yes, a higher interest rate can actually cost you less. However, this only works when the deal moves fast. That is why smart investors do not chase the lowest rate. Instead, they focus on the best loan for the deal in front of them. Because when you choose the right funding, you do more than save money. You protect your profits and set yourself up for long-term success.

Watch our most recent video to find out more about: Why a 12% Hard Money Loan Can Cost You LESS Than 8.5%

Hard Money: The Out-of-the-Box Loan Real Estate Investors Need

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Real estate investing is full of deals that don’t fit the normal rules. However, that’s often where the best opportunities are found. That’s why understanding Hard Money: The Out-of-the-Box Loan Real Estate Investors Need can change how you look at funding. Instead of getting stuck when a deal doesn’t fit the bank’s box, you can move forward with speed, flexibility, and confidence.

What Is Hard Money?

When real estate investors talk about hard money, they are talking about out-of-the-box lending. So, what does that really mean? Most loans today come from big lenders. However, those lenders work inside a tight box. They want perfect deals, clean properties, strong credit, and clear history. But here’s the problem—not every great deal fits in that box. That’s where hard money comes in, and because of that, investors can move forward when others get stuck.

“In-the-Box” vs “Out-of-the-Box” Lending

In-the-Box Lending (Traditional Loans)

Most lenders want a simple and safe deal. For example, they prefer a single-family home, sometimes up to 3–4 units. In addition, they want a credit score over 700, past experience, and money into the deal. Also, they look for strong comparable sales nearby. So, in short, they want everything to fit neatly into their system.

Out-of-the-Box Lending (Hard Money)

On the other hand, hard money looks at deals in a different way. Instead of asking, “Does this fit our rules?” they ask, “Does this deal make sense?” Because of that, hard money can fund deals that others won’t, and that is why it plays such a key role for investors.

Why Investors Need Hard Money

Real estate is not always clean and easy. In fact, many of the best deals are messy, unusual, or time-sensitive. So, if you only rely on traditional loans, you will miss out. However, when you use hard money, you gain speed, flexibility, and opportunity. More importantly, you gain control over your deals, which helps you move faster and make better decisions.

Real Examples of Out-of-the-Box Deals

Let’s make this simple. Here are a few real-world examples that show how hard money works.

Example 1: Quick Flip (2–4 Weeks)

Sometimes, you find a deal you don’t want to fully rehab. Instead, you clean it up, list it fast, and sell it quickly. Traditional lenders usually won’t touch this type of deal. However, hard money can step in, and because of that, you can move quickly and lock in profits.

Example 2: Double Closing (Wholesale with Ownership)

In some deals, you buy the property first and then sell it to another buyer. This is called a double closing. Now, many lenders won’t allow this structure. But again, hard money can step in and help you complete the deal smoothly.

Example 3: Land Deal

Here’s a simple example. You buy land for $300,000, then you split it into 8 lots, and after that, you sell each one for $75,000 to $100,000. That creates strong profit potential. However, most lenders will say no to this type of deal. Meanwhile, hard money sees the opportunity and focuses on the upside.

Example 4: Small Town Property

Many lenders avoid small towns because there are fewer sales and fewer comparable properties. Because of that, they feel the deal is too risky. However, some of the best deals live in small towns, and hard money works well in these areas. So, instead of missing out, you can move forward with confidence.

Example 5: Finish a Project Loan

Let’s say you are 80% done with a project, but then you run out of money. Now, the project slows down, and as a result, your profit starts to shrink. However, hard money can step in, fund the remaining work, and help you reach the finish line faster.

Example 6: Bridge Loan

Sometimes, you need to buy a new property while selling another one. That’s where a bridge loan helps. It allows you to move forward without waiting, and then once your old property sells, the loan is paid off. Because of that, you keep your deals moving instead of getting stuck.

What Hard Money Really Cares About

This is where things get simple. Hard money is not focused on perfection. Instead, it focuses on the deal, the exit plan, and the opportunity. In other words, does the property have value, can you sell or refinance it, and is there profit and equity? If those three pieces work together, then the deal can work, and that is what really matters.

What Hard Money Does NOT Focus On

Unlike traditional lenders, hard money is more flexible. For example, your credit score matters less, your experience is not always required, and your income is not the main focus. Instead, the deal leads the way. Because of that, even a first-time investor can succeed if they find the right opportunity.

Why This Matters for Your Profits

Here’s the truth most investors miss—the best deals are often the hardest to fund. So, if you only use traditional loans, you move slower, miss deals, and lose profits. However, when you add hard money to your strategy, you move faster, close more deals, and increase your profits. As a result, you create more opportunities over time.

Simple Story to Bring It Together

Think about this like driving across town. If you have full funding, it’s like hitting every green light. On the other hand, if you have some funding, it’s like hitting every other light. And if you don’t have funding, it’s like hitting every red light and sitting in traffic. So, who gets there first? More importantly, who makes more money?

When Should You Use Hard Money?

You should use hard money when the deal does not fit the normal box, when you need speed, when you need flexibility, or when you see a strong profit opportunity. Because at the end of the day, if the deal makes sense, hard money can help you make it happen.

Final Thought

Real estate investing is not about perfect deals. Instead, it is about finding good deals and having the right funding to close them. So, don’t let the “box” limit your success. Because when you think outside the box, that is where the real profits live.

Next Step

If you have a deal that feels a little different, that might be your best deal. So, take a second look, run your numbers, and get a second set of eyes. Because the right funding can turn a “maybe” deal into a real profit.

Watch our most recent video to find out more about: Hard Money: The Out-of-the-Box Loan Real Estate Investors Need

What is Transactional Funding?

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Today we are going to answer the question, “what is transactional funding?” Transactional funding is a short-term loan that helps real estate investors complete quick, back-to-back property deals. Think of it as a bridge that gets you from point A (buying) to point B (selling) without using your own cash.

Let’s look at an example

Here’s how it works: You find a property to buy (let’s call it Deal 1). At the same time, you have another buyer lined up to purchase that same property from you (Deal 2). Transactional funding steps in to cover the purchase of Deal 1 until Deal 2 closes. After Deal 2 wraps up, the funding gets paid back.
This type of funding is ideal for wholesalers or investors working on assignments where timing is everything. For example, imagine you’ve negotiated a great deal on a fixer-upper and have already lined up a flipper to buy it. Transactional funding ensures you don’t miss out on the opportunity just because you don’t have cash on hand.

What’s the best part? 

These loans don’t typically require credit checks or income verification since they’re secured by the property and paid off quickly. Just be sure all pieces of the deal are in place before moving forward.
In short, transactional funding is the ultimate tool for quick real estate flips. It keeps your deals moving and helps you maximize opportunities without tying up your own money.

Contact Us Today! 

What type of financing is right for you? Contact us today to find out more about real estate investment loans!

Free Tools For You! 

We also have free tools available! Download the Loan Optimizer to compare financing options side by side!  

Learn more!

Visit our YouTube channel to learn more about real estate investing and how you can get on the fast track to success! 

How Can You Find Funding to Finish a Project?

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Today we are going to discuss how you can find funding to finish a project. You’re almost there, your project is so close to the finish line, but funding has run dry. What can you do? Don’t worry; there are ways to secure the money you need to wrap things up and see your project through.

One option is a short-term bridge loan. These loans are designed to help investors like you finish a project quickly. For example, imagine a house flipper running out of funds during the final stages of renovation. A bridge loan can provide the cash to cover the last repairs and get the property ready to sell.

Another choice is leveraging a home equity line of credit (HELOC). If you have equity in another property, this can act as your safety net. Picture this: you own a rental property with equity built up, and you tap into it with a HELOC to cover project costs.

Sometimes, smaller private lenders are more flexible than banks. They often work with investors in unique situations, like funding smaller deals in small towns or unfinished projects.

The key is knowing where to look and having a solid plan to show lenders. The better your project looks on paper, the easier it will be to find the funding you need to finish strong.

Contact Us Today! 

What type of financing is right for you? Contact us today to find out more about real estate investment loans!

Free Tools For You! 

We also have free tools available! Download the Loan Optimizer to compare financing options side by side!  

Learn more!

Visit our YouTube channel to learn more about real estate investing and how you can get on the fast track to success! 

What To Do When Your Flip Is Stuck on the Market

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It’s all too common in times like these – your flip is stuck on the market. Here are your options to save your money.

You got a great deal on a property a couple months ago. You worked hard to fix up the house fast. And now… it’s not selling.

This problem is happening to investors daily. We’re getting a lot of calls from our clients (and other people’s clients!) asking for help.

So, what do you do with a sticky flip?

Your Options When Your Flip Is Stuck on the Market

Obviously, the ideal goal with a flip is to sell at a profit, quickly. That may not be possible under current conditions. If your flip is stuck on the market, you might need to strategize a different exit plan.

Your main options are to:

  1. Keep dropping the price until it sells. Cut your losses and just get rid of the property.
  2. Refinance your flip’s loan. Make your lender happy, but keep the house on the market to try to salvage some profit.
  3. Convert the flip into a rental. Refinance your flip, then hold onto the property for a couple more years, until a good market returns. You can keep a tenant and get some rent income in the meantime.

Which option is right for you? That depends on your goals, willingness to rent, and financial situation. Let’s go over some of these options in detail to help you decide.

First Step in Converting a Flip to a Rental

First of all, if you decide you’d rather turn the flip into a rental, stop lowering the market price immediately.

You can’t drag out this decision, lowering the price “just in case” while exploring rental options.

When you refinance your fix-and-flip, the appraiser looks at the market history. They see the last price the house was listed for. They have to base their appraisal off that number, regardless of whether the house sold or not.

If the last listed price is lower than what they would have appraised the house for… they still have to go with the listed number.

So every time you drop the price, it lowers your potential appraisal. This directly hurts your loan-to-value on a refinance.

Loan Options for Your Flip Stuck on the Market

Once you’ve made the (quick) decision to refinance the property, what are your options?

Typically, you’d go to a bank to get a conforming or traditional loan. But banks are slow, and this refinance needs to happen quickly. Also, with money tightening, bank loans are harder to get than ever.

Here are 3 other options we’d steer you toward:

1. DSCR Loans

The DSCR loan is the easiest, fastest way to get a longer-term rental loan. The core requirements for most DSCR loans are:

  • A good credit score – 680 minimum, with a higher score meaning the better the rates and terms.
  • Rent income – If your rent covers your monthly payments on the loan transaction, you’ll qualify. Some DSCR products will still take you if you lose up to 25% on the loan payment with rent.

If you decide you want to turn your flip into a rental, a DSCR loan should be the first option you consider.

Beware the Prepayment Penalty

All DSCR loans have a prepayment penalty. The standard timeframe is 3 or 5 years. The longer the term for your prepayment penalty, the better the rate.

Prepay penalties are like exit fees. For example, if your term is 5 years, and you decide to pay off the loan during year 3, they’ll charge you 3% of the loan as an exit fee.

2. Bridge Loans

If your flip is stuck on the market, but you want a short-term refinance, then bridge loans could be the better option.

Bridge loans typically last about 1 to 2 years. There are a couple directions you could go with a loan like this:

  • You can keep the house on the market and just use the bridge loan to get out of your original flip loan.
  • You can convert it to a short-term rental (think Airbnb) to bring in some cash flow.
  • You can turn it into a traditional rental while you wait out the market.

Bridge loans are good because they’re fast, interest-only, and have no prepay penalty. The downside of bridge loans is that they’re limited to 70% of the value of the home. Plus, they tend to have higher interest rates.

If your flip is stuck on the market for too long, your original lender will start asking for their money back – potentially raising rates or threatening foreclosure. A bridge loan is a great exit.

DSCR vs Bridge Loan to Refinance Out of a Fix-and-Flip

When deciding whether to go with a DSCR loan or bridge loan, you should consider the “tipping point.” Bridge loans have 2% – 4% higher annual rates. DSCR loans have a prepayment penalty.

Depending on how long you want to keep the loan on the house decides which type of loan will be cheaper for you. This tipping point usually lies somewhere between the 14th and 17th month of a DSCR loan. That’s when the pre-pay fee becomes cheaper than the rates on the bridge loan.

3. Real OPM

Lastly, real OPM is always the ideal funding source to get you out of difficult situations.

Real OPM is real people – family, friends, folks in local real estate groups – who want to put their money in a safe place with an easy return.

An OPM lender can get a 6% to 7% rate of return lending to you over a 2% or 3% rate keeping their money in a bank. You can use OPM to pay back your original lender  and free you up to make the best decision for your flip stuck on the market.

OPM is win-win.

More Help for a Flip Stuck on the Market

We’d be glad to help you find the best loan for your needs.

Reach out now! Rates are only going to rise, and now is the perfect time to get prepared for a market with more opportunities.

Email us at Mike@HardMoneyMike.com.

Happy Investing.

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Ways to Secure a Gap Loan & How to Do It

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For your lender to feel comfortable, you need to know the ways to secure a gap loan.

When you hear the advice to “secure” your gap loan, what does that mean? How do you secure a gap loan? And why?

Ways to Secure a Gap Loan with Two Lenders

Securing your loan involves both your hard money lender and your gap lender.

Your friend or family member is giving you a fairly large chunk of money. They’ll want to know how you’ll secure it for them.

Securing your gap lender’s loan involves putting a lien on the property. Does your hard money lender allow this? Not all lenders will.

If Your Hard Money Lender Doesn’t Allow a Lien

If your hard money lender does not allow a lien on the property, you’ll have to secure the loan with a different property.

You could either put the lien on your own home, or you could use another rental or investment property.

If They Do Allow a Lien

If your hard money lender does allow a lien on the property to secure a gap loan, it’s best to do during closing with the mortgage and deed. This way title records it, and you have evidence for your gap funder that it’s recorded.

Many gap lenders – especially if they’re family or friends – won’t be educated enough about the real estate world to understand how to secure  their money. As the investor, it’s your responsibility to keep your lenders’ money safe.

Securing the Gap Loan

No matter which property has the lien, you’ll have to take a few important steps to secure the gap loan.

You’ll need a note – a promissory note between you and your gap lender – and a lien, either a mortgage or a deed of trust. And you’ll have to record all this with the county.

To make sure the loan is concerned, be sure to check all these boxes. It’s important to do this thoroughly so your lender will:

  • Get their money back
  • Feel comfortable with the deal
  • Want to lend to you again
  • Recommend you to their network

Read the full article here.

Watch the video here:

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How to Calculate Gap Funding

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When your loan doesn’t cover 100% of your project, how do you calculate gap funding?

How much do you need for gap funding? It depends on each project.

Calculating Gap Funding Needed for a Project

The way to figure out the gaps in your project is simple:

(Cost of Property + Rehab Costs) – Hard Money Loan Amount = Gap Funding Amount Needed

If the property costs $200,000, but your lender gives $140,000, there’s a $60,000 gap you’ll need to cover. You can:

  1. Pay the $60,000 out-of-pocket

Or

  1. Bring in a gap lender, enabling you to buy the property with 100% financing. You would likely use part of this loan for the down payment and part for construction costs.

How to Calculate Construction Costs

Most hard money lenders use the ARV (anticipated retail value) rather than LTV (loan in relation to the current sale value).

In case your loan is for LTV only and doesn’t take into account construction costs, here’s how you would calculate those costs for an undermarket home:

ARV  –  Actual Cost of Property  =  Maximum Construction Budget

It’s important for you to work these numbers and know your budget up-front. Keep in mind, it’s always better to err on the generous side with your numbers. You want to be sure you can get done on-time and within the budget allotted by your hard money and gap lenders.

How much you’ll spend on construction is important when you calculate gap funding.

Read the full article here.

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How to Use Gap Funding for BRRRR Projects

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Gap funding is a way to get $0 down BRRRR properties!

You should use gap funding for BRRRRs the same way you do fix-and-flips. The biggest differences happen at closing.

Similarities to Fix-and-Flips

Gap funding is used very similarly for both BRRRR and flips: for down payments, construction costs, or carry costs.

The bulk of the money not covered by a hard money lenders becomes the down payment. Most lenders require at least 10% for this cost.

Your primary loan does not always cover construction costs – rehab, repair, or anything necessary to bring the house up to the ARV and onto the market.

Also, some investors like to use gap funding for the carry costs of the project: the mortgage payment, the insurance, and all other monthly costs.

Gap funders can (and should) be used for all these phases of your BRRRR project.

Gap Funding Process During BRRRRs

Use BRRRR gap funding like fix-and-flip gap funding: for down payment, construction, or carry costs.

For BRRRR though, you need to close the gap funding loan on the same day as closing. You’ll also need to be sure you close the gap funding at the title company, with your lender. So you’ll need to know in advance that your hard money lender allows gap funding with a lien on the property.

Protecting Your BRRRR Refinance While Using Gap Funding

If you close your gap loan too late or incorrectly, your long-term lender can consider your refinance cash-out, not rate-and-term. This will lower the LTV on your refinance.

It’s important to get the money for your loan back in the refinance. In a good BRRRR transaction, you walk away with a house that’s cash-flowing and little to no money out of your pocket.

Read the full article here.

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How to Use Gap Funding for Your Flips

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Don’t walk into a loan without a plan – use gap funding for flips!

During a time when lenders are offering less money up-front for investment deals, you might need more money to fill in the gaps on your fix-and-flip projects.

Here are a few phases where you might need gap funding on your project.

Down Payments

Hard money lenders require at least 10% as a down payment. This is a very common use for gap funding.

If you use gap funding for your down payment, you’ll need to find out right away whether or not your hard money lender will accept a secured gap loan on the property.

Construction Costs

Another way to use gap funding for flips is for construction costs – rehab, repair, or anything necessary to bring the house up to the ARV and onto the market. These expenses can rack up fast, and they may not be completely covered by the main loan for the flip.

Carry Costs

Some investors will only use gap funding for the carry costs during their flip.

The lender will pay the mortgage payment, the insurance, or whatever other monthly costs are required during the project. Having a gap lender for carry costs can smooth out a fix-and-flip experience.

The Reach of Gap Funding for Flips

It’s possible to coordinate with your gap lenders to cover all three of these additional costs. This is a common way investors successfully finish fix-and-flips with zero money down.

You can use gap funding however you need, as long as both the hard money lender and the gap lender agree that the loan fits their criteria.

Not all hard money lenders allow you to secure your gap loan with a lien on the property you’re closing on. And not all gap lenders will loan to you unsecured.

Read the full article here.

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What Is Gap Funding for My Real Estate Investments?

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In the real estate investment world… What is gap funding?

You should never count on a bank or hard money lender to give you a loan that will cover 100% of your real estate investment property.

What you should be able to someday count on, though, is your gap funding.

So, what is gap funding?

Definition: What Is Gap Funding?

Gap funding is the money you bring in from another source to fill any gap left between the lender and the project costs.

If a lender offers you 70% of the LTV on a property, gap funding is how you fill in the remaining 30%. Usually, you secure gap funding, although unsecured gap funding is possible.

A “secured” loan means that the debt is backed by a piece of collateral. In a typical gap funding scenario, the loan is secured by the property being purchased.

For the most part, you won’t be able to find a gap lender at an institution like you can a bank lender. Instead, gap lenders are family members, friends, or someone you know.

OPM vs Gap Funding

You can use a couple gap funding terms interchangeably:

  • gap funding
  • gap lending
  • OPM (other people’s money)
  • real people’s money

All of these terms get at the same concept. It’s money, not from you and not from an institutional lender, that covers whatever costs of an investment property that your lender won’t fund.

OPM can cover up to 100% of a deal, but for now, we’ll be talking about it in a strictly gap funding sense. These are loans that fill in the holes of a project that a mortgage or hard money loan wouldn’t cover.

Read the full article here.

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