If you're a savvy real estate investor looking to swiftly secure financing, you have no doubt seen the term "hard money loans." Often viewed as a good alternative to conventional loans, hard money loans provide great speed and flexibility. In this post, we'll explore exactly what hard money loans are, and identify the types of investors who can benefit most from hard money financing. 

A hard money loan is a type of short-term, asset-based financing, often used for real estate investments. Unlike traditional loans, where lenders heavily scrutinize your credit history and financial background, hard money loans are secured by assets, typically real estate properties. This makes them accessible even if you have a not-great credit score or a complex financial history.

Generally, lenders provide financing up to 70-75% of the ARV. REIA Hard Money (RHM) will lend up to 70% of ARV. Here is an example of what this means: 

Let's assume a purchase price of $160K and a repair budget of $50K (total amount needed is $210K). What this means for RHM is we would lend as much as 100% of purchase price and 100% of rehab funds it our 3rd party evaluator confirmed an ARV of $300K or higher. 

Now what happens if the ARV comes in at $280K? In this scenario, RHM would only lend up to a maximum of $196K (which is 70% of the $280K ARV). Your next question might be why wouldn't I want to go to the lender who might offer up to 75% or even 80% of ARV? Our response would be to consider the risk you are taking by overextending yourself in the deal, as when you are at 75% or 80% of ARV, and then you factor in costs such as origination and other fees (3-5%) and interest (1% or more per month), it can leave you with little margin for error is the project does not go exactly according to plan and budget.

The big advantage of a hard money loan is its speed. Unlike normal loans which can take weeks or even months to process, hard money loans can often be approved and disbursed within a matter of days. This can be invaluable for real estate investors looking to seize timely opportunities, such as fix-and-flip projects or auction purchases where speed is essential.

Investors employing the BRRRR strategy purchase undervalued properties, renovate them to increase their value, rent them out, and then refinance into a traditional mortgage. Hard money loans are an excellent fit for the initial phases of this strategy—buying and rehabbing the property—allowing for quick financing and renovation. Once the property is stabilized and generates rental income, it can be refinanced into a long-term mortgage at more favorable terms.



While hard money loans offer various advantages, they come with higher interest rates and shorter terms compared to conventional loans. This structure can pose risks if the property does not sell or refinance as quickly as planned, potentially leading to higher costs and financial strain.

Moreover, failure to repay the loan can result in the lender foreclosing on the property, given that it serves as collateral. Therefore, investors must have a clear and viable exit strategy, whether it's selling the flipped property, refinancing into a traditional mortgage, or securing new financing.