Situation #1: The Property Will Not Qualify for Traditional Financing
A distressed property may have problems such as:
- Missing kitchen
- Major roof failure
- Severe water damage
- Significant deferred maintenance
- Unsafe conditions
- Incomplete construction
A traditional lender may determine the property does not meet its collateral requirements.
Buy → Repair → Refinance or Sell
Situation #2: The Seller Needs a Fast Closing
Some transactions are won because the buyer can perform quickly.
An investor competing against cash may use hard money to make a financing structure more competitive.
Speed should never replace due diligence, however.
Closing quickly on a terrible investment is still a terrible investment.
Situation #3: Fix-and-Flip
Hard money is frequently used for flips because the investor intends to hold the property for a relatively short period.
The higher financing cost may be acceptable if:
- Purchase is strong
- Renovation is controlled
- Resale value is realistic
- Timeline is short
- Profit margin can absorb financing cost
Situation #4: Auction or Distressed Sale
Some opportunities have compressed timelines or financing restrictions.
Specialized investor financing may be necessary.
Situation #5: BRRRR
An investor may:
Buy
Rehab
Rent
Refinance
Repeat
using hard money for acquisition and rehab, and permanent financing after stabilization.
But the refinance assumption must be realistic. See the BRRRR strategy and financing guide for the refinance risk in detail.
When Hard Money Probably Does NOT Make Sense
If you can obtain:
- Conventional financing
- DSCR financing
- Portfolio financing
- Seller financing
at materially lower overall cost without losing the opportunity, compare them first.
Run the Cost in Dollars
The math, not the rate
Suppose hard money lets you buy a property for $50,000 below what you believe is market opportunity. If financing costs $20,000 more than another option, that may still be economically rational.
But if hard money costs an additional $30,000 simply to save two weeks when there is no competitive need, it may not be.
Ask These Questions Before Borrowing
- What is the purchase price?
- What is the current value?
- What is realistic ARV?
- What is the renovation budget?
- What is the contingency reserve?
- What are financing costs?
- How long can I afford to hold it?
- What is Plan A?
- What is Plan B?
- What happens if the property sells for 10% less than expected?
That final question is particularly important.
How Lisa Helps
Lisa can help pressure-test assumptions about:
- Purchase value
- Comparable properties
- Resale price
- Market demand
- Neighborhood
- Buyer expectations
- Exit strategy
A great financing product cannot rescue a bad acquisition price.
