Hard money vs. conventional financing
Hard money (private money) is short-term, asset-based financing that closes in days and is underwritten on the property, not your income — ideal for flips, bridges, and time-sensitive deals, at a higher rate. Conventional financing is long-term, cheaper, and income-documented but slow and paperwork-heavy. Most active investors use hard money to acquire and renovate, then refinance into cheaper long-term debt (like a DSCR loan) to hold.
The choice between hard money and conventional financing is really a choice between speed and cost. Understanding when each one wins is one of the highest-leverage skills an investor can have.
What "hard money" actually means
Hard money — often used interchangeably with private money — is short-term financing secured primarily by the real estate itself. The lender underwrites the asset: as-is value, rehab scope, and after-repair value. Because the decision rests on the property rather than your personal income, hard money closes fast (often 7–14 days) and works on properties a bank would reject. The trade-off is cost: higher rates and points to compensate for speed and risk.
What conventional financing offers
Conventional loans — bank and agency (Fannie Mae/Freddie Mac) mortgages — offer the lowest rates and longest terms in the market. The catch is the qualification: full income documentation, debt-to-income limits, property-condition requirements, and a slow, appraisal-driven process. They also cap how many mortgages one borrower can hold, which stops portfolio investors cold.
Side by side
The differences come down to a handful of dimensions:
- Speed — hard money: days; conventional: weeks to months
- Underwriting — hard money: the asset; conventional: your income and credit
- Cost — hard money: higher rate and points; conventional: lowest rate
- Term — hard money: 6–24 months; conventional: 15–30 years
- Property condition — hard money: rehab-ready OK; conventional: must be habitable
- Portfolio scale — hard money: no loan-count cap; conventional: agency limits apply
The strategy most investors actually use
You do not have to pick one forever. The dominant playbook is to use hard money to buy and renovate a property fast, then refinance into cheaper long-term debt once it is stabilized. That is exactly the BRRRR method — short-term rehab money in, long-term DSCR money as the take-out. Hard money buys you the deal and the speed; conventional-style DSCR debt gives you the cheap, durable hold.
Frequently asked questions
Is hard money more expensive than a bank loan?+
Why not just use a bank for everything?+
Can I refinance hard money into a cheaper loan?+
Is hard money the same as private money?+
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