A hard money loan is a short-term, high-rate loan from a private lender or fund, secured by the property itself rather than by your income or credit profile. Lenders size the loan off the value of the asset, often the after-repair value, and expect to be paid back in months, not decades.
These are the loans investors reach for when a bank cannot move fast enough or will not touch a property that needs work. The trade is speed and flexibility in exchange for rates and fees that would be unthinkable on a 30-year mortgage.
In practice
Say you find a run-down single-family house listed at $180,000 that will be worth $250,000 once you fix it, and the rehab budget is $40,000. A hard money lender quoting 70% of the after-repair value would lend up to $175,000, enough to cover most of the purchase and some of the rehab. You bring the rest plus closing costs.
Now price the carry. At 11% interest with 2 points on a $175,000 loan, the points cost $3,500 up front and interest runs about $1,604 a month. Hold it for 6 months and you have paid roughly $13,100 in financing alone before a single repair. That is the number people skip when they pencil a deal, and it decides whether the project clears or drowns.
Why it matters to a small landlord
Most buy-and-hold landlords never need hard money. It shows up when the plan is to buy ugly, fix it, and refinance into a long-term loan, the pattern behind BRRRR. The hard money note is the bridge: it funds the acquisition and rehab, then a cash-out refinance pays it off and pulls your capital back out. If the refinance appraises low or stalls, you are stuck servicing a double-digit rate, so the exit has to be planned before you sign, not after.
Related terms
Hard money sits next to a few ideas worth knowing together. The whole loan amount turns on the after-repair value, the rehab-and-refi sequence is the BRRRR method, and the way you escape the high rate is usually a cash-out refinance once the property is stabilized and seasoned.