Hard Money Loans California: When Private Money Makes Sense

Hard money loans are expensive. 10-15% interest. 2-4 points upfront. Short terms.

But sometimes they're the perfect tool.

What is hard money?

Short-term loan from private lender secured by real estate.

Key differences from bank loans:

• Qualification based on property value, not credit/income
• Fast approval (3-7 days)
• Short term (6-24 months)
• Higher rates and fees

Typical California terms (2026)

Rate: 9-15%
Points: 2-4 points upfront
LTV: 60-75% of purchase or ARV
Term: 6-24 months
Prepayment penalty: Sometimes (3-6 months interest)

Example:

• Purchase: $400K
• Repairs: $100K
• ARV: $600K
• Hard money: 70% of purchase = $280K
• Cash needed: $120K + $100K repairs = $220K
• Rate: 12% + 3 points
• Points cost: $8,400
• Monthly interest: $2,800
• 12-month cost: $42K

You pay $42K to borrow $280K for 12 months. Expensive? Yes. But if the deal works, it's worth it.

When hard money makes sense

1. Fix-and-flip

Buy distressed property → rehab → sell in 6-12 months.

Why it works:

• Banks won't lend on properties needing major repairs
• Close fast (like cash)
• Short hold = less interest compounding

2. Bridge to long-term financing

Property needs work before it qualifies for conventional/DSCR.

Strategy:

• Buy with hard money
• Complete repairs
• Refinance to conventional/DSCR

This is BRRRR (Buy, Rehab, Rent, Refinance, Repeat).

3. Competitive all-cash offers

Hard money functions like cash for sellers. No financing contingency. Fast close.

In hot California markets, cash-equivalent offers win.

4. Time-sensitive opportunities

Foreclosure auction, probate sale, estate sale—situations where speed matters more than cost.

5. Credit/income challenges

Can't qualify for traditional financing but have solid deal and exit strategy.

Hard money cares about the property, not your W-2.

When to avoid hard money

1. Long-term hold: If you're buying to hold 5+ years, hard money makes no sense. Refinance immediately or use DSCR from the start.

2. Weak exit strategy: "I'll figure it out later" isn't a plan. Know how you're exiting before you borrow.

3. Tight margins: If profit is under 20%, hard money costs eat your returns.

4. No reserves: If one unexpected expense kills the deal, you can't afford hard money.

Exit strategies

Every hard money loan needs an exit plan:

Exit 1: Sell
Most common for flips. Sell within 6-12 months, repay loan, keep profit.

Exit 2: Refinance to long-term loan
Property is stabilized, now qualifies for conventional/DSCR. Refinance before hard money term ends.

Exit 3: Cash-out refinance
Pull equity after improving property, use to fund next deal.

Exit 4: Extend term
If you need more time, most hard money lenders allow extensions (for a fee).

California hard money lenders

California has hundreds of private lenders. Shop rates and terms.

What to compare:

• Interest rate
• Points
• LTV
• Term length
• Prepayment penalties
• Extension options
• Lender reputation

Real example: Sacramento flip

Purchase: $300K (distressed)
Repairs: $80K
ARV: $500K
Hard money: 70% of $300K = $210K
Cash needed: $90K + $80K = $170K
Terms: 12% + 3 points
Hold time: 8 months

Costs:

• Points: $6,300
• Interest: $16,800
• Total: $23,100

Sale:

• ARV: $500K
• Costs: $40K (commissions, closing)
• Net: $460K

Profit:

• Net sale: $460K
• Hard money payoff: $210K
• Loan costs: $23K
• Cash invested: $170K
• Total profit: $57K in 8 months

Worth the expensive loan? Absolutely.

Alternatives to hard money

Before committing:

1. DSCR loan
If property cash flows, DSCR may work at 7-8% vs. 12-15%.

2. Home equity line
HELOC on your primary at 7-9% beats hard money.

3. Partnership
Bring in equity partner instead of expensive debt.

4. Seller financing
Motivated seller may carry note at better terms.

Bottom line

Hard money works when:

• You need speed
• Property won't qualify for traditional financing yet
• You have clear exit strategy in 6-24 months
• Deal profit justifies the cost

Don't use hard money for convenience. Use it when it's the only path to a profitable deal.

Want to explore hard money vs. other options? Get A Quote.

---

LoanAll.com (operated by LoanAll.com)
CA DRE #01212512 | NMLS #2787839
Bill McCoy | 888-421-1117 | info@loanall.com