Key Takeaways
- Hard money: 10-14% rate, 2-4 points, 65-75% LTV, 6-18 months, 5-14 day funding.
- Private money: 8-12% rate, relationship-based, more flexible but requires formal documentation.
- Capital stack priority: Senior Debt → Mezzanine → Preferred Equity → Common Equity.
- Total cost comparison (rate + points + holding cost) is more important than any single term.
This recap consolidates the structures, instruments, and comparison frameworks for hard money and private lending covered in Track 1.
Hard Money and Private Lending Summary
Hard money loans (10-14% rate, 2-4 points, 65-75% LTV, 6-18 month terms, 5-14 day funding) serve as strategic short-term financing for fix-and-flip, bridge, and time-sensitive transactions. Private money offers more flexible terms (8-12% rate, 1-3 points) based on personal relationships. Both occupy the asset-based lending space where speed and flexibility trade off against cost. The capital stack positions these loans alongside mezzanine debt, preferred equity, and common equity, with lien priority determining payment order.
Lender Comparison Framework
When evaluating hard money lenders, compare: (1) total cost over the expected holding period, not just rate, (2) cash required vs. total cost trade-off, (3) draw process efficiency and holdback requirements, (4) extension provisions and costs, (5) prepayment provisions (some lenders charge minimum interest), and (6) speed of funding and lender reputation. Document these comparisons in a standardized spreadsheet for every project to ensure consistent decision-making.
Key Takeaways
- ✓Hard money: 10-14% rate, 2-4 points, 65-75% LTV, 6-18 months, 5-14 day funding.
- ✓Private money: 8-12% rate, relationship-based, more flexible but requires formal documentation.
- ✓Capital stack priority: Senior Debt → Mezzanine → Preferred Equity → Common Equity.
- ✓Total cost comparison (rate + points + holding cost) is more important than any single term.
Sources
Common Mistakes to Avoid
Treating all hard money lenders as equivalent based solely on advertised rates
Consequence: Lender quality varies enormously: some fail to fund, others impose hidden fees, and unreliable lenders can kill a time-sensitive deal
Correction: Evaluate lenders on funding certainty, total cost (not just rate), flexibility, draw process efficiency, and references from recent borrowers
Confusing the capital stack position with the interest rate when assessing risk
Consequence: A first-lien hard money loan and a second-lien mezzanine loan at similar rates carry very different risk profiles
Correction: Always assess the capital stack position, LTV at that position, and recovery priority before comparing returns across different loan products
Test Your Knowledge
1.What is the typical interest rate range for hard money loans?
2.What is the effective first-year cost of a $200,000 hard money loan at 12% with 3 points?
3.What is the primary advantage of private money over institutional hard money?
4.What determines lien priority on real estate?