Hard Money Loans in California: When They Make Sense

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

But sometimes they're the perfect tool.

I'm Bill McCoy (CA DRE #01212512). I've used hard money on my own deals and helped clients structure them. Here's when they make sense — and when they don't.

What Is a Hard Money Loan?

Hard money = short-term loan from a private lender secured by real estate.

Key differences from bank loans:

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

Typical Hard Money Terms (California 2026)

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

Example:

• Purchase price: $400,000
• Repairs: $100,000
• ARV: $600,000
• Hard money loan: 70% of purchase = $280,000
• Cash needed: $120,000 + $100,000 (repairs) = $220,000
• Rate: 12% + 3 points
• Points cost: $8,400
• Monthly interest: $2,800
• 12-month hold cost: $33,600 + $8,400 = $42,000

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

The classic use case.

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

Why hard money works:

• Banks won't lend on properties needing major repairs
• You need to close fast (all-cash equivalent)
• Short hold period means high interest doesn't compound too long

Example flip:

• Buy: $400K (hard money)
• Repairs: $100K
• Sell: $650K
• Hard money payoff: $280K + $42K interest
• Net after commissions/costs: $550K
• Profit: $50K-$100K (depending on exact costs)

2. Bridge Financing

You found the perfect property but can't close on conventional financing fast enough.

Use hard money to close, then refinance to conventional/DSCR within 6-12 months.

3. Properties Banks Won't Touch

• Major foundation issues
• Fire damage
• Code violations
• Distressed/REO properties

Hard money lenders care about ARV, not current condition.

4. Speed Deals

Foreclosure auction. Probate sale. Off-market pocket listing.

Seller wants to close in 7 days. Hard money can do it. Banks can't.

5. Credit or Income Issues

Your credit is 580. You're self-employed with messy tax returns.

Banks say no. Hard money lenders don't care — they lend on the property, not you.

Broker's Tip: Hard money is a tool, not a long-term financing strategy. Always have an exit plan before you borrow.

When Hard Money Doesn't Make Sense

1. You plan to hold long-term
Don't pay 12% for 10 years. Refinance into permanent financing.

2. The deal is marginal
If your profit is thin, hard money costs will eat it.

3. You can qualify for conventional or DSCR
If you can get 7% bank money, don't pay 12% hard money.

4. You don't have an exit strategy
What happens at month 12 when the loan matures? If you can't refi or sell, you lose the property.

Hard Money vs. Other Options

Loan Type	Rate	Term	Speed	Use Case
Hard Money	10-15%	6-24 mo	3-7 days	Fix-flip, bridge
DSCR	7-8%	30 years	30 days	Buy-hold rentals
Conventional	6.75-7.25%	30 years	30-45 days	Standard purchases
Cash	0%	N/A	Instant	Best if you have it

How to Find Hard Money Lenders

1. Google "California hard money lenders"
Tons of private lenders advertise online.

2. Local real estate investor groups
REIAs (Real Estate Investor Associations) often have lender contacts.

3. Mortgage brokers
Better Offers Inc works with multiple hard money lenders.

4. Wholesalers and flippers
Ask who they use.

What Hard Money Lenders Look For

1. The Deal
Is the ARV realistic? Is the margin good?

2. Your Experience
Have you flipped before? Or is this your first?

3. Exit Strategy
How will you pay off the loan?

4. Skin in the Game
Do you have cash invested? (Lenders like to see borrower equity)

5. The Property
Location, condition, resale potential.

Exit Strategies

Plan A: Sell (Fix-and-Flip)
Renovate, list, sell, pay off hard money from sale proceeds.

Plan B: Refinance
Rehab complete → property rented → refinance to DSCR or conventional.

Plan C: Private Sale
Sell to another investor before loan matures.

Plan D (Worst Case): Extend or Restructure
Negotiate extension with lender (usually costly) or bring in a new lender to pay off the first.

Never enter a hard money deal without at least 2 exit strategies.

Costs Breakdown

Example: $300K hard money loan at 12% + 3 points

Upfront:

• Points: $9,000

Monthly:

• Interest-only payment: $3,000/month

12-month hold:

• Interest paid: $36,000
• Points: $9,000
• Total cost: $45,000

Compare to conventional 7% for 12 months:

• Interest: $10,500 (if interest-only)

Hard money costs 4x more. But you couldn't get conventional on a distressed property, so the comparison is irrelevant.

California-Specific Considerations

Usury laws:
California limits interest rates on certain loans, but exemptions exist for real estate secured loans made by licensed brokers/lenders. Most hard money lenders operate under these exemptions.

Foreclosure process:
California is a non-judicial foreclosure state. If you default, lender can foreclose without court (90-120 days).

High property values:
California deals often require large loans ($500K-$1M+ for flips in coastal markets). Hard money points and interest add up fast.

Real-World Example: Marina's Flip

Property: Distressed SFR in Riverside
Purchase price: $350,000
Repairs: $80,000
ARV: $530,000

Financing:

• Hard money: 70% of purchase = $245,000 at 11% + 3 points
• Cash invested: $105K (down payment) + $80K (repairs) = $185K

Costs:

• Points: $7,350
• Interest (9 months): $20,213
• Holding costs (utilities, taxes): $6,000
• Total carry: $33,563

Sale:

• Sold for $520,000 (slightly under ARV)
• Commission (5%): $26,000
• Closing costs: $3,000
• Hard money payoff: $245,000 + $27,563 = $272,563

Net:

• Sale proceeds: $491,000
• Minus payoff: $272,563
• Minus original cash: $185,000
• Profit: $33,437

ROI: 18% in 9 months (not bad, but not amazing after accounting for risk and effort)

FAQ

Q: Do I need good credit for hard money?
A: No. Most lenders care more about the deal than your credit. 500-600 scores are often acceptable.

Q: Can I get 100% financing with hard money?
A: Rarely. Most lenders cap at 70-75% LTV. You need to bring cash.

Q: What happens if I can't pay off the loan?
A: Lender forecloses. You lose the property and any equity you put in.

Q: Can I use hard money for my primary residence?
A: Generally no. Hard money is for investment properties.

Q: Are there prepayment penalties?
A: Sometimes. Read the loan docs. Some lenders charge 3-6 months of interest if you pay off early.

Q: How fast can I close?
A: 3-7 days if you have all docs ready and the property appraises well.

Q: Can I extend the loan if I'm not ready to refinance?
A: Most lenders allow extensions for a fee (1-2 points + higher interest rate).

Find the Right Hard Money Lender

We work with reputable California hard money lenders for fix-and-flip and bridge financing.

Get Connected with Lenders

Better Offers Inc | CA DRE #01212512