The Power of Hard Money to Fund Great Deals (with Alex Bekeza)

For real estate investors, a great deal does not always come with a property that qualifies for traditional financing. Distressed homes may need major renovations, and competitive opportunities often require investors to close quickly. That's where hard money loans for real estate come in.

To learn more about financing these deals, we spoke with Alex Bekeza, a real estate investor and mortgage loan originator specializing in investment property financing. During our exclusive Innago webinar, The Power of Hard Money to Fund Great Deals, Bekeza explained how investors can use hard money for fix-and-flip projects, BRRRR deals, renovations, and more.

Although hard money is sometimes viewed simply as expensive debt, Bekeza describes it differently:

“It’s a means to an end. It’s a bridge, if you will.”

What Are Hard Money Loans for Real Estate?

Hard money loans for real estate are short-term, asset-based loans secured by the property. Unlike conventional mortgages, these loans focus more heavily on the investment property and the deal itself than on the borrower’s personal income.

As Bekeza explains:

“Unlike conventional loans, hard money lenders focus primarily on the value of the property, not your income or your tax returns.”

Hard money real estate loans are commonly used when investors need financing for properties that traditional lenders may not accept. They are typically:

·       Short-term, often lasting around 12 months

·       Asset-based, with the property serving as collateral

·       Designed for speed, allowing investors to move quickly on deals

·       Available for distressed properties that may not qualify for conventional financing

·       Able to include renovation costs in the loan

For investors, the goal is generally not to keep hard money financing long term. Instead, it provides the capital needed to purchase and improve a property before selling it or refinancing into longer-term debt.

How Do Hard Money Real Estate Loans Work?

Hard money real estate loans are structured around the cost and projected value of the property rather than traditional measures like debt-to-income ratio. Lenders typically look at the purchase price, renovation budget, and after-repair value (ARV) to determine how much they are willing to finance.

One common structure Bekeza discussed is:

·       Up to 90% of the purchase price

·       100% of the renovation budget

·       Renovation funds held in an escrow account

·       Funds released as completed work is verified

·       Loan size limited by the property’s projected ARV

For example, renovation funds may be reimbursed after an investor completes a project, submits a paid invoice, and provides proof of the completed work.

Bekeza also notes that some lenders only charge interest on renovation funds after they are drawn:

“You’re not paying any interest on it until or if you draw, because your monthly payment is based on the principal balance, not the entire loan amount.”

Loan structures vary between hard money lenders, so investors should compare how lenders handle renovation funds, interest, leverage, and other terms before choosing financing.

Typical Hard Money Loan Terms and Interest Rates

Hard money real estate loans are designed to be short-term. According to Bekeza, most fix-and-flip loans he works with are 12-month, interest-only loans with no prepayment penalty.

However, loan terms can vary depending on the lender and project:

·       6-month loans may be available for shorter projects

·       12 months is common for fix-and-flip financing

·       18-month loans may provide additional renovation time

·       24- or 36-month terms may be available for longer construction projects

Interest rates are generally higher than conventional mortgage rates because hard money lenders are financing properties and situations that traditional lenders may consider too risky.

Bekeza gives a general industry range of 8% to 13%, although the actual rate depends on factors such as:

·       Credit score

·       Investor experience

·       Loan-to-cost (LTC) ratio

·       Property location and market

·       Overall risk of the deal

For a typical investor with some experience, decent credit, and a property in a secondary market, Bekeza says a rate around 10% may be a reasonable example. Because investors typically hold these loans only long enough to renovate and either sell or refinance the property, Bekeza emphasizes looking at the financing as part of the overall deal rather than comparing its rate directly with a 30-year mortgage.

What Do Hard Money Lenders for Real Estate Look For?

Hard money lenders evaluate both the borrower and the deal itself. While personal income and tax returns may carry less weight than they would with a conventional mortgage, factors like experience, credit, available cash, property value, and overall deal structure still matter.

As Bekeza explains, pricing is not one-size-fits-all:

“Pricing is built on a ton of different variables.”

Ultimately, lenders are trying to determine how risky the deal is and whether the investor has a realistic path to complete the project and repay the loan.

What Do Hard Money Lenders for Real Estate Look For?

Because hard money loans are asset-based, lenders evaluate deals differently than conventional mortgage lenders. However, the property itself is not the only factor that matters. According to Bekeza, hard money lenders for real estate commonly consider:

·       The investor’s experience and track record

·       Credit score

·       Loan-to-cost

·       After-repair value

·       Property location and market

·       Available cash to close

These factors help lenders determine the risk of the deal, how much they are willing to lend, and the rates and terms they can offer.

Investor Experience and Track Record

An investor’s previous experience can directly affect hard money loan pricing and leverage. In Bekeza’s own words:

“Your track record matters.”

Lenders generally look for completed or exited rehab projects, including successful fix-and-flips and BRRRR properties that were refinanced out of hard money. Previous landlord experience may also be considered. First-time investors can still qualify, but experienced borrowers may receive better terms. Bekeza says many lenders group borrowers into experience tiers, such as:

·       No completed deals

·       1-2 deals

·       3-4 deals

·       5+ deals

Investors with an established record of completing similar projects may be able to access more favorable financing as they gain experience.

Credit Score

Although hard money lenders rely less on personal finances than conventional lenders, credit score still matters.

Bekeza calls it a misconception that FICO scores have no effect on hard money financing: 

“Because we’re not looking at your personal income, pricing and leverage highly favors those with great credit scores.”

Some programs may accept scores around 620 or 660, while more competitive products may require a score closer to 680 or 700. In general, a stronger credit score can lead to better rates and higher leverage.

Loan-to-Cost and After-Repair Value

Two of the most important numbers in a hard money deal are loan-to-cost and after-repair value. LTC compares the loan amount with the cost of purchasing and renovating the property. ARV estimates what the property should be worth once those renovations are complete. 

Bekeza explains that a common loan structure may cover 90% of the purchase price and 100% of renovation costs, but the total loan still has to remain within the lender’s ARV limit.

For example, Bekeza says his lender generally does not want that total loan amount to exceed 75% of the property’s ARV. That buffer gives the investor room to exit the loan by either:

·       Selling the renovated property

·       Refinancing into longer-term financing

For lenders, the relationship between LTC and ARV ultimately shows whether there is enough equity in the finished property to provide a reasonable path out of the hard money loan.

How to Present a Strong Deal to a Hard Money Lender

When approaching a hard money lender, investors should make the most important deal information easy to find. Bekeza recommends focusing on the numbers and details the lender actually needs rather than overwhelming them with unnecessary background.

A strong initial deal package should include:

·       Property address

·       Purchase or offer price

·       Renovation budget

·       Projected ARV

·       3-4 comparable properties

·       Investor track record

The property address allows the lender to quickly evaluate factors like location, zoning, and whether the property is in a rural or unusual market. The purchase price, renovation budget, and ARV then give the lender the basic numbers needed to evaluate the deal.

Comparable sales are especially valuable because they provide evidence for the projected ARV. In Bekeza’s words:

“Instead of just this optimistic expectation, show us the data.”

Bekeza recommends providing details such as the address, sale price, sale date, and MLS information for several similar properties. Investors should also provide a clear track record of previous rental properties, flips, or BRRRR exits when applicable. Together, these details create a cleaner submission package and allow the lender to evaluate the opportunity more quickly.

Using Hard Money for Fix-and-Flip Deals and BRRRR Deals

Hard money can support both fix-and-flip and BRRRR strategies. In either case, investors use short-term financing to acquire and renovate a property before exiting the loan.

For a fix-and-flip, that exit typically comes from selling the renovated property. With BRRRR, the investor instead rents the property and refinances into longer-term financing. Bekeza has used hard money throughout his own BRRRR portfolio:

“All 29 doors have been some type of BRRRR play, in which I utilized hard money on the front end.”

He shared one recent St. Louis deal as an example. The property was originally listed for $140,000 before Bekeza negotiated the purchase price down to $75,000. He then invested about $85,000 in renovations, bringing his total cost to roughly $160,000. After the renovation, the property appraised for $282,500.

Bekeza then refinanced at 70% of that and got a new loan for $197,750, which paid off his entire purchase costs, rehab costs, closing costs, and holding costs. That left him with a strong monthly DSCR > 1.4.

For BRRRR investors, this value creation is what can make the strategy work. If the finished property appraises high enough, investors may be able to refinance, repay the hard money loan, and recover some or all of their initial capital.

Planning Your Exit Strategy

Because hard money is short-term financing, investors should determine how they plan to repay the loan before closing on the deal.

The two primary exit strategies are:

·       Sell the property after renovations

·       Refinance the property into longer-term financing

For BRRRR deals, Bekeza recommends considering a debt service coverage ratio (DSCR) loan as the next stage of financing.

“I think a beautiful one-two punch is the hard money to the DSCR loan.”

DSCR loans qualify borrowers primarily based on a property’s rental income rather than personal income or tax returns. According to Bekeza, they may also offer more flexible title-seasoning requirements than conventional financing, allowing some investors to refinance out of hard money sooner.

The important part is having a realistic exit from the beginning. Investors should consider the projected property value, expected rent, refinance options, and timeline before committing to short-term debt.

Hard Money for Commercial Real Estate

Hard money is not limited to single-family homes or small residential properties. Investors may also use it for larger multifamily properties and certain commercial real estate deals, although financing tends to become more conservative as the property size and complexity increase.

Bekeza explains: 

“Everything we’ve been talking about so far is totally applicable to anything one to four unit residential, although we do also do these types of things on five plus.”

During the webinar, he shared an example involving a 90-unit apartment property purchased for $3.2 million. After roughly $300,000 in improvements and a management overhaul, the property appraised for $7.2 million, allowing the investors to refinance into longer-term multifamily financing.

Hard money may also be available for commercial properties such as:

·       Multifamily buildings with five or more units

·       Office properties

·       Industrial properties

·       Retail properties

However, commercial real estate hard money lenders may use stricter requirements than lenders financing smaller residential investments.

Commercial properties are also valued more heavily on their ability to generate income. For a commercial BRRRR, Bekeza notes that lenders may want to see at least 90 days of stabilized performance before refinancing, including evidence that rents are consistently coming in.

For investors considering commercial hard money, the same basic principle applies: the financing should support a clear plan to acquire or improve the asset and eventually transition into longer-term debt.

Final Thoughts

Hard money loans can give real estate investors access to deals that conventional financing may not accommodate, particularly when a property needs significant renovations or an investor needs to move quickly. Rather than viewing hard money only as expensive debt, Bekeza encourages investors to think about what the financing allows them to accomplish: 

“It’s a means to an end. It’s a bridge, if you will.” 

Ultimately, hard money is less about finding the lowest possible interest rate and more about determining whether the financing makes the overall investment work. When investors understand the costs and exit strategy upfront, hard money can provide the flexibility needed to turn distressed opportunities into successful real estate deals.

If you'd like to connect with Alex on DSCR loans, you can explore loan rates here (NMLS: 1711070) or reach out to him directly at alex@investorpropertyloan.com or (818) 606-8823.

FAQs

Are hard money loans a good idea?

Hard money loans can be a good option for investors who need fast, short-term financing for distressed or renovation-heavy properties. They are generally best when the borrower has a clear plan to sell or refinance the property.

What is the 70% rule for hard money loans?

The 70% rule suggests that an investor should pay no more than about 70% of a property’s after-repair value, minus renovation costs. It is a general investing guideline, not a universal hard money lending requirement.

How do I qualify for a hard money loan?

Qualification typically depends on the property, purchase price, renovation budget, ARV, credit score, available cash, and your investment experience. Hard money lenders usually focus less on personal income than conventional mortgage lenders.

How risky is hard money lending?

Hard money can be riskier than conventional financing because of its higher rates, short repayment periods, and potential fees. Investors can reduce that risk by budgeting conservatively and establishing a realistic exit strategy before closing.

What is an example of a hard money loan?

One example is an investor using short-term financing to purchase and renovate a distressed property, then selling it or refinancing into a long-term loan. In Bekeza’s webinar example, he purchased a property for $75,000, invested about $85,000 in renovations, and later received a $282,500 appraisal.