Real Estate, Lending, Financing

House Flipping Part 3: Hard Money Lenders

Budgeting for a flip with hard-money lending.

Image courtesy of Midjourney AI, via the prompt “colorful illustration of a cat standing proudly in front of his newly-constructed modern home — ar 2:1 — s 250 — v 6.0”. Note: While I leverage AI for artwork, as I really love playing with Midjourney, I never use AI in my writing.

Today I wanted to chat about hard-money lenders a bit. If I do indeed take on a home flip project, I think I might use a hard-money lender. The easy way to remember what this means is to think of the “hard” (as in real, tangible, valuable, etc.) asset involved — the property itself.

Such lenders basically consider the property to be the collateral for the loan, rather than leaning more on the borrower’s income as is done in traditional lending. But you can also think of the term “hard” to reflect stricter terms (higher interest rates, shorter terms, less flexibility, etc.).

Before I get into this, I want to note that one can certainly get into flipping via other types of financing. But, I kind of like the convenience of hard money lending, even amid the “hard” aspects of it all.

And that said, one needs to budget for these things, right? So, let’s get into the various costs involved in hard-money lending. For me, those costs are:

• loan origination fees — generally I’m seeing around 2% here
• service fees — I’m not sure exactly at the moment what these fees cover, but I’ve seen various amounts, so I’m budgeting $1,500 currently