4 Ways to Use Hard Money & Private Financing for Your Rental Business

by | BiggerPockets.com

Part of my growth as a real estate investor has come in understanding the many various ways I can use OPM (other people’s money) to grow MOP (haha, not that we use this term, but… MY OWN PORTFOLIO!). There are a million ways (well, close to it anyway) that you can fund real estate deals.

OPM is such a vital part of growing your portfolio that it’s crucial you understand how to see deals in different ways. For this post we are going to spend some time thinking about rental deals and different ways you can structure them with the use of OPM for YOP (your own portfolio).

4 Ways to Use Hard Money & Private Financing for Your Rental Business

1. Hard/Private Money Front-End Finance

If you are buying a property that is in need of a lot of work, you may need to be a cash buyer, or at least not need to have a financing contingency in your offer. We use hard money all the time to buy our rental properties. This is very useful because we are able to buy whatever deals we want to, whether they are cash only purchases or not.

Another great reason for using this kind of transaction is because you won’t need to go through a long, drawn out process with the bank, between appraisals and an inspection (which most likely will kill your deal if there is a lot of work or it doesn’t meet traditional financing criteria). The hard or private money lender will generally lend on the value of the property, its ARV (after repair value), or what it will rent for.

Related: 8 Things The Real Estate Experts Won’t Tell You About Hard Money

Remember, in this kind of scenario, your costs of money will be lower because you are bringing the rehab costs to the deal, or at least part of them. So you are paying less for the financing because it’s a lower loan amount, but you ARE bringing money out of your pocket for the rehab. If it’s a $30k purchase and $10k to rehab, you need to be prepared to have the cash to pay as the work is completed.

2. Hard/Private Money Upfront Finance Including Rehab Funds

This idea goes along with option number one. If you are buying a house with LTVs that meet the hard money/private lender criteria, and especially once you have had several of these under your belt, have your numbers down and have established a relationship and trust with your lender, you can get nearly all or all of your funds needed for the rehab upfront with no money out of pocket.

For me, I send a spreadsheet with the approximate costs for the purchase, holding, and rehab, and these funds are available for me after closing to complete the rehab on the property. Every lender works a little differently, and it’s important to understand how each party works in the transaction upfront.

Think through and talk through each other’s expectations, costs, timeframe, and above all, exit strategy for the funds to be repaid.

So you’ve gone through and put together a totally awesome rental house, gotten everything together, the rehab and make ready work are done, the house is ready to rent or already rented… what do you do now?

Unless you are paying cash afterwards, you need to be able to have back end financing for your deal. There are a few routes you can go with the financing; again, just be prepared to know how to move from the short term funds to the long term funds. Here are two examples of what I use:

3. Hard Money Front-End/Private Money Back-End Financing

In this scenario I use the hard money upfront, funding nearly all or all of the upfront costs of the rehab. This way I have control of the house and get the rehab done with little or no money out of my pocket. Once the rehab is done and the house is ready to rent or already rented (lenders love to see the house rehab well done and the house rented), you let your back-end lender know you’re ready.

One of the people I use looks at a CMA and wants the basic rent of the area, a workup of the property, and its projected cash flow after all expenses. Another one knows the area pretty well, wants to know what we are all in for, what the ARV is, and that’s pretty much it.

Some lenders want to see a full or drive-by appraisal of the property. Each lender is a bit different; just know what they are looking for, and prepare your property, your pocketbook, and your efforts for whatever they are asking for.

So, let’s say the back-end lender funds up to 65% LTV, and our ARV is $70k. That means the lender will loan up to $45,500. Let’s say we are all in our property for $48,000, including our hard money costs, so we would need to bring the closing costs of the second transaction (if it’s a full closing with title insurance, etc.), plus the difference of the hard money loan.

(For the example, I am not adding anything with our closing costs for the second transaction for simplicity.)

$48k – $45,500 = $2,500.

In this scenario, for an asset worth $70k, with $45,500 financed, that would rent for $800-900 monthly, I would be out of pocket $2,500.



The wonderful thing about private financing is how easy it is to work with a private money lender. The downside is that you may pay points and have a higher interest rate than you would at a bank.

4. Hard Money Front-End/Bank Loan Back-End

In this scenario, we have done everything we talked about in option 3, except now we go with a bank loan instead of a private lender loan. I have a wonderful community bank that I work with, and they will loan up to 65-70% LTV, but they require we have a certain percentage into the deal of our own funds. The costs upfront in regard to points are usually lower, and the interest rates are significantly lower.

Related: How to Expand Your Real Estate Portfolio Using Hard (or Private) Money

However, remember in this scenario, if they require we have 20% or our own funds into the deal, we would need to have 20% of the $48k all in number — so we would need to be able to come up with:

$48k * 20% = $9,600 out of pocket, plus any other bank closing fees.

Now, that comes off the loan balance, leaving us with $48k – $9,600 = $38,400 loan balance (which is close to a 50% LTV), but it also means we have to be able to come up with nearly $10k at close.

Not all banks require that, but just KNOW what you are getting into before you are a day or two from closing and have thousands of dollars to come up with that you aren’t prepared for!

There are many ways you can finance your rental properties. What is the way that is working best for you, and why did you chose that path? 

Leave your comments below, and let’s talk!

About Author

Nathan Brooks

Nathan Brooks is the co-founder and CEO of Bridge Turnkey Investments, a Kansas City-based company renovating and selling more than 100 turnkey properties per year. With over a decade of experience in real estate, Nathan is a seasoned investor with a large personal portfolio and a growing business portfolio. Just last year, through Bridge Turnkey Investments, he helped investors add over $12 million in value to their real estate portfolios. Nathan regularly produces educational content to fuel his passion for helping other people learn about and find success in real estate investing. He has been featured regularly on industry podcasts such as the BiggerPockets Podcast, Active Duty Passive Income Podcast, Freedom Real Estate Investing Podcast, Fearless Pursuit of Freedom Podcast, Titanium Vault, The Real Estate Investing Podcast, The Best Real Estate Investing Advice Ever Show, the Good Success Podcast, FlipNerd, Wholesaling Inc., The Real Estate Investing Profits Master Series, Flipping Junkie Podcast, Flip Empire podcast, Think Realty Radio, and more. He is a sought-after speaker and writer and can be found on stage regularly at events across the country.


  1. Jarred Sleeth

    Great post, Nathan. A few things I wanted to note about getting a bank on the back end. Banks usually require minimum of 1 year (sometimes 2 year) seasoning period on these properties, and a maximum of 10 financed properties. That would leave you with things getting done very very slowly.

    How do you go about option 3? Where do you find private lenders to finance a traditional type of mortgage term?

  2. phil harris

    What about turnkey properties? These scenarios are fine for rehabs and such, but my strategy is to buy and hold. I have not built a team yet to get rehabs done. Even if I did have a team, I would still want to be in control of the mgmt. Rehab work is in my future, but not right now.

  3. Jacob Gish

    Thanks for your post. The main reasons I’m interested in private and/or hard money loans is their speed versus banks. As long as the numbers work out in the black paying points and extra percentages is worth it to me.

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