Are Hard money lenders making more money off flipping than the flippers themselve?

[James McGovern]

At a recent meetup, I heard several individuals complain that hard money lenders are making more profit than they are. It is easy to respond that they are not purchasing the property at an extreme enough discount but think there is more at play than that

[Eric N.]

Quote from @James McGovern:

At a recent meetup, I heard several individuals complain that hard money lenders are making more profit than they are. It is easy to respond that they are not purchasing the property at an extreme enough discount but think there is more at play than that

1. A 10% rate for a hard money loan (HML) is actually very reasonable when you understand the nature of the risk and structure involved. That 10% is a ballpark figure—some deals are a bit lower or higher—but it provides a simple reference point.

Let's compare it to a 7% qualified mortgage and consider the broader picture. Hard money lenders are not dealing with traditional, low-risk borrowers. They're lending fast, often based on asset value alone, with minimal paperwork and underwriting. The borrower might not show income, have poor credit, or be taking on a heavy rehab. Why would any rational lender take significantly more risk for the same or lower returns than a bank would get with a fully qualified W2 borrower with a perfect credit score and documented DTI? They wouldn't—and shouldn't.

2. It's a flawed mindset to count the money others make. If I flip a house and a wholesaler brings me a deal at $100K—one I believe has solid ARV, offered to me at 70% of ARV minus repairs—I don't care whether they make $1K or got the property for free and will make $100K. If it fits my buy box, I buy it. Period. What they make is irrelevant to my bottom line.

I also see this mindset come up often when dealing with sellers. A distressed property owner in urgent need of cash will be thrilled to get a signed contract—until they later find out the wholesaler stands to make a profit by assigning that contract. Suddenly, what was a voluntary agreement becomes a source of resentment. Some sellers even try to back out, go directly to the end buyer to cut the wholesaler out, or fabricate claims to invalidate the contract—all because they feel the wholesaler's profit is "unfair."

But the reality is: no one forced them to accept the offer or sign the purchase agreement. If they wanted to find a buyer directly and avoid working with a middleman, they could have pursued that route. The moment they agreed to the deal, it became a business transaction—not a partnership. What the wholesaler earns should not be their concern.

This mindset of counting money in someone else’s pocket is not only misguided, but also a fundamentally unfair and counterproductive approach to doing business. In my opinion, it reflects a lack of accountability and understanding of how value and service work in real estate.

3. Too many flippers get excited and overpay, then blame lenders or wholesalers when their deals fall apart. That’s not on the lender. That’s on the buyer. You make money when you buy, not when you sell. Do your due diligence, stick to your buy box, and be honest to yourself about your margins.

4. From a lender's perspective, if I can get 10% lending to real estate investors—secured by real estate I underwrite myself—why would I go lower? Especially when 7% loans to qualified borrowers come with far less risk and much more red tape. If I had to accept 7% or less as an HML, I'd stop lending and put my money elsewhere.

Bottom line: flippers need to focus on their numbers, not others’ profits. And if a lender is earning 10%, it's because the risk justifies it—and because they provide the speed and flexibility traditional lenders don’t.