Avoid These 5 Mistakes When Securing Hard Money
Hard money loans can provide incredibly fast access to cash when you need it most. However, because hard money loans are short-term and carry higher interest rates, the margin for error is slimmer. If you don't treat the process with professionalism, you risk losing the deal, or worse, your profit margin.
Owen Dashner and Chris Pomerleau of Liquid Lending Solutions have funded over 550 loans. They know exactly where borrowers trip up. Here are the five most common mistakes investors make when securing hard money, and how you can avoid them.
1. Underestimating Timeline and Holding Costs
Time is money, especially with hard money loans. A common trap for newer investors is being overly optimistic about how fast a contractor can finish a job.
As Owen Dashner explains, investors often "underestimate the amount of time it's going to take to get it done. And then by default, they're going to also underestimate the amount of holding costs that they're gonna have to incur."
The Fix
Build a buffer into your schedule. If your contractor says three months, budget for four. Ensure your profit margins can withstand an extra month or two of interest payments.
2. Shooting Too High on the ARV
It's so tempting to look at the most expensive house in the neighborhood and assume your property will sell for the same price. However, relying on hopeful numbers rather than hard data is a recipe for disaster. Lenders will critically examine the After Repair Value (ARV). If your numbers are inflated, you won't get funded.
"Shooting too high on the after-repair value comparables is probably the biggest red flag that you can think of when you're talking about buying a flip," Owen notes.
The Fix
Run honest comps. Look at what has actually sold in the last 90 days, not just active listings. If you have a real estate agent selected to help you sell your finished product, have them run a market analysis to support your projects. This ensure both you and your agent are on the same page.
3. Lacking a Concrete Business Plan
Hard money is expensive capital designed for speed. It is not meant for long-term holds without an exit strategy. Are you flipping it? Are you refinancing into a conventional mortgage?
Chris Pomerleau puts it bluntly: "If you plan on borrowing from us and then running your business plan for 18 months at 19%, that's not a good plan. That's not how you should conduct the business."
The Fix
Have your contractors lined up and materials ordered before closing. Every day the property sits idle is profit leaking away.
4. Being Disorganized With Documentation
Real estate is a document-heavy business. One of the biggest friction points for lenders is when a borrower brings a great deal to the table but has zero paperwork ready. If you want to close in 48 to 72 hours, you can't scramble for tax returns or entity documents at the last minute.
The Fix
Create a lending packet now. Include your LLC operating agreement, EIN letter, recent bank statements, and a bio of your real estate experience. "Get your house in order and have everything ready to go in a simple share drive like Dropbox," Owen advises. When a deal pops up, you can send the link instantly.
5. Poor Communication With the Lender
Hard money lenders are partners, not just banks. They want the deal to close just as much as you do. However, if there are title issues or document delays, going silent is the worst thing you can do.
Owen recalls a recent deal in Des Moines that fell apart because the borrower went dark. "We were getting a lot closer to the closing time, and we were just not getting any communication from the borrower... and unfortunately, the buyer wasn't able to get the deal done."
The Fix
Be responsive. "Get your lender what they need quickly so they can get you the money you need quickly," says Owen.
Start Preparing Early
Hard money is a powerful tool for scaling a real estate business. It allows you to compete with cash buyers and move with agility. However, it requires discipline. When you treat the lender like a partner and the loan like a serious business commitment, you unlock the ability to do more deals and build wealth faster.
