You found a property that hits your BRRRR numbers. The ARV supports your purchase price, the rehab scope is manageable, and the rental comps are strong. Now you need to figure out how to pay for it.
For most investors, that choice comes down to hard money or private money. Both work for BRRRR. Both have real costs that can eat into your returns. The difference isn't as straightforward as "private money is cheaper" (though it often is). The real question is which one makes sense for your specific deal, your timeline, and your network.
What Hard Money Actually Costs
Hard money lenders are professional operations. They have underwriting processes, draw schedules, and standardized terms. That infrastructure costs money, and you're paying for it.
A typical hard money loan in 2024 looks something like this:
Let me show you what this actually costs on a deal.
Hard Money Example: $150,000 Purchase
You're buying a property for $150,000 that needs $40,000 in rehab. ARV is $240,000. The lender offers 85% of purchase and 100% of rehab.
| Item | Amount |
|---|---|
| Loan amount (purchase) | $127,500 |
| Loan amount (rehab) | $40,000 |
| Total loan | $167,500 |
| Points (3 at closing) | $5,025 |
| Interest (12% for 6 months) | $10,050 |
| Draw fees (4 draws × $200) | $800 |
| **Total financing cost** | **$15,875** |
You need $22,500 down ($150,000 - $127,500) plus $5,025 in points at closing. That's $27,525 out of pocket before you spend a dime on holding costs or closing costs.
After six months, you've paid $15,875 to borrow money. That's 9.5% of your total loan amount, or about 6.6% of your ARV. On a deal where you're targeting 15-20% equity through the BRRRR, that financing cost represents a meaningful chunk of your margin.
What Private Money Actually Costs
Private money comes from individuals: your dentist, a former coworker, someone you met at a real estate meetup, or a family member with retirement funds sitting in low-yield accounts. These aren't professional lenders. They're people looking for better returns than their savings account provides.
Private money terms vary wildly because you're negotiating directly with another person. Here's a typical range:
The spread in terms reflects the relationship. A close friend might lend at 8% with no points. Someone you just met at a REIA meeting might want 12% and 2 points because they don't know you yet.
Private Money Example: Same $150,000 Deal
Same property, same numbers. Your private lender offers 90% of purchase at 10% interest with 1 point. They'll fund 100% of rehab.
| Item | Amount |
|---|---|
| Loan amount (purchase) | $135,000 |
| Loan amount (rehab) | $40,000 |
| Total loan | $175,000 |
| Points (1 at closing) | $1,750 |
| Interest (10% for 6 months) | $8,750 |
| Draw fees | $0 |
| **Total financing cost** | **$10,500** |
You need $15,000 down plus $1,750 in points. That's $16,750 out of pocket, compared to $27,525 with hard money.
After six months, you've paid $10,500 in financing costs versus $15,875. That's $5,375 more profit in your pocket. On this deal, private money saves you 34% on financing costs.
The True Cost Comparison
Here's the side-by-side on this specific deal:
| Metric | Hard Money | Private Money | Difference |
|---|---|---|---|
| Cash needed at closing | $27,525 | $16,750 | $10,775 less |
| Total financing cost | $15,875 | $10,500 | $5,375 less |
| Monthly carrying cost | $1,675 | $1,458 | $217 less |
| Effective annual rate | 19% | 12% | 7% less |
The effective annual rate accounts for points amortized over the loan term plus interest. This is the number that matters when comparing financing options. Hard money at "12% interest" with 3 points on a 6-month loan actually costs you closer to 19% annually.
When Hard Money Makes More Sense
Despite the higher costs, hard money wins in certain situations.
Speed matters more than cost. Hard money lenders can close in 7-14 days. Some can close in 48 hours if you have a relationship. Private lenders, especially first-time ones, might need weeks to move funds from retirement accounts or coordinate with their attorney. If you're competing for a deal and the seller wants to close fast, hard money gets you there.
You don't have private lenders yet. Building a private lending network takes time. You need to have conversations, build trust, and prove you can execute. Hard money is available now, to anyone who can demonstrate a viable deal. Your first BRRRR might need hard money simply because you haven't built relationships yet.
The deal needs professional oversight. Some investors actually want the draw inspection process. It forces discipline and provides documentation. If you're working with a new contractor, having a third party verify work completion can prevent disputes.
Rehab scope is uncertain. Hard money lenders have seen thousands of deals. They can spot problems in your scope of work that you might miss. Private lenders trust your judgment entirely, which is great when you know what you're doing and risky when you don't.
When Private Money Makes More Sense
The numbers are tight. Some deals work at 10% financing cost but not at 16%. Private money can be the difference between a deal that cash flows and one that doesn't. On properties where your margins are thinner, the cost savings directly impact whether you should buy.
You need flexible terms. Rehab taking longer than expected? Private lenders are often willing to extend without penalty if you communicate. Hard money lenders charge extension fees because that's their business model. When uncertainty is high, flexibility has real value.
You're doing volume. Once you've proven yourself to a private lender, they often want to do more deals. A lender who starts with one $150,000 loan might eventually fund three or four deals simultaneously. That's hard to replicate with institutional hard money, where each deal gets underwritten separately.
The property doesn't fit hard money boxes. Hard money lenders have criteria. They might not lend on mobile homes, properties in certain zip codes, or deals below their minimum loan amount. Private lenders evaluate you and the deal, not checkboxes.
Finding Private Lenders
The question I get most often is "where do I find private lenders?" The honest answer: you already know them.
Private lenders are people with capital looking for yield. That includes:
You find them by talking about what you do. Not pitching, just talking. When someone asks what you're working on, tell them. "I buy houses that need work, fix them up, and rent them out." Some percentage of people will ask follow-up questions. A smaller percentage will eventually ask how they can participate.
BiggerPockets has a [solid overview of hard money lending](https://www.biggerpockets.com/blog/hard-money-loan) that covers the institutional side if you want to understand how professional lenders think about risk.
Mistakes That Cost You Money
Comparing interest rates without including points. A 10% loan with 3 points costs more than a 12% loan with no points on any loan under 18 months. Always calculate total cost, not just the rate on the term sheet.
Not negotiating with hard money lenders. Many investors assume hard money terms are fixed. They're not. If you've done deals before, if you're bringing a strong deal, or if you're willing to put more down, you can negotiate better terms. I've seen investors knock a point off just by asking.
Over-leveraging with private money. Because private lenders are more flexible on LTV, some investors borrow 100% of everything. This works until something goes wrong. Rehab runs over budget, ARV comes in low, or the refinance takes longer than expected. Having skin in the game protects you from worst-case scenarios.
Burning private lender relationships. A hard money lender who has a bad experience with you just won't lend to you again. A private lender who has a bad experience talks to other potential private lenders in your network. One blown deal can cost you access to private capital for years. Communicate constantly, especially when things go wrong.
Structuring Private Money Deals
If you're new to private money, here's a basic structure that protects both parties:
Security: The loan is secured by a first-position lien on the property. Record the mortgage or deed of trust.
Promissory note: Document the terms in writing. Interest rate, payment schedule, maturity date, default provisions.
Title insurance: Lender gets a policy protecting their lien position.
Hazard insurance: Property is insured with lender listed as loss payee.
Personal guarantee: You guarantee the loan personally, not just through an LLC.
This structure gives private lenders the same protections that hard money lenders build into their loans. It makes sophisticated lenders comfortable and protects unsophisticated lenders from themselves.
Running the Numbers on Your Deal
The right financing depends on your specific deal. A property with 30% built-in equity can absorb higher financing costs. A property with 15% built-in equity needs cheaper money to work.
> True Financing Cost = Points + (Interest Rate × Loan Term) + Fees
Run this calculation for every financing option. Then ask yourself: does the cheaper option come with strings attached that matter for this deal?
If you're analyzing a BRRRR deal and want to see how different financing scenarios affect your returns, the [single family rental calculator](/tools/single-family) lets you model hard money, private money, or conventional financing side by side. Plug in your actual numbers and see what the carrying costs do to your cash-on-cash return after the refinance.
The best BRRRR investors I know use both financing types. Hard money when speed matters or relationships aren't there. Private money when margins are tight or they need flexibility. The choice isn't which one is better. The choice is which one is better for this specific deal.