BRRRR Analysis: Hard Money vs Private Money (True Cost Comparison)

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 the BRRRR method, and both have real costs that eat into your returns. In the worked example below, the same $150,000 purchase with a $40,000 rehab costs $15,875 to finance for six months with hard money and $10,500 with private money, and the hard money version needs $10,775 more cash at closing. Private money is usually cheaper. 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.

Terms move with the rate environment and vary by lender, so treat the following as the ranges I commonly see quoted, not as today's price sheet:

• Interest rate: 10% to 14% annually
• Points: 2 to 4 points, paid at closing
• LTV/LTC: 70% to 85% of purchase or after-repair value
• Term: 6 to 12 months
• Draw fees: $150 to $300 per inspection
• Extension fees: 1 to 2 points if you need more time

Here is what that 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. In this example the lender offers 85% of purchase and 100% of rehab, at 12% interest and 3 points.

You need $22,500 down ($150,000 minus $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% to 20% equity through the BRRRR, that financing cost is a meaningful chunk of your margin.

One simplification to know about: the interest line charges 12% on the full $167,500 for all six months. Many hard money lenders only charge interest on rehab funds as they are drawn, which would bring the real number down somewhat. Others charge on the full committed amount from day one. Ask which, because on a long rehab it matters.

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:

• Interest rate: 8% to 12% annually
• Points: 0 to 2 points
• LTV: Negotiable, sometimes 100% of purchase
• Term: Flexible, often 6 to 18 months
• Draw process: Usually simpler or nonexistent
• Extension terms: Negotiable

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.

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, even though the private loan is $7,500 larger.

The True Cost Comparison

Here's the side-by-side on this specific deal:

The effective annual rate takes every dollar of financing cost (points, interest, and fees), divides by the loan amount, and annualizes it for the six months the money was out. This is the number that matters when comparing financing options. Hard money at "12% interest" with 3 points and draw fees on a 6-month loan costs you closer to 19% annually. The private loan, at 10% plus 1 point, works out to 12%.

What Happens If the Project Runs Long

Points are a fixed cost, so the longer you hold the loan, the less they matter per month and the more the interest rate matters. Extension fees work the other way. Here is the same pair of loans carried for nine months instead of six, assuming the hard money lender charges a 1 point extension fee on top of three more months of interest, while the private lender extends for no fee.

The gap widens from $5,375 to $7,700. Three extra months cost $6,700 with the hard money loan and $4,375 with the private loan. A rehab that runs over on time usually runs over on budget too, and I cover that side of the problem in how to analyze a BRRRR deal when contractors quote 30% over budget.

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 often close in one to two weeks, and faster 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 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 a 12% effective cost of money but not at 19%. Private money can be the difference between a deal that leaves you with equity and cash flow and one that doesn't. If your purchase price was set with the 70 percent rule, remember that the 30% cushion has to absorb financing costs along with everything else.

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 at once. 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:

• Professionals with high incomes and savings (doctors, lawyers, engineers)
• Retirees with IRA money sitting in low-yield funds
• Small business owners who've sold companies
• Other real estate investors who want passive deals
• Family members with liquidity

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. Raising money from individuals can bring securities rules into play depending on how you structure and advertise it, so have a real estate attorney set up your first loan documents.

BiggerPockets has a solid overview of hard money lending 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. The 3 points are a fixed 3% of the loan, and the 2 point rate advantage only earns that back at a pace of 2% per year, which takes a year and a half. 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, the appraisal comes in low, or the refinance takes longer than expected. Having skin in the game protects you from worst-case scenarios.

Forgetting that the refinance has to pay this loan off. In the private money example you owe $175,000. A 75% LTV refinance on the $240,000 ARV produces a $180,000 loan, which clears the debt with $5,000 to spare before refinance closing costs. If the appraisal lands at $225,000, the new loan is $168,750 and you are writing a check for $6,250 just to pay off your lender. Higher leverage going in means less room for error coming out. I model that exit in detail in the BRRRR refinance rate modeling post.

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 has a BRRRR mode that 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. Whatever the acquisition loan costs ends up in your all-in basis, which is why it shows up again in how much money gets left in the deal at 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.