Hard Money at 12% or Conventional at 7%?
An estate-sale duplex with $40K of equity — but you can't close conventional in time. Hard money at 12% or wait for 7%? Martin breaks down the call.
You've got an off-market duplex under contract at $280,000 — an estate sale, priced to move. One unit is leased to a steady tenant at $1,400/month; the other sits vacant and needs roughly $20,000 of work to bring it back online.
You ran the comps twice. Renovated duplexes in this pocket — both units leased, nothing deferred — trade around $340,000. So the deal looks like this:
- Purchase price: $280,000
- Rehab (vacant unit): ~$20,000
- All-in cost: ~$300,000
- Renovated value: ~$340,000
- Equity created: ~$40,000
This is a real deal — the kind you don't see often and don't want to lose. Then you call your lender about the timeline.
Your conventional lender quotes 7% on a 25%-down investor loan — clean terms, the rate you want. But the file needs 55–60 days: appraisal queue, underwriting, the works.
The estate's agent mentions, not subtly, that a backup offer can close in 21 days.
A hard money lender can fund in nine days — but the terms are a different world:
- Conventional: 7%, ~$5,000 in closing — and a 60-day clock you don't have
- Hard money: 12% interest-only, 2 points, 6-month term — and a 9-day close
Speed is on the table. It just isn't free.
Offer conventional and ask the estate to wait 60 days. Lead with your strongest price and bet the heirs value a clean, certain number over a fast one. You protect the cheap rate — but if the backup buyer is real, you lose the deal.
Take the hard money and refinance in six months. Close in nine days, win the deal, renovate the vacant unit, and refi into the 7% conventional loan before the term runs out. You spend roughly $21,800 to capture about $40,000 in equity.
Take the hard money — but only after you've underwritten the exit. Hard money is fine if the refinance is already real: contractor booked to finish by month three, post-rehab appraisal confirmed to clear the payoff, term-extension fee priced as your downside. If the exit doesn't pencil, you're back to Option A.
The 12% Isn't the Risk. The Six-Month Clock Is.
Option B is the right instinct. Option C is the discipline that makes it safe.
Start with what hard money actually costs, because it's knowable to the dollar. On a $280,000 purchase, a hard money lender at 75% gives you a $210,000 loan. Two points is $4,200 up front. Interest-only at 12% is $2,100 a month — six months of that is $12,600. Add a second closing when you refinance into the conventional loan, call it $5,000. Total bridge cost: about $21,800.
Against the roughly $40,000 of equity this deal creates, that still nets you close to $18,000. The hard money pays for itself here. The 12% rate is not the problem — it never was.
Here's the problem. Option B says "refinance in six months" like it's a calendar reminder. It isn't. It's three separate things that all have to finish inside the term: the rehab on the vacant unit, a signed lease on it, and the seasoning-plus-appraisal your conventional lender requires. Hard money is a six-month loan. Your exit is a six-month project. There is no slack.
That's why Option C is the real answer — underwrite the exit before you sign the entry. Three checks, all of them before closing:
- Get the contractor on a written timeline that finishes by month three, not month five. Rehab runs long. Build the float in deliberately, because the calendar won't give it to you.
- Confirm the post-rehab value clears the payoff. Your conventional lender will lend 75% of appraised value. At a $340,000 renovated comp, that's $255,000 of capacity against a $210,000 hard money balance — comfortable. Confirm it with the lender; don't assume it.
- Price the extension. Hard money lenders extend — for a fee, usually another point or two. If a 90-day extension would erase your remaining $18,000, this deal was always thinner than it looked, and better to know now.
Option A — wait for the cheap conventional money — isn't wrong. It's just a different bet: that the estate picks your price over the backup buyer's speed. But heirs settling an estate aren't maximizing the last dollar. They're closing a chapter. Speed wins that table more often than price does. If you genuinely need this deal, don't stake it on a motivated seller patiently waiting two months for your underwriter.
So run B's instinct through C's checklist. Win the deal, pay the $21,800, and capture the equity — but only once you've proven the exit is a project you can finish, not a hope you're financing at 12%.
The investor who loses here isn't the one who paid 12%. It's the one who paid 12% and was still holding the hard money note at month seven.
- The cost of hard money is knowable to the dollar — points, plus interest-only payments, plus a second closing. On a $210,000 loan at 12% with 2 points, a six-month bridge runs about $21,800.
- Hard money's real risk isn't the rate — it's the term. A six-month loan with a refinance exit gives you no slack if the rehab, the lease-up, or the appraisal runs long.
- Underwrite the exit before the entry: a contractor timeline that finishes by month three, a post-rehab appraisal confirmed to clear the loan payoff, and a term-extension fee priced as your downside.
- Conventional money is cheaper but slow — a 55-to-60-day close loses deals to faster buyers, especially with motivated sellers who value certainty over price.
- A backup offer that can close fast is genuine leverage for the seller. Match the speed or expect to lose the deal, regardless of how strong your price is.
