What’s the Difference Between Hard Money and Cash?

When some people hear the words “hard money,” they assume that it means using cash to purchase real estate instead of a loan. However, hard money and cash are not the same thing. Hard money loans just work differently than traditional loans. Today, we’ll review whether or not hard money can be considered cash, the differences between hard money and cash, and how to choose the right financing method for your next investment. 

Contents of This Article: 

• What Is Hard Money?
• Is Hard Money Considered Cash?
• Differences Between Hard Money and Cash
• Pros and Cons of Cash vs. Hard Money
• How Will You Finance Your Next Investment?

What Is Hard Money?

Hard money is a type of short-term loan secured by real estate, usually used by investors for quick property purchases, renovations, or flips. Unlike traditional bank loans, which focus on the borrower’s creditworthiness, hard money loans are asset-based. This means Baltimore hard money lenders generally base their approval on the value of the property being used as collateral. 

Hard money loans differ from other loan types in many ways. For instance, lenders are typically private investors or companies, not traditional banks. This means that lenders can be flexible with their loan terms and conditions. These types of loans are also very short-term, usually 6 months up to 3 years, unlike traditional 15-to-30-year mortgage loans. 

Many investors like hard money loans because they’re reviewed and approved very fast–typically within a matter of days. However, they usually have much higher interest rates and require larger down payments than other loan types. Ultimately, hard money loans are ideal for investors who need fast funding and are okay with short-term, higher-interest financing. 

Is Hard Money Considered Cash?

No, hard money is not considered cash in a real estate transaction. Cash implies a certain amount of money that you have in your possession, in hand, and available to use to purchase real estate. Additionally, if you’re using cash, there’s no risk of a deal falling through, and you’ll likely close on a deal much quicker than with any other financing method. 

Although hard money loans can provide very quick funding, they’re still considered borrowed money that must be repaid with interest. 

That said, it may be possible to use a hard money loan for a “cash-only” real estate deal due to the speed of funding. Typically, lenders can fund these deals in just a few days. However, it’s not the same as using cash, as these loans are still subject to approval, inspection, appraisal, etc. 

Differences Between Hard Money and Cash

There are several differences between hard money and cash. For one, hard money is a loan from a private lender, whereas cash is liquid funds that a buyer or investor already has. Here are some of the main differences between the two. 

• Source of Funds- Hard money is borrowed from lenders and secured by real estate. On the other hand, cash comes directly from personal savings, business funds, or liquid assets.
• Repayment Obligations- Hard money must be repaid with interest or fees, typically within 6 months to 3 years. If you’re using cash, no repayment is needed. Once it’s gone, it’s gone.
• Approval Process- Using hard money requires approval from a lender. However, if you’re using your own cash, you can control how you spend it and how much of it you use.
• Cost of Financing- Hard money comes with high interest rates, usually around 8% to 15%, plus origination fees. When you use cash to buy real estate, there are no additional costs–just the purchase price.

Pros and Cons of Cash vs. Hard Money

If you’re considering whether you should use hard money or cash for your next investment, here are some pros and cons to think about. 

Pros of Using Cash

• No interest payments to worry about
• Gives you stronger negotiation power
• Allows you to close on deals much faster
• Gives you complete control over the investment property

Cons of Using Cash

• Using cash limits your ability to finance other properties
• Mortgage interest is tax-deductible, but cash purchases are not
• If you use all cash, your return is based only on appreciation and rental income, not leveraged gains. 

Pros of Hard Money

• Allows you to buy property while keeping cash for other investments
• Funding is faster than traditional loans
• Great for fix-and-flip investments where quick turnover is expected
• Lenders prioritize property value over borrower creditworthiness

Cons of Hard Money

• Interest rates are much higher than traditional loans
• Repayment is usually required within 6 months to 3 years
• If you default, the lender can seize the property
• Fees can add up, including origination fees, points, and closing costs

How Will You Finance Your Next Investment?

Hard money and cash are both great ways to invest in real estate. But what’s better? Ultimately, it’s up to you and your goals for your investment property. You know what they say–cash is king. However, using all cash to buy properties isn’t realistic for all people. That’s where hard money can come in handy!

If you’re looking for a reliable hard money lender for your next Baltimore investment, look no further than Maryland Hard Money Lenders. Our team of real estate loan professionals can help you get funded quickly and efficiently. Learn more about our lending process or fill out our initial loan application today!