Hard money is a type of alternative financing that is often used by investors to purchase and renovate distressed properties. It is called "hard money" because it is backed by the value of the property being purchased, rather than the borrower's creditworthiness.
Here is an example of how hard money might be used:
Imagine that you are an investor who is looking to purchase a distressed property that needs significant renovations. You find a property that you believe has a lot of potential, but you don't have the cash on hand to purchase it outright and you don't qualify for a traditional bank loan.
In this situation, you might decide to use a hard money lender to finance the purchase and renovations. The hard money lender will assess the value of the property and provide you with a loan that is secured by the value of the property. You will then use the loan to purchase the property and fund the renovations.
Once the renovations are complete and the value of the property has increased, you can either sell the property to pay off the hard money loan or refinance the loan into a more favorable financing option, such as a traditional mortgage.
This is just one example of how hard money might be used, but there are many other potential uses as well. If you're considering a hard money loan, it's important to carefully review the terms of the loan and to understand how it will work in your specific situation.