Turning Terms into Returns — Part 1: Understand the Variables
Hard money loan terms vary more than most investors realize — and the differences compound. Two lenders offering the "same" loan on the identical property can produce dramatically different cash-out-of-pocket requirements, monthly carry obligations, and ultimate returns. Understanding the variables isn't just useful. It's the difference between accurately evaluating a deal and flying blind.
This is the first in a series of deep dives into the variables of investor lending — how they work, how they interact, and how mastering them leads to better decisions at the closing table.
The Variables
Max % Lend on Purchase
How much of the purchase price the lender will fund. This number directly determines your down payment.
Max % Lend on Rehab
How much of your rehab budget the lender will fund. Many lenders go to 100% — but other caps frequently limit what you actually receive.
Max % Loan to ARV
The most universal cap in hard money lending. The total loan cannot exceed a set percentage of the property's after-repair value, regardless of what the purchase and rehab percentages suggest.
Max LTV
Some lenders apply an overall cap against total project cost that creates a sliding scale effect — as your rehab budget grows, the percentage available for the purchase loan quietly shrinks. This is one of the least understood variables in investor lending.
Points
One percent of the loan amount, paid at closing. How points interact with your interest rate and hold time determines your true cost of capital — not the rate alone.
Points Deferred
Points rolled into the payoff balance instead of paid at closing. Lower upfront cost, higher total cost. The right choice depends entirely on your cash position and hold time.
Interest Rate
Typically 10–15% in today's market. Important — but only one piece of the picture. Rate without context tells you very little.
Interest Deferred
No monthly payments; interest accrues and is paid at payoff. On longer projects, deferred interest can significantly improve cash-on-cash return by reducing out-of-pocket carry during the hold.
Drawn Funds Only
Some lenders charge interest on the full loan amount from day one. Others charge interest only on funds as they are disbursed. On large rehabs with extended permitting phases, the difference in total interest paid can be substantial.
Appraisal Required
Typically $600–$800 and can add a week or more to your closing timeline. On competitive deals, that week can cost you the property.
Draw Fees
$150–$300 per disbursement. The draw process varies widely across lenders — some have fast approval systems, others move slowly. Speed matters when contractors are waiting.
Doc Prep Fees
A fixed fee typically ranging from $995–$1,995 that does not scale with loan size. On smaller deals, this becomes a disproportionately large percentage of your total cost.
Why the Interactions Matter
None of these variables exist in isolation. A lender offering a lower rate may charge higher points. A lender funding 100% of rehab may apply an ARV cap that limits your actual loan. Deferred interest looks attractive until you model the payoff balance against your net profit. The only way to evaluate a loan accurately is to run all variables together against your specific deal — not compare rate sheets line by line.
That's exactly what the rest of this series does.
What's Coming
Over the next several posts we'll break down each variable in detail — with real numbers, real scenarios, and side-by-side comparisons showing how the same deal looks under different lender structures.
RE Data Metrix models all of it automatically. Enter a lender's full term sheet and the platform calculates every variable instantly, across multiple lenders side by side — so you can see the real cost of each loan before you sign anything.