Hard Money Loans Australia: Complete Guide to Private Money Lending 2025

Hard money loans (also called private money loans) are short-term, asset-based loans provided by private lenders. Popular with property investors, developers, and borrowers who can't access bank finance, hard money focuses on property value over borrower credit.

What is a Hard Money Loan?

A short-term loan secured by property, funded by private lenders:

Key characteristics:

• Asset-based: Loan based on property value, not borrower income
• Short-term: Usually 6-24 months
• Fast approval: 3-10 days typical
• Higher rates: 10-18% p.a. (vs banks 6-7%)
• Flexible criteria: Credit issues OK
• Exit strategy focused: How will you repay?

Common uses: ✅ Property flips (buy, renovate, sell) ✅ Development bridging finance ✅ Quick settlements (auction purchases) ✅ Bad credit borrowers ✅ Time-sensitive opportunities ✅ Refinance to avoid foreclosure ✅ Business requiring fast capital

Why "hard money":

• Originally meant "hard asset" (property)
• Secured by tangible real estate
• Not unsecured "soft" lending

Hard Money vs Bank Loans

Hard Money Advantages

vs Traditional Banks:

✅ Speed: 3-10 days vs 4-8 weeks ✅ Credit flexible: Bad credit OK ✅ Income flexible: No tax returns needed (sometimes) ✅ Asset-focused: Property value matters most ✅ Creative structures: Can do deals banks won't ✅ Short-term solution: 6-24 months typical

Hard Money Trade-Offs

Costs more: **Higher rates: 10-18% vs 6-7% bank **Higher fees: 2-5% line fee vs 0-1% **Lower LVR: 60-75% vs 80-95% **Shorter term: Must refinance or exit

When it makes sense despite costs:

• Speed critical (auction, foreclosure)
• Bank declined (credit, income)
• Renovation opportunity (add value quickly)
• Development (short-term bridge)
• Time-sensitive deal

Hard Money Loan Rates & Costs 2025

Rates vary by LVR and risk:

Interest Rates

By LVR tier:

• 60% LVR: 10-12% p.a.
• 65% LVR: 11-14% p.a.
• 70% LVR: 13-16% p.a.
• 75% LVR: 15-18% p.a.

By loan purpose:

• First mortgage: 10-14% p.a.
• Second mortgage: 13-18% p.a.
• Development: 12-18% p.a.
• Vacant land: 14-18% p.a.

Fees & Costs

Upfront costs:

• Establishment fee: 1-3% of loan amount
• Line fee: 2-5% of loan (interest reserve)
• Valuation: $300-$2,000
• Legal fees: $1,500-$5,000
• Application fee: $500-$2,000

Ongoing costs:

• Monthly interest: On drawn amount
• Account fees: $0-$50/month (some)

Exit costs:

• Discharge fee: $500-$1,500
• Early repayment: Often no penalty (confirm!)
• Break costs: If fixed rate

Total upfront: 3-8% of loan amount

Example $500,000 loan:

• Establishment: 2% = $10,000
• Line fee: 3% = $15,000
• Valuation: $800
• Legal: $3,000
• Total upfront: $28,800 (5.8%)
• Monthly interest @ 12%: $5,000/month

How Hard Money Loans Work

Lending Criteria

What hard money lenders care about:

1. Property Value (Most Important)

• Current market value
• After-repair value (ARV) if renovating
• Location and salability
• Condition and type

2. Equity/LVR

• Maximum 60-75% LVR
• Need 25-40% equity
• More equity = better rate

3. Exit Strategy

• How will you repay?
• Sale, refinance, or business cash?
• Realistic timeline
• Market conditions

4. Borrower Experience (Secondary)

• Property investment history
• Business track record
• Past deals completed

5. Credit (Least Important)

• Bad credit usually OK
• Recent bankruptcy may be OK
• Defaults generally accepted
• Must be explainable

Loan to Value Ratios

Maximum LVR by property type:

Residential property:

• Owner-occupied: 70-75% LVR
• Investment: 65-75% LVR
• Vacant land: 50-65% LVR

Commercial property:

• Tenanted commercial: 65-70% LVR
• Vacant commercial: 50-65% LVR
• Development site: 55-70% LVR

Renovation/flip:

• Purchase price: 65-70% LVR
• Purchase + reno (ARV): 70-75% of ARV

Example:

• Property value: $600,000
• Maximum loan @ 70%: $420,000
• Required equity: $180,000 (30%)

Loan Terms

Typical terms:

• Duration: 6-24 months (most common 12 months)
• Repayment: Interest-only
• Principal: Paid at end (balloon payment)
• Extension: Usually available (fee + rate review)

Example 12-month loan:

• Loan: $400,000 @ 12% p.a.
• Monthly payment: $4,000 (interest only)
• At month 12: Pay $400,000 principal + final interest

Refinance/exit:

• Month 6-9: Start arranging bank finance
• Month 12: Refinance to bank loan (7%)
• Or: Sell property and repay

Common Hard Money Loan Uses

1. Property Flips

Buy, renovate, sell strategy:

Timeline:

• Week 1: Buy property with hard money
• Week 2-16: Renovate property
• Week 17-24: Market and sell
• Week 25: Settlement, repay loan

Example:

• Purchase: $450,000 (70% LVR loan = $315,000)
• Your deposit: $135,000
• Renovation: $80,000 (from loan or cash)
• Sell for: $650,000 (6 months later)
• Profit: $650k - $450k - $80k - $30k interest/fees = $90k

Why hard money:

• Fast approval to secure deal
• Bank won't lend on unrenovated property
• Short holding period suits
• Exit via sale, not refinance

2. Development Bridging

Bridge gap while development approved:

Scenario:

• Bought development site: $800,000
• Need DA approval: 6-12 months
• Bank won't lend until DA approved
• Use hard money to purchase
• Refinance to development loan once approved

Why hard money:

• Secure site now
• Work on approvals
• Refinance later to cheaper debt

3. Auction Purchases

Fast settlement required:

Challenge:

• Won auction
• Settlement in 30 days
• Bank can't approve in time

Solution:

• Hard money loan (approved in 7 days)
• Settle on property
• Refinance to bank within 3-6 months

Cost vs benefit:

• Extra cost: 5-7% (fees + 3 months higher interest)
• But: Secured property worth purchasing

4. Foreclosure Prevention

Avoid losing home:

Scenario:

• Behind on mortgage payments
• Bank threatening foreclosure
• Can't refinance (arrears, credit)
• Need to pay out bank quickly

Solution:

• Hard money loan to pay out bank
• 12 months to fix credit/income
• Refinance to standard loan
• Save home from foreclosure

5. Bad Credit Borrowers

Bridge to better finance:

Use case:

• Want to buy investment property
• Have 30% deposit
• Recent defaults/credit issues
• Bank declined

Strategy:

• Year 1: Hard money loan @ 14%
• Make all payments on time
• Fix credit issues
• Year 2: Refinance to bank @ 7%

Example:

• $400k loan @ 14%: $4,667/month
• Year 1 cost: $56,000
• Refinance to 7%: $2,661/month
• Extra cost: ~$25k for year 1
• Benefit: Own property, building equity

Exit Strategies

Critical: Hard money lenders want clear exit plan

Exit 1: Refinance to Bank

Most common:

Process:

1. Month 1-6: Hold property on hard money
2. Month 3: Apply for bank refinance
3. Month 6: Bank approval (improved credit/value)
4. Month 6-7: Refinance, pay out hard money

Requirements:

• Property value sufficient (20%+ equity)
• Credit improved or acceptable
• Income verified
• Bank policy met

Exit 2: Sale of Property

Second most common:

Process:

1. Buy and hold OR buy, renovate
2. List for sale (month 3-6)
3. Sell property
4. Use sale proceeds to repay loan

Timeline:

• Purchase: Day 1
• Renovate: Months 1-3 (if applicable)
• Market: Months 4-6
• Sell: Month 6-9
• Settle: Month 7-10

Exit 3: Business Cash Flow

For business purchases:

Scenario:

• Business acquires asset
• Generates income from asset
• Repays loan from income OR
• Refinances based on income

Exit 4: Development Loan

Bridge to construction:

Process:

1. Buy site with hard money
2. Get DA approval
3. Pre-sell units (if required)
4. Refinance to development loan
5. Build and sell

Timeline: 12-24 months

Hard Money Approval Process

Much faster than banks:

Timeline: 3-10 Days

Day 1: Initial Inquiry

• Contact hard money lender
• Provide property details
• Discuss purpose and exit

Day 1-2: Preliminary Assessment

• Lender reviews property
• Desktop valuation
• Indicative terms issued

Day 3-5: Formal Application

• Submit application
• Provide ID and supporting docs
• Sign mandate letter
• Pay application fee

Day 5-7: Due Diligence

• Formal valuation ordered
• Title search
• Contract review (if purchasing)
• Credit check (perfunctory)

Day 7-8: Approval

• Credit committee approval
• Formal offer issued
• Terms confirmed

Day 8-10: Documentation & Settlement

• Sign loan documents
• Pay fees (establishment, line fee)
• Settlement/drawdown

Can be as fast as 3-5 days if urgent

Documents Required

Minimal compared to banks:

Always required: ✅ Photo ID (license/passport) ✅ Property details (address, contract) ✅ Current valuation or price evidence ✅ Exit strategy explanation ✅ Basic financial position

Sometimes required:

• Bank statements (3 months)
• Proof of funds (deposit)
• Credit report
• Tax returns (rare)
• Business financials (if relevant)

NOT usually required:

• Detailed income verification
• Employment verification
• Tax returns (unless commercial)
• Multiple years financials

Hard Money Loan Structures

First Mortgage

Lender has first position:

• LVR: 60-75%
• Rate: 10-14% p.a.
• Risk: Lower (first claim)
• Cost: Lower

Example:

• Property: $600,000
• First mortgage: $450,000 (75%)
• Your equity: $150,000

Second Mortgage / Caveat Loan

Lender in second position:

• LVR: Combined up to 80-85%
• Rate: 14-20% p.a.
• Risk: Higher (second claim)
• Cost: Higher

Example:

• Property: $600,000
• Bank first mortgage: $450,000
• Hard money second: $60,000
• Total debt: $510,000 (85% LVR)

More on caveat loans →

Interest Capitalization

Add interest to loan balance:

How it works:

• Don't pay monthly interest
• Interest added to loan
• Pay all at end
• Higher total cost

Example:

• Loan: $400,000 @ 12% p.a.
• Month 1: Owe $404,000
• Month 6: Owe $424,000
• Month 12: Owe $448,000

When used:

• Renovation period (no income)
• Development (no cash flow yet)
• Reduces monthly commitment

Cost:

• More expensive (compound interest)
• Only use if necessary

Hard Money Risks

1. High Cost

Expensive if timeline extends:

Example:

• Planned 6 months @ 12% = $24,000
• Took 18 months = $72,000
• Extra: $48,000

Mitigation:

• Conservative timeline
• Have refinance option ready
• Don't rely on sale in down market

2. Foreclosure Risk

Can't refinance or sell:

Scenario:

• 12-month loan expires
• Can't refinance (value dropped)
• Can't sell (market slow)
• Lender forecloses

Mitigation:

• Keep LVR under 70%
• Have plan B exit
• Start refinance early (month 6-8)
• Extension option in contract

3. Borrowing Too Much

Thin equity buffer:

Problem:

• Borrowed 75% LVR
• Property value drops 10%
• Now 83% LVR
• Can't refinance

Mitigation:

• Conservative LVR (60-65%)
• Quality property unlikely to fall
• Exit not dependent on value

4. Hidden Fees

Unexpected costs:

Watch for:

• High exit fees
• Extension fees
• Monthly service fees
• Valuation review fees

Mitigation:

• Read contract carefully
• Ask about ALL fees upfront
• Get fee schedule in writing

When Hard Money Makes Sense

Good Uses

✅ Speed critical - Auction, foreclosure, hot deal ✅ Short-term bridge - 6-12 months max ✅ Add value quickly - Reno, DA approval ✅ Bank declined - Credit issues, but have equity ✅ Clear exit - Sale or refinance certain ✅ Profit exceeds cost - Deal math works

Bad Uses

Long-term hold - Costs too high No exit strategy - Hope is not a plan Can get bank loan - Cheaper option available Speculation - Hoping market rises Over-leveraged - Too little equity First time - Without professional advice

Hard Money vs Other Options

vs Bank Loan

Choose bank if:

• Can wait 4-8 weeks
• Good credit and income
• Want long-term hold
• Want lowest cost

Choose hard money if:

• Need 1-2 weeks approval
• Credit issues
• Short-term bridge
• Speed worth premium

vs Caveat Loan

Very similar, but:

• Caveat: Usually 2nd position
• Hard money: Usually 1st position
• Caveat: 1-4% per month
• Hard money: 10-18% p.a.

Often used interchangeably

vs Private Lender

Hard money IS private lending:

• Professional hard money companies
• vs individual private lenders
• Companies more structured
• Individuals more flexible sometimes

Finding Hard Money Lenders

Types of Hard Money Lenders

1. Dedicated Hard Money Companies

• Professional operations
• Consistent criteria
• Standard products
• Faster processing

2. Private Individuals

• High net worth investors
• More flexible sometimes
• Relationship-based
• Variable criteria

3. Private Lending Funds

• Pooled investor funds
• Professional management
• Larger loan capacity
• Institutional approach

4. Specialist Brokers

• Access multiple lenders
• Match loan to lender
• Handle application
• One-stop shop

Due Diligence on Lenders

Check lender legitimacy: ✅ ASIC registration ✅ Australian Credit License ✅ Physical office address ✅ Track record and references ✅ Clear fee schedule ✅ Professional documentation

Red flags: No ACL (Australian Credit License) Upfront fees before approval Offshore entity Vague about terms Pressure tactics "Too good to be true" rates

Tips for Hard Money Success

Before applying:

1. Know your exit - Clear plan to repay
2. Conservative LVR - 60-70% safer than 75%
3. Calculate all costs - Include fees + interest
4. Compare 3+ lenders - Rates and terms vary
5. Read contract - Every clause, every fee

During loan: 6. Execute plan - Stay on timeline 7. Communicate - Keep lender informed 8. Refinance early - Start 6 months before maturity 9. Track expenses - Know true cost 10. Professional advice - Solicitor, accountant

Managing costs: 11. Lower LVR - Better rates 12. Shorter term - Less interest 13. Quick exit - Refinance ASAP 14. Shop around - Don't take first offer 15. Negotiate - Everything negotiable

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