Does Hard Money Count as Cash in a Real Estate Transaction?

hard money cash real estate transactions

It’s really difficult these days to go more than a few blocks without running into a lawn sign or light pole flyer advertising cash in exchange for houses in any condition – in fact, if you’re reading this, you may have put a few of those up yourself. In the real estate business, cash is king – it’s the fastest, most concrete way to seal a deal in the business. You don’t have to worry about funding falling through, or any third parties nixing the deal.

That said, a lot of real estate investors advertising “cash for houses” are not, in fact, using their own cold hard cash, and are instead relying on a relationship with a hard money lender to quickly fund deals and leverage their investments to keep more of their own cash available. This, of course, begs the question: Does hard money count as cash in a real estate transaction?

Hard Money is Sometimes Considered a Cash Substitute

On one hand, hard money can be used as a substitute for cash in a real estate transaction. If a buyer doesn’t have enough cash on hand to purchase a property outright, or isn’t willing to use their own cash to fund an acquisition, a hard money loan can be used to cover the cost of a property. The seller will still receive a lump-sum payment at closing, although the lender will place a lien on the property, which serves as a collateral for the loan until the loan is paid off.

Hard money lenders often move at a much swifter pace than larger institutional lenders or banks which furthers the comparison. Cash is immediate, and hard money is basically the next best thing, with many lenders able to close deals within a couple of business days. Sellers can sometimes view a hard money loan as the same thing as cash when it comes to collecting payment for a property. But, from both the investor and the home seller’s perspectives, there are a few key differences that lead us to a more direct answer to our question.

Cash is a Guarantee; Sometimes Hard Money Is Not

While Pimlico Capital guarantees funding on all approved deals, it’s not unheard of for other hard money lenders to back out of a deal at the last minute. Experienced investors who were active throughout 2021 and 2022 may have noticed a lot of lenders pulling back as mortgage rates and housing prices skyrocketed, with a lot of deals falling through due to lenders becoming wary of market conditions. For sellers, this can present an issue – if a property is under contract but the funding falls through at the last minute, a seller may have to scramble to find a new buyer. For this reason, some sellers truly are seeking cash-only deals.

Buyers Don’t Pay Interest When Paying in Cash

There are a lot of benefits to using hard money to leverage investments, especially if you’re in the business of flipping houses where volume is a key factor to success. That said, hard money loans are still loans that require paying interest in order to finance property acquisitions. This is an additional cost that does not come when purchasing a property up front in cash – although the additional cost is often worth it in order to conserve cash to make more investments. In some cases – particularly when planning to hold properties for the long term – it may make sense to look into more traditional financing options, or use an investment property mortgage to refinance out of a hard money loan after rehab is completed on a property.

Ultimately, Hard Money is Not Cash

At the end of the day, hard money can be an effective cash substitute in real estate transactions, but it is not the same thing as cash. It is a loan that must be repaid with interest, and it is typically used as a short-term financing solution for 6-12 months. On the seller’s side, hard money and cash may be even more closely related,  but cash presents a guarantee at the outset, whereas a third-party financier may be forced to pull out of a deal which can void a sale.

If you’re a real estate investor looking for a hard money lender that guarantees funding, give us a call at 410-855-4600! While every loan is subject to underwriting and approval, we guarantee that we’ll provide funds at closing without any surprises or hidden fees. To get a ballpark of terms that you qualify for, head over to our rate calculator for an instant quote.