Both are popular with real estate investors, but they serve very different purposes. Here's when to use each.
Use Hard Money for short-term projects like fix-and-flips or BRRRR acquisitions where you need fast funding and plan to exit within 6-18 months. Use DSCR for long-term rental holds where you want a 30-year fixed rate and plan to keep the property for years.
The BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat) actually uses both loan types in sequence. Here's how they work together:
Fast close on distressed property. Rehab costs rolled into loan. Interest-only payments while renovating.
Finish renovations, get property rent-ready. Find and place a qualified tenant.
Pay off hard money with a 30-year DSCR loan. Cash out equity from forced appreciation. No income docs needed.
Use cash-out proceeds to fund your next BRRRR deal. Scale your portfolio efficiently.
Hard money costs more — but it's designed for short holds. Here's a comparison on a $300K loan:
Hard money is expensive — but if you're flipping and making $50-100K profit, it's a cost of doing business. You'd never want to hold a hard money loan long-term, which is why BRRRR investors refinance into DSCR loans once the property is stabilized.
Yes, this is one of the most common uses for DSCR loans. After completing a rehab and placing a tenant, investors refinance out of their high-interest hard money loan into a long-term DSCR loan with a 30-year fixed rate. This is the "refinance" step in the BRRRR strategy.
You typically need both. Hard money is used for the initial purchase and rehab phase because it funds quickly and covers renovation costs. Once the property is stabilized with a tenant, you refinance into a DSCR loan for long-term holding. They work together in the BRRRR strategy.
DSCR loans require properties to be rent-ready at closing. If the property needs significant repairs, you'll need hard money or a rehab loan first, then refinance into a DSCR loan after renovations are complete. Minor cosmetic repairs are usually acceptable.
Most DSCR lenders require a 3-6 month seasoning period after purchase before allowing a cash-out refinance. However, rate-and-term refinances to pay off the hard money loan may be available immediately. Your loan advisor can help structure the timing.
Whether you're exiting hard money or buying a turnkey rental, we can help you secure long-term DSCR financing.
Or call 800.778.9044 to speak with Carlos and our DSCR team.
