While hard money loans are an excellent financing tool, investors must be cautious to avoid common mistakes that can jeopardize their investments. One of the most frequent errors is underestimating renovation costs. Many investors assume they can complete a fix-and-flip project within a set budget, only to encounter unexpected expenses that strain their cash flow. Failing to properly estimate repair costs can lead to delays, cost overruns, and even defaulting on the loan. Before securing financing, investors should conduct thorough property inspections, obtain contractor bids, and build a contingency fund to handle unforeseen expenses.
Another common mistake is not having a well-defined exit strategy. Since hard money loans have short terms, borrowers need a clear plan to repay the loan, whether through selling the property, refinancing, or generating rental income. Investors who assume they can refinance with a traditional lender before the loan matures may face difficulties if interest rates rise or if their creditworthiness changes. Green Everest advises investors to map out their exit strategy before securing funding to ensure they can successfully repay the loan and achieve their investment goals.
Wish I read this before my first flip—went way over budget because I didn’t build in a buffer. Live and learn.
Exit strategy is everything. I got stuck with a property for months longer than expected. Never again without a solid plan.
Hard money is a great tool but definitely not for the faint of heart. You gotta go in with your numbers tight.
These are spot on. Renovation costs always end up being more than you think, even with good contractors.
Great tips. I always get at least two contractor bids and still add 10–15% for unexpected issues.
Very good
Honestly the best advice here is the exit strategy. If you don’t have one, hard money can burn you bad.
Super helpful post. Do you guys have a checklist or template for estimating reno costs? Would love to use something like that.
Can confirm—underestimating costs nearly tanked my second deal. Now I always build in a 20% cushion.