How to Conduct Due Diligence on a Hard Money Fund

5 Key Criteria to Evaluate Opportunities and Mitigate Risks

Hard money lending (HML) funds are having a moment in the sun - and for good reason: in today’s environment, earning double-digit yield secured with tangible real estate is an attractive proposition.

What’s a hard money loan? It’s a type of short-term loan secured by real estate, often used by borrowers who cannot or prefer not to obtain traditional financing (often used for fix-and-flips, or ground-up development). These loans are typically provided by private lenders or investment groups rather than banks. A hard money fund is an investment vehicle that pools capital from investors to provide such loans. For more on private credit funds that lend to companies, read this:

5 Key Considerations for Investors in Private Credit

While many HML funds generate 10%+ yield, not all of them are created the same. Today, we will discuss five criteria for evaluating hard money funds:

1. Lender

2. Borrower

3. Collateral

4. Loan Terms and Performance

5. Fund Structure

Let’s jump in!