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Why Investors Confuse Gap Funding vs Hard Money
If you’re flipping houses or wholesaling, you’ve probably heard both terms: hard money loan and gap funding. Many beginners think they’re the same thing — but they’re not.
- Hard money loans cover the majority of a property’s purchase price (usually 70–85% loan-to-value).
- Gap funding fills in what hard money doesn’t cover — like down payments, earnest money deposits, or carrying costs.
Without both, many investors get stuck. As Ryan Pineda often reminds flippers: “You don’t go broke buying deals, you go broke running out of money to close them.”
What Is a Hard Money Loan?
- Short-term financing (usually 6–12 months).
- Secured by the property itself.
- Covers 70–85% of purchase price + sometimes rehab funds.
- Higher interest (10–14%) but fast approval.
Purpose: To let investors buy and rehab properties quickly without using traditional banks.
What Is Gap Funding?
- Covers what hard money doesn’t:
- Down payments
- Large EMDs ($10k–$25k in hot markets like Florida & California)
- Carrying costs (insurance, taxes, utilities, monthly loan payments)
- Usually smaller amounts ($10k–$100k).
- Extremely short-term (weeks to months).
Purpose: To keep deals alive when you’re short on cash.
Gap Funding vs Hard Money: Real-Life Dallas Flip Example
Investor found a $280,000 distressed duplex in Dallas with an ARV (after-repair value) of $420,000.
- Hard money lender agreed to fund 85% = $238,000.
- Investor needed $42,000 down + 4 months of carrying costs ($7,000) = $49,000 total cash.
- Investor only had $10,000 liquid.
Solution:
- Gap lender funded the missing $39,000.
- Investor closed, rehabbed in 5 months, and sold for $420,000.
- Net profit: $50,000 after repaying both lenders.
Without the gap funding, the investor would’ve walked away — even though the deal was solid.
Gap Funding vs Hard Money: Key Differences
| Feature | Hard Money Loan | Gap Funding |
| Loan Size | Large ($100k–$1M+) | Small ($10k–$100k) |
| Purpose | Covers most of purchase + rehab | Covers down payment, EMDs, carrying costs |
| Term | 6–12 months | Days to months |
| Security | Secured by property | Secured by deal, sometimes unsecured |
| Borrower Need | Fast property financing | Fill missing piece to close |
Gap Funding vs Hard Money: Benefits of Combining Both
- Close more deals – Don’t get stuck at the down payment stage.
- Preserve liquidity – Keep personal cash available.
- Cover hidden costs – Carrying costs, insurance, utilities.
- Scale faster – Run multiple projects at once.
Gap Funding vs Hard Money: Risks & Challenges (Where We Help)
- High costs if misused – Interest stacks if deal drags on.
- Poor budgeting – Some investors underestimate rehab timelines.
- Finding reliable lenders – Not all gap lenders understand flips.
Our Solution: We partner with investors by funding the gaps hard money won’t touch — from down payments to EMDs — so you can take on deals without draining personal savings.
Gap Funding vs Hard Money: Best Practices
- Always calculate total cash needed (hard money + gap + rehab).
- Borrow only what’s needed to keep profit margins strong.
- Line up gap funding before making offers with large deposits.
- Work with title companies and lenders experienced in creative deals.
FAQs about Gap Funding vs Hard Money
Why isn’t hard money enough to close a flip?
Because hard money lenders rarely cover 100% — they usually leave 10–20% plus closing costs uncovered.
What can gap funding cover that hard money won’t?
Down payments, earnest money deposits, and carrying costs.
Can new investors use gap funding?
Yes — especially with loan sponsorship or JV partnerships.
Is gap funding more expensive than hard money?
Yes, but it’s shorter term and only for the amount you’re missing.
Does your company provide both hard money and gap funding?
We specialize in gap funding and partner with hard money lenders nationwide.
