Understanding Your Financing Options
Canadian investors purchasing US real estate sometimes encounter situations where traditional bank financing won't work — tight closing deadlines, properties needing renovation, or unconventional deal structures. Hard money loans (also called private money or bridge loans) offer an alternative. Understanding when each option makes sense can save thousands in unnecessary interest or prevent losing a deal to slow financing.
Hard Money Loans Explained
Hard money loans are short-term (6-24 months), asset-based loans funded by private investors or specialized lending companies. They are "asset-based" because the primary qualification is the property value and the deal economics, not the borrower's income or credit score. Hard money lenders can close in 7-14 days compared to 30-45 days for bank financing.
However, this speed comes at a cost: interest rates of 10-14% and origination fees of 2-4 points (compared to 6-8% rates and 0-1 points for bank financing). Hard money is a tool for specific situations, not a replacement for conventional financing.
When Hard Money Makes Sense for Canadians
Fix-and-Flip Projects
If you're purchasing a property that needs significant renovation before it can be rented or sold, most banks won't finance the purchase. Hard money lenders will fund based on the after-repair value (ARV), and many will also fund the renovation costs. Once renovations are complete, you refinance into a conventional or DSCR loan at a much lower rate.
Time-Sensitive Deals
Foreclosure auctions, short sales, and estate sales often require fast closing. Hard money can close in 7-14 days, allowing you to secure the deal, then refinance into permanent financing at your leisure.
Complex Situations
Properties that banks consider too risky — mixed-use, vacant land, or properties with title issues being resolved — may be financeable through hard money while issues are resolved.
Side-by-Side Comparison
| Factor | Bank/DSCR Financing | Hard Money Loan |
|---|---|---|
| Interest Rate | 6-8% | 10-14% |
| Origination Fees | 0-1% | 2-4% |
| Closing Time | 30-45 days | 7-14 days |
| Loan Term | 30 years (fixed or ARM) | 6-24 months |
| Qualification | Credit, income/rental income | Property value, deal economics |
| Down Payment | 20-30% | 20-35% |
| Property Condition | Must be habitable | Can need renovation |
| Renovation Funding | Rarely included | Often included in loan |
| Prepayment Penalty | Often 1-3 years | Usually none |
The BRRRR Strategy for Canadians
Many Canadian investors use the BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat) with a combination of hard money and bank financing. Purchase a below-market property with hard money, renovate it, place a tenant, then refinance into a long-term DSCR loan. The DSCR refinance pays off the hard money loan, and the investor repeats with a new property. David Nataf at Cross Border Loans structures both the hard money acquisition and the DSCR refinance to make this strategy work for Canadian investors.
Frequently Asked Questions
Can Canadians get hard money loans for US property?
Yes. Hard money lenders are asset-based and care primarily about the property value and deal economics. Many hard money lenders work with foreign nationals, including Canadians. Down payment requirements are typically 20-35% of the purchase price or after-repair value.
What is the typical exit strategy from a hard money loan?
The most common exit is refinancing into a long-term DSCR or foreign national mortgage after the property is stabilized (renovated and/or tenanted). Some investors exit by selling the property (fix-and-flip). The exit strategy should be planned before taking the hard money loan.
Are hard money loans risky for Canadian investors?
The high interest rates and short terms mean hard money is more expensive and has less margin for error. If your renovation takes longer than expected or the market shifts, you may need to extend (at additional cost) or sell. Hard money is appropriate for experienced investors with clear deal economics and a defined exit strategy, not for first-time buyers.
Find the Right Financing Structure
David Nataf helps Canadian investors access both conventional and creative financing solutions for US real estate investments.
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