Accountant's Guide to Hard Money

Your client forwards a purchase contract at 9 p.m. — LLC buyer, ten-day close, property “needs work,” bank already said no. The question they ask first is often tax-flavored: “Can I write off the rehab?” The question that actually kills the deal is simpler: “Who will fund this?”

If you only answer the tax question, they may never get to closing. Hard money is the financing serious investors use for acquisitions banks won’t touch: distressed collateral, entity vesting, short clocks, and business-purpose intent. This guide explains hard money from an accountant’s seat — how to recognize a fundable file, what you’ll coordinate on entities and timing, and how to connect clients to underwriting without becoming the lender. Product terms are on our hard money hub; the accountant partner hub frames the broader series.

What hard money is — without lending advice

Hard money is short-term, asset-based financing secured by investment real estate. The lender underwrites the deal, not the borrower’s W-2:

• After-repair value (ARV) — supported by sold comps after rehab
• Loan-to-cost (LTC) — loan as a percent of purchase plus rehab
• Scope of work — line-item budget proving the ARV
• Liquidity — cash for the gap, closing costs, and interest carry
• Exit — sale, DSCR refinance, or bridge payoff

Contrast with conventional investment loans: those underwrite borrower income and DTI, require warrantable condition, and need 30–45 days. Your self-employed client with strong deals and “weak” returns on paper is a classic hard money fit — not because you should recommend it, but because you should stop them from waiting on a bank that will never approve the file.

Typical structure (2026 — confirm live):

Feature	Range
Rate	8.99%–13.5% interest-only
Term	6–18 months
Leverage	85–90% LTC, capped at 70–75% ARV
Close	7–10 business days
Rehab	Draws after inspection

Client scenarios you should flag

Sort client calls by why the bank said no:

Bank decline reason	Hard money relevance
Property not habitable / as-is	Condition is the investment thesis
LLC vesting	Expected for HM
10–14 day close	HM timeline
DTI / low taxable income	Not primary HM gate
First-time investor	Experience tiers affect leverage, not always denial
Needs cash from another property first	Bridge / cross-collateral

Real no: client can’t fund the gap, ARV doesn’t support rehab, no exit. Referral yes: property, entity, timeline, or strategy mismatch with agency credit.

The four numbers (so you know what the lender will ask)

You don’t calculate approval — but when a client asks “how much cash do I need?” these four numbers explain the conversation they’ll have with underwriting:

1. ARV — After-repair value from comps. Loan often capped at 70–75% of ARV.

2. LTC — Loan as percent of purchase + rehab. Often 85–90%.

3. Scope — Itemized rehab. Vague scopes stall files.

4. Exit — Sale or refi. Two credible exits strengthen the file.

Lower of ARV cap and LTC cap wins. Example: $200,000 purchase + $50,000 rehab = $250,000 cost. At 90% LTC → $225,000 loan. At 75% of $320,000 ARV → $240,000 cap. LTC is lower → $225,000 loan, ~$25,000 client cash plus costs and carry.

Send clients to the fix and flip calculator for scenario math.

Tax and entity coordination (your lane)

Not tax advice — common coordination points when clients use hard money:

LLC formation before LOI

If the client plans to close in FlipCo LLC, entity should exist before contract assignment where possible. Lenders need operating agreement, EIN, and sometimes good-standing certificate. Rush filings delay closings.

Flip vs hold — align stories

Lender exit and tax reporting should both be truthful:

• Flip: exit = sale; plan for short holding period and ordinary income vs capital analysis under your standards.
• BRRRR: exit = DSCR refi after lease-up; plan depreciation start, capitalized improvements, and refi timing.

Mismatch — telling the lender “rental refi” while you book as inventory sale — creates both fraud risk and audit risk.

Interest carry during rehab

At 11% IO on a $225,000 loan, carry is roughly $2,063/month. Clients must budget liquidity for IO during rehab, not assume it from future profit. Your projections should include carry months explicitly.

1031 and bridge calendars

Clients in exchange timelines may acquire with bridge or hard money before relinquished property closes. Your calendar drives identification and closing deadlines; the lender’s calendar drives collateral and exit. Integrate both before the client removes contingencies.

Schedule E vs flip income

Clients acquiring multiple properties sometimes mix hold and flip portfolios. Entity segmentation (HoldCo vs FlipCo) simplifies both lender narrative and books. You may advise on segmentation; the lender verifies guaranty and liquidity across entities.

Documents you may help assemble

Document	Your role
LLC OA + EIN	Confirm complete, signed, bank-ready
Good standing	Order if required
Business purpose letter	Factual firm letter if requested
Bank statements	Client provides; you don’t alter
Prior Schedule E	Client-authorize excerpts for lender
Scope / ARV	Borrower + contractor — not CPA

Missing entity docs are the most common preventable delay — your highest-value pre-close contribution.

Worked example: distressed SFR in an LLC

Client: Single-member LLC, first flip, strong liquidity, lean Schedule C income.

Deal: $210,000 purchase, $60,000 rehab, $340,000 ARV, 12-day contract.

Lender math: $270,000 cost; 90% LTC = $243,000; 75% ARV = $255,000 → loan $243,000; ~$27,000 gap + costs.

Your checklist:

1. LLC exists; EIN; OA matches bank account.
2. Confirm flip intent for tax planning; estimate Q4 estimated tax if year-end sale.
3. Model 4-month hold IO ~$2,228/mo at 11% — verify liquidity beyond gap.
4. Discuss backup DSCR exit if market slows — affects whether you plan sale vs depreciation.

Refer: Submit scenario with contract and scope; lender responds same-day on fundability.

Second example: BRRRR client you already serve on Schedule E

Client: Owns three rentals; buying fourth — distressed, needs $45,000 rehab, will rent at $2,400.

Bank: Declined condition. Hard money: Funds acquisition + rehab. Exit: six-month refi into DSCR at 1.0+ DSCR.

Your coordination: Ensure rehab capitalization method matches books; plan insurance and lease start for refi; coordinate with lender on DSCR calculator assumptions before client commits to ARV-heavy rehab.

Hard money vs DSCR vs bank (routing table)

	Hard money	DSCR	Bank investment
Underwrites	Deal (ARV/LTC)	Rent	Borrower DTI
Condition	Distressed OK	Rent-ready	Warrantable
Entity	Normal	Common	Friction
Speed	7–10 days	Weeks	30–45+ days

Two-step relationship: HM in, DSCR out — you may file acquisition year and refi year with different debt characters.

Questions clients ask their CPA first

“Can I deduct the interest?” — Business-purpose acquisition/rehab interest is a common discussion; analyze under your standards with correct tracing and use.

“Should I buy in the LLC?” — Liability and portfolio question yours; lenders expect entity for HM.

“Why is the rate so high?” — Short-term, asset-based pricing; compare total carry to spread, not to 30-year owner-occupied rates.

“Will I qualify with my tax return?” — Hard money is not a tax-return loan; liquidity and project math dominate.

Amended returns and cost segregation timing

When clients convert flip to hold mid-project, lender exit changes from sale to DSCR refi — and your tax plan may need cost segregation or depreciation timing updated. Flag the conversation when scope exceeds original budget by 15%+; lenders approve change orders, CPAs need revised basis tracking.

Multi-entity guaranty exposure

Sponsors with several LLCs may face cross-guaranty requests. That’s a legal and credit question for counsel and lender — your role is ensuring financial statement presentation matches guaranty disclosure if clients ask for personal financial statement support.

Year-end planning with active hard money

Clients with December closings on HM need estimated tax payments modeled on expected flip gain before sale — interest deductibility doesn’t eliminate short-term gain cash need. Run a December acquisition scenario: if close slips to January, both lender carry and tax year shift — calendar both.

Sample engagement letter language (informational)

Some firms add: “We do not originate loans or guarantee financing. When clients pursue private credit, we coordinate entity and tax documentation only.” Clear scope reduces liability and sets client expectation that lender answers LTC/ARV questions.

Year-end 1098 and private lenders

Hard money interest reporting varies by lender — ask clients for year-end statement early January. Missing 1098 doesn’t mean non-deductible; it means your tracing work needs lender letter or statement. Build a checklist item in January for active HM clients.

Syndicate and K-1 clients

When a K-1 investor participates via special-purpose LLC, formation must precede contract assignment. Coordinate with counsel before lender counsel requests OA — duplicate formation fees beat blown closings.

When to loop in the client’s attorney

Hard money closes fast — entity authority and purchase contract language should be reviewed before the client removes contingencies. You coordinate tax and books; counsel confirms vesting, guaranty, and business-purpose framing. A three-way email (client, CPA, attorney) on day one beats a scramble when the lender’s counsel requests a signed operating agreement hours before funding.

Document handoff checklist for CPAs

You provide	Lender provides	Client provides
Entity docs upon request	Term sheet, leverage	Contract, scope, comps
Engagement-scope clarity	Draw schedule	Liquidity statements
Tax calendar for flip/hold	Payoff at exit	Insurance as required

Keep your lane visible: you don’t approve ARV — you make sure FlipCo’s EIN and OA aren’t the reason a fundable deal dies.

Referral path and professional boundaries

Do: recognize, coordinate entity/tax timing, introduce licensed lender, document client consent.

Don’t: quote LTC, guarantee approval, prepare scope/comps, or hold yourself out as broker unless licensed.

Referral partner program if your firm allows; otherwise submit scenario with client authorization.

Estimated tax payments during active flips

When a client runs a six-month flip, model quarterly estimated payments on expected gain before sale — not after closing. Interest deductibility doesn’t replace cash needed for IRS deposits mid-project.

Books alignment with lender draws

Rehab draw invoices should map to your client’s chart of accounts categories before year-end — capitalized improvement vs repair affects basis and depreciation if they pivot to hold. Align books with scope line items early.

Client email template (neutral referral)

“I can’t quote loan terms, but this lender reviews investor scenarios same-day: submit scenario. Send them your contract and scope; keep me on entity and estimated tax timing.” — Neutral language protects your role and moves the client to underwriting.

Parting note for your practice

Your highest-value move is same-day introduction once you recognize the deal isn’t a bank file — the client’s option clock rarely waits for next week’s callback. When the client asks about deductibility, answer the tax question — then ask who is funding the close. If they don’t know, submit the scenario with their authorization before contingencies expire.

The bottom line

Hard money is not a product you underwrite — it’s a product you recognize when clients describe deals that don’t fit banks. Your value is keeping the tax and entity plan aligned with a closing that can happen in ten days, not forty.

Next time a client forwards an LLC purchase contract on distressed stock, answer the tax question — then ask who is funding the close. If the answer is “I don’t know,” send the scenario before the contract dies.

This guide is part of the accountant hard money partner hub. Sibling series: loan officers · agents · attorneys.