Exit Strategies for Hard Money Loans: Planning Your Payoff
Every hard money loan needs an exit strategy. Learn the most common exit options and how to plan your path to payoff.
Dan McColl
Director of Construction Lending
Why Exit Strategy Matters
Every hard money loan requires repayment—usually within 6-24 months. Your exit strategy is your plan for how you'll pay off the loan. It's the first question any hard money lender will ask, and for good reason.
A clear, viable exit strategy:
●Demonstrates deal feasibility
●Determines appropriate loan terms
●Protects both borrower and lender
●Guides project decision-making
The Five Primary Exit Strategies
1. Sale of Property
The most common exit for fix-and-flip investors.
How it works:
●Complete renovations
●List property for sale
●Use sale proceeds to repay loan
Best for:
●Fix and flip projects
●Land development
●Properties in strong resale markets
Considerations:
●Sale timelines can be unpredictable
●Market conditions affect pricing
●Carrying costs accumulate until sale
Planning tips:
●Research realistic sale timelines in your market
●Price conservatively to ensure quick sale
●Have backup buyers or agents identified
2. Refinance to Conventional Loan
Convert short-term hard money to long-term conventional financing.
How it works:
●Complete any needed stabilization
●Apply for conventional mortgage
●Pay off hard money with refinance proceeds
Best for:
●Buy-and-hold rental investors
●Properties that needed initial renovation
●BRRRR strategy investors
Considerations:
●Must qualify for conventional loan
●Property must appraise at needed value
●Conventional loan requirements apply
Planning tips:
●Know conventional requirements before you start
●Ensure ARV supports refinance amount
●Time stabilization for refinance readiness
3. Refinance to Another Hard Money Loan
Sometimes you need more time or a different structure.
How it works:
●Before term end, secure new hard money loan
●Pay off existing loan with new proceeds
●Continue project with fresh term
Best for:
●Projects needing more time
●Changing circumstances
●Deals that need restructuring
Considerations:
●Additional fees and costs
●Must still have ultimate exit
●Not a long-term solution
Planning tips:
●Communicate with lenders early about timeline
●Have legitimate reason for extension
●Plan ultimate exit during new term
4. Cash Payoff
Use other liquid assets to pay off the loan.
How it works:
●Generate or access cash
●Pay loan balance directly
●Own property free and clear
Best for:
●Investors with liquidity
●Planned cash-out from other investments
●Properties you want to hold long-term
Sources of cash:
●Sale of other assets
●Business income
●Private fundraising
●Partnership buy-in
5. Partner or Investor Buyout
Bring in new capital to pay off existing debt.
How it works:
●Find equity partner or investor
●Their investment pays off hard money
●New ownership structure
Best for:
●Projects with proven value
●When you need capital but want to maintain position
●Joint venture opportunities
Planning tips:
●Have partnership terms ready
●Know your minimum requirements
●Vet partners thoroughly
Choosing the Right Exit Strategy
Consider Your Goals
| Goal | Best Exit |
|---|---|
| Quick profit | Sale |
| Long-term cash flow | Refinance to conventional |
| Portfolio building | Refinance and repeat |
| Capital recycling | Sale or cash payoff |
Consider the Property
| Property Type | Typical Exit |
|---|---|
| Fix and flip | Sale |
| Value-add rental | Refinance |
| Development | Sale or refinance |
| Commercial | Sale or refinance |
Consider Market Conditions
●Strong seller's market: Sale may be fastest
●Rising rates: Refinance terms may be less favorable
●Tight lending: Hard money refinance may be only option
Building Your Exit Timeline
Sample Fix-and-Flip Timeline
| Month | Activity | Exit Progress |
|---|---|---|
| 0 | Close purchase | Loan funded |
| 1-4 | Renovation | Value creation |
| 4-5 | List for sale | Exit initiated |
| 6-8 | Sale closes | Loan repaid |
Sample BRRRR Timeline
| Month | Activity | Exit Progress |
|---|---|---|
| 0 | Close purchase | Loan funded |
| 1-3 | Renovation | Property improved |
| 4-6 | Lease-up | Property stabilized |
| 6-9 | Refinance application | Exit initiated |
| 9-12 | Refinance closes | Loan repaid |
Backup Exit Strategies
Always have a Plan B:
If Sale Takes Longer
●Request loan extension
●Reduce price for quicker sale
●Consider lease-option
If Refinance Doesn't Qualify
●Hard money refinance
●Sell instead
●Bring in capital partner
If Market Declines
●Hold and rent
●Sell at reduced price
●Wait it out with extension
Red Flags in Exit Planning
Avoid these exit strategy mistakes:
❌Unrealistic timeline - Not allowing enough time for your exit
❌Single option - No backup if primary exit fails
❌Market ignorance - Not researching what's actually selling
❌Wishful pricing - ARV based on hope, not data
❌Ignoring carrying costs - Not budgeting for time to exit
The Bottom Line
Your exit strategy isn't just a box to check—it's the foundation of your deal. A clear, well-researched exit plan:
●Gets you funded
●Guides your decisions
●Protects your investment
●Ensures profitability
Start with the exit in mind, and work backward to structure your deal.
