Hard Money Lending as Passive Cash Flow
Be the bank: 10-15% returns backed by the house itself, for almost no work.
- Difficulty
- Advanced
- Time to result
- ~months to results
- Steps
- 6
- Confidence
- 84%
Meyer treats lending as the most under-discussed side of real estate: instead of buying property, you create the mortgages and hard money loans. Fix-and-flippers and developers pay 10-15% interest without blinking because they only hold for six months — nobody would pay that on a 30-year mortgage. That lets a lender generate 10-12% cash-on-cash for almost no work: $500,000 at 12% is $60,000 a year of passive income. The risk control is structural. The loan is collateralized, so if the borrower defaults you get the house, usually with their 20% down already in it — you keep the equity and get the property at 20% off. Banks can't compete because they want conforming, cookie-cutter loans they can sell to Fannie Mae or Freddie Mac, which rules out properties needing a new roof or foundation, and because a hard money lender can deliver cash in two weeks versus 30-60 days.
Origin
Meyer says it took him roughly 10 years of investing to get into the lending world at all, because funds and syndications are an accredited, insider's game with no public directory — you just have to know people. He now lends to house flippers himself, and points to platforms like Fundrise as the emerging route for non-accredited, non-insider investors to access lending funds without the decade of network-building.
Core principles
- 01There's a whole other side of real estate that isn't buying property — it's creating the loans.
- 02Flippers pay 10-15% happily because they hold for six months, not thirty years.
- 03The loan is collateralized: if the borrower defaults, you get the house — usually at 20% off.
- 04Banks structurally can't serve this market, which is why the yield exists.
- 05Low risk presumes you learned how to do it properly.
How to run it
- 1
Pick your rung of the lending business
The least intensive is buying notes — mortgages other people issued, which trade. The most common and most profitable for individuals is hard money lending. The most sophisticated is essentially setting up a bank.
Pro tip Most people operate in that middle tier.
- 2
Understand why the borrower is at your door
Banks want conforming loans they can sell to Fannie Mae or Freddie Mac — they take origination fees, collect a little interest, sell it, and lend again. That box excludes properties needing a roof, gut rehab, or foundation. Flippers also need speed on off-market and for-sale-by-owner deals.
Pro tip You can't go to Chase or Wells Fargo and get that loan — that structural gap is your business.
- 3
Price the short hold
Charge 10, 12, or 15%. It's rational for the borrower because their whole business is to renovate fast and sell — they're paying that rate for six months, not thirty years.
- 4
Secure the collateral position
The loan is backed by a hard asset. Require a meaningful down payment — usually around 20% — so that a default hands you the property with equity already in it.
Pro tip If the borrower defaults you keep the equity and get the house at effectively 20% off. It happens very rarely if you do it well.
Watch out 'Low risk' presumes you learned how to do it properly. Done badly, it isn't.
- 5
Deliver on speed
A hard money lender can typically fund in about two weeks versus 30-60 days for a conventional close. Speed is a core part of the value you sell.
- 6
If you lack the network, buy access
Funds and syndications historically required accreditation and insider relationships. Platforms now offer lending funds that do the due diligence for you.
Pro tip You won't make the full 12% — they charge a fee — but you still get a good return without a decade of network-building.
Watch out Do your own due diligence on the platform and its investment criteria.
In the wild
Meyer walks through the arithmetic for a high-net-worth investor later in their career: deploy $500,000 into hard money loans at a 12% return, doing very little work.
→ $60,000 a year in passive income — a return profile Meyer says he doesn't know another industry can match at comparable risk, provided you've learned to do it properly.
A borrower puts 20% down on a flip and defaults. Because the loan is collateralized by the hard asset, the lender takes the house with the borrower's equity still in it.
→ The lender ends up owning the property at effectively 20% off — which is why Meyer characterizes properly-run lending as relatively low risk.
Common mistakes
Assuming the yield is free money
Meyer is careful to say low risk presumes you learn how to do it properly. The 10-15% exists because banks structurally can't underwrite these properties — not because nobody noticed.
Trying to break into funds and syndications by hustle alone
It's an insider's game with no public directory and an accreditation gate. Meyer took ~10 years to get there. Lending funds are the shortcut, at the cost of a fee.
Is it for you?
Best for
Investors with substantial capital, later in their career, who want passive collateralized yield
Not ideal for
Beginners without industry knowledge or capital — Meyer says it took him roughly 10 years to reach this world
From the transcript
“There's a whole other side of real estate, which is creating mortgages and hard money loans... which are loans to either fix and flippers or…”
“If you have a high net worth and say you wanted to invest $500,000, you're getting a 12% return. That's 60 grand a year in…”
“It's a collateralized loan. And so, if the borrower defaults, you get the house. And usually they put 20% down. So, even if they default,…”
“No one in their right mind at this day and age would pay 12 to 15% on a 30-year mortgage. But if you're holding it…”
From the episode
Dave Meyer: Build Your Real Estate Empire with Smart Investing
Dave Meyer