Hard Money Lending Returns: What Investors Should Realistically Expect

If someone tells you they're earning 15-20% returns, your first instinct should be skepticism. And you'd be right to feel that way. In a world of 1% savings accounts and volatile public markets, that level of return sounds either impossible or incredibly risky. But in the world of hard money lending, it's not only possible, it's predictable. The key is understanding exactly where that return comes from.

At Harvey Capital, we believe in transparency. We're not here to sell you on hype; we're here to show you the math. Our Income fund, Harvey Capital Funding I LP, achieved an 18.36% annualized return for our limited partners in its first year (2025). That's after our 82/18 profit split. Let's break down how.

It's More Than Just the Interest Rate

The first component of return is the most obvious: the interest rate charged to the borrower. In our market, lending to experienced real estate investors, this typically falls between 12% and 18%. This is our baseline return, but it's only the beginning of the story.

On top of the interest, we charge origination points. These are upfront fees, calculated as a percentage of the loan amount, paid by the borrower when the loan is initiated. A typical fee is 2-4 points. For a $200,000 loan, 3 points would be a $6,000 fee paid to the fund on day one. This immediately boosts the return profile of the loan before a single interest payment has been made.

When you combine the interest rate with these upfront points and other small fees (like a $700 document fee), the annualized return starts to climb significantly higher than the stated interest rate. But there's one more crucial factor that really accelerates performance: velocity.

The Power of Capital Velocity

Capital velocity is one of the most important, yet least understood, drivers of return in short-term lending. It refers to how quickly we can lend out capital, get it back, and lend it out again.

Our loans are typically written with a 9-month term. However, our borrowers are professional house flippers. Their goal is to buy a property, renovate it, and sell it as quickly as possible. The faster they sell, the faster they pay back our loan, and the more profit they make. This aligns our interests perfectly. When they pay a loan back early, our fund gets its capital back, plus all the interest owed for that period, and we get to keep the full origination fee we collected upfront.

Let's run the numbers on a real-world example. Imagine we make a $130,000 loan with a 12% interest rate, 3 origination points, and a $700 doc fee. The term is 9 months. The upfront fees collected on Day 1 would be $4,600 (3 points, or $3,900, plus the $700 doc fee).

Scenario 1: Borrower pays off in 4 months.

In this case, the fund would earn $5,200 in interest ($130,000 * 12% * 4/12). Add the $4,600 in upfront fees, and the total profit is $9,800. This represents a 7.54% return on capital in just four months, which annualizes to a powerful 24.4% return.

Scenario 2: Borrower takes the full 9 months.

If the loan goes to term, the interest earned is $11,700 ($130,000 * 12% * 9/12). The total profit becomes $16,300 ($4,600 in fees + $11,700 in interest). The return on capital is 12.54%, which annualizes to a still-strong 16.9% return.

As you can see, the faster our capital turns over, the more frequently we collect those high-impact origination fees, which dramatically increases the annualized return for our investors. This is the engine of hard money lending returns.

Our Conservative Approach

It's also important to note that these returns are generated with a conservative, low-leverage approach. We are not borrowing heavily to juice returns, which adds a significant layer of risk. We primarily lend our partners' capital, and I invest my own personal capital right alongside them in every deal. Our fund's weighted-average after-repair loan-to-value (ARLTV) is a modest 66.52%, meaning we maintain a substantial equity cushion in every property we lend against.

Of course, no investment is without risk. Returns can be impacted by loans that take longer to pay off, reducing capital velocity. And while we have had zero principal losses to date, a default is always a possibility. That's why our underwriting is so rigorous and why we focus on experienced borrowers. A period of lower deal flow could also mean more cash sitting on the sidelines, which would drag down overall fund returns.