You’ve probably heard the term "hard money," likely in the context of a house flipper needing a fast, short-term loan to buy and renovate a property. But you might not know that you can be on the other side of that transaction—not as the borrower, but as the lender. One of the most effective ways to do that is through a hard money lending fund. So, what exactly is it?
In the simplest terms, a hard money lending fund is a pool of capital from a group of private investors that is used to make loans to real estate professionals. Instead of a bank providing the financing, the fund provides it. These are typically short-term loans, often for 9-12 months, secured by a real asset—the property itself. At Harvey Capital, our Income fund, Harvey Capital Funding I LP, focuses exclusively on this strategy.
The Structure: How a Lending Fund Works
Most lending funds, including ours, are structured as a Limited Partnership (LP). This creates a clear and legally sound relationship between the fund manager and the investors.
There are two key roles in this structure:
The General Partner (GP): This is the fund manager. The GP is responsible for everything—sourcing deals, underwriting borrowers, originating loans, servicing the loans, managing the finances, and communicating with investors. This is the active, operational role. At Harvey Capital, I am the GP. My job is to protect and grow our investors' capital by making smart lending decisions.
The Limited Partners (LPs): These are the investors who contribute capital to the fund. As an LP, your liability is limited to the amount of money you invest. You are a passive investor. You provide the capital, and the GP puts it to work. You don’t have to find borrowers, inspect properties, or chase down payments. You get the benefit of the returns without the day-to-day operational headaches.
How Investors Get Paid
The fund makes money by charging interest and fees on the loans it originates. Think of it like a small, specialized bank. The borrowers—typically experienced house flippers—pay the fund for the use of its capital. At Harvey Capital Funding I, a typical loan might have a 12% interest rate and 3% in origination points.
This revenue flows into the fund. After covering any direct loan expenses, the net earnings are distributed to the investors. We believe in a model that heavily favors our partners, which is why we have an 82/18 profit split. 82% of the profits go to our LPs, and 18% go to the GP. We also believe in frequent returns, so we make these distributions monthly. In our first year of operation, 2025, Harvey Capital Funding I LP delivered an 18.36% annualized return to our investors.
Managing Risk: The Core of Smart Lending
Lending money always involves risk, and anyone who tells you otherwise is selling something. The key isn’t to avoid risk, but to manage it intelligently. In hard money lending, risk is managed in several critical ways.
First and foremost, every loan is secured by a first-lien deed of trust on the underlying real estate. This means if the borrower fails to pay, the fund has the right to foreclose on the property to recover its capital. It’s a powerful form of security. We aren’t making unsecured personal loans; we are lending against a hard asset.
Second, we are disciplined about our loan-to-value (LTV) ratios. We lend based on the "after-repair value" (ARV) of a property. Our weighted-average after-repair loan-to-value (ARLTV) across our portfolio is a conservative 66.52%. This creates a significant equity cushion. If a property’s ARV is $300,000, we might lend around $199,500. That $100,500 difference is the borrower's equity and our safety buffer. If the market softens or renovation costs go over, there is room for error before our principal is at risk.
Third, a fund provides diversification. Your capital isn’t tied up in a single loan to a single borrower. It’s spread across a portfolio of loans. To date, we’ve originated over $3 million across more than 25 loans. This diversification means that the poor performance of any one loan has a muted impact on the overall portfolio. So far, this strategy has worked well for us—we have had zero principal losses on the lending side.
What to Look For in a Lending Fund
Not all funds are created equal. If you’re considering investing in a hard money fund, here are a few questions I’d ask.
1. Does the GP invest their own money alongside you? This is what’s known as "skin in the game." If the manager isn't willing to eat their own cooking, why should you? I invest my own personal capital into every deal our funds do, both on the Growth (public REITs) and Income (lending) side. Our interests are aligned.
2. What is the fee structure? Many funds charge a 2% annual Asset Under Management (AUM) fee, regardless of performance. This means you pay them just for holding your money. We think that’s wrong. Harvey Capital charges no AUM fees. We only make money when our investors make money, through our 18% share of the profits. This performance-based model ensures we are motivated to generate strong returns.
3. What is the track record and level of transparency? Ask for the numbers. What are the historical returns? What is the default rate? How often do they report to investors? We provide detailed monthly reports and are always available to answer questions. Transparency matters—sharing losses is just as important, if not more important, than sharing wins. You deserve to know the good, the bad, and the ugly.
A hard money lending fund can be a powerful tool for generating consistent, high-yield, passive income that is secured by real assets. It offers a compelling alternative to the volatility of the stock market and the low yields of traditional fixed-income investments. By pooling capital, investors can participate in a lucrative niche of the real estate market that was once only accessible to banks and wealthy private lenders.