Managing Risk in Real Estate Development with Hard Money Financing
- Boston Trust Corp
- May 13
- 3 min read
Updated: May 14

Real estate development offers the potential for big returns, but with big returns come big risks. Whether you're flipping a single-family home or building a multi-unit project, managing those risks is critical to your success. One tool that can help developers move quickly and seize opportunities is hard money financing. But like any tool, it must be used wisely.
At Boston Trust Corp, we specialize in helping real estate investors and developers make informed financial decisions. In this post, we’ll explore how to manage risk in real estate development when using hard money financing and why exit strategy planning should be part of your blueprint from the start.
Understanding Hard Money Financing
Hard money loans are short-term, asset-based loans typically used by real estate investors. Unlike traditional bank loans, they are approved quickly, based more on the property’s value than the borrower’s credit score. This speed and flexibility make them attractive for developers needing fast funding to jump on a deal or cover construction costs.
However, this type of financing comes with higher interest rates and shorter repayment periods. That makes managing risk essential, because while hard money can help you scale faster, it can also create financial strain if your project doesn’t go as planned.
Key Risks in Real Estate Development
Every development project comes with a unique mix of challenges, but some risks are common across the board:
Construction delays due to weather, labor shortages, or permitting issues
Budget overruns from unexpected costs or material price increases
Market fluctuations affecting property value or demand
Financing hurdles, especially if your exit plan depends on refinancing or resale
When you’re using hard money financing, these risks are magnified. A delay or cost overrun can push you past the loan’s term, leading to penalties or worse, default.
Risk Management Strategies
Here are some smart ways to reduce your risk when developing with hard money:
1. Choose the Right Property
Before you borrow a dollar, make sure your deal makes sense. Run the numbers carefully: Is there enough equity in the property to justify the loan? Will the neighborhood support your resale or rental price?
A strong real estate development project starts with strong due diligence.
2. Work with Experienced Contractors
A reliable contractor can make or break your timeline. Always vet your team and ask for references. Build a buffer into your schedule and your budget for unexpected issues.
3. Build a Realistic Budget
Don’t underestimate costs. Include line items for permits, inspections, legal fees, and marketing. A 10–15% contingency fund is wise, especially when using short-term financing.
4. Communicate with Your Lender
At Boston Trust Corp, we encourage ongoing communication. If something goes off track, let your lender know early. We may be able to work with you on a solution rather than enforcing strict terms.
The Importance of Exit Strategy Planning
Too many developers focus on getting the loan but forget to plan how they’ll pay it off. This is where exit strategy planning comes in.
Common exit strategies include:
Selling the property once completed
Holding the property as a rental with cash-out refinancing
Each option comes with its own requirements and timeline. Before you borrow, ask yourself: What is my backup plan if the market changes or delays occur?
Having multiple exit strategies in place can give you flexibility and peace of mind if things don’t go exactly as expected.

Final Thoughts
Real estate development is exciting, fast-paced, and full of opportunities. But without a solid risk management plan, even the best deal can go sideways, especially when you’re working with hard money financing.
By choosing smart projects, managing your costs, staying in touch with your lender, and focusing on exit strategy planning, you can use hard money loans to your advantage and stay in control of your investments.
At Boston Trust Corp, we’re here to help real estate developers navigate every step of the financing process. Have a project in mind? Let’s talk about how we can help you fund it safely and successfully.
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