Scenario:

You’re under contract with a $100,000 hard (non-refundable) deposit.  The bank can’t close on time.  A private money lender can close in 5–10 days, but charges a higher rate and points.

Option A — Wait for the Bank (Lower Rate, Higher Risk)

• Consequence of missing the deadline:
• Lose $100,000 deposit
• Potentially lose the property (seller cancels/takes backup offer)
• Plus the hidden costs: inspections, appraisal fees, moving delays, and time lost

Consequence: $100,000+ (and the deal may be gone)

Option B — Private Money Bridge (Higher Cost, High Certainty)

Assume:

• Bridge loan amount: $1,000,000
• Points: 2 points = $20,000
• Rate difference vs. bank: 11.5% private vs. 6.5% bank
• Exit: refinance in 90 days (3 months)

1) Points cost:

• 2 points × $1,000,000 = $20,000

2) Incremental interest cost (private vs. bank):

• Rate gap = 5.0%
• Extra annual interest = 5.0% × $1,000,000 = $50,000/year
• Extra interest for 3 months ≈ $50,000 × (3/12) = $12,500

✅ Total “speed premium” for 90 days:

• $20,000 (points) + $12,500 (extra interest) = $32,500

Specify that the $32,500 cost is for securing the deal now, thereby preventing a deposit loss exceeding $100,000 and the risk of losing the property, thereby supporting a precise cost-benefit analysis.

Consequence avoided: $100,000+ deposit loss (plus losing the property)

‘Quick Decision Rule’ is a practical tool to help investors compare the ‘speed premium’ against potential deposit losses to make better decisions.

If the “speed premium” is less than the likely loss from missing the deadline, private money is the cheaper option.

“Private money isn’t cheap—but it can be cheaper than failing to close.”

Optional Second Example (Longer Exit Timeline)

If you think the refinance exit could take 6 months instead of 3:

• Extra interest for 6 months ≈ $50,000 × (6/12) = $25,000
• Points = $20,000
• Total speed premium (6 months) ≈ $45,000

Still often rational versus a $100,000 deposit loss—especially if the property is unique or the deal is strong.