You have two things going on, and they are unrelated for tax purposes:1. doing rehab and paying contractors2. borrowing money from a HM lender

We are paying cash to him every week or so when he sends bill. 

Vrbo and Airbnb send automated messages.

“I guess I missed my chance looking for a private money lender because a hard money lender was interested in my deal.”I don’t understand this—what does one have to do with the other?

(saving the money to have your own deal is the worst idea)

Does Hard Money typically cost 30-40% of the purchase price?? 

I suggest you enter private money goldmine in search botton at top right of the screen and read the previous posts....here is one that gives good perspective as well as a link to legitimate private lenders.http://www.biggerpockets.com/forums/92/topics/1488...

Also, I’m pretty new to this but I’m assuming you’d have to have an LLC in place to accept hard money or money from private lenders? 

I've never had to use hard money before, so I am not sure what type of conditions are reasonable.

I would focus on saving enough money that if I had a deal go bad, then that money I saved was there to cover it.