{"id":109511,"date":"2021-06-09T09:30:00","date_gmt":"2021-06-09T15:30:00","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=109511"},"modified":"2024-02-13T16:17:33","modified_gmt":"2024-02-13T23:17:33","slug":"hard-money-vs-private-money","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/hard-money-vs-private-money","title":{"rendered":"Hard Money vs. Private Money: Choosing the Best Creative Financing Solution for You"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm?e=BIGPOC9502943351&#038;light=false\" width=\"100%\"><\/iframe>  \n\n\n\n\n<p>If you&#8217;re seeking creative ways to finance your next investment property, you&#8217;ve likely debated hard money vs private money <a href=\"https:\/\/www.biggerpockets.com\/loans?utm_source=blog&amp;utm_medium=blog-ad\" class=\"rank-math-link\" target=\"_blank\">loans<\/a>. The topics of hard money and private money can be pretty convoluted. It\u2019s even difficult to nail down the definitions.<\/p>\n\n\n\n<p>The reality is there are no hard and fast rules about how the terminology is used. There are popular views that have been proclaimed loudly and repeatedly, making them appear to be the actual answer. However, nothing\u2019s been officially agreed upon. \u201cHard money\u201d is simply naming a convention for someone who is lending money short-term, usually for a higher interest rate. &#8220;Private money&#8221; often refers to a family member or friend&#8230; but doesn&#8217;t have to. <\/p>\n\n\n\n<p>While there are a few guidelines to understanding hard money vs. private money, keep in mind that practices vary by region. <\/p>\n\n\n\n<hr class=\"wp-block-separator has-css-opacity\"\/>\n\n\n\n<h2 class=\"wp-block-heading\">What is Hard Money?<\/h2>\n\n\n\n<p>Like a traditional mortgage, a <a href=\"https:\/\/www.biggerpockets.com\/blog\/hard-money-loan\" target=\"_blank\" rel=\"noreferrer noopener\">hard money loan<\/a> is a loan collateralized by a hard asset. These assets are tangible, such as real estate, vehicles, equipment, gold, or silver\u2014though it\u2019s often real estate. Therefore, a hard money lender is a lender who uses the value of the underlying real estate to determine the loan amount and rate.<\/p>\n\n\n\n<p>There are very few true hard money lenders left. Most of them ask for <a href=\"https:\/\/www.myfico.com\/\" class=\"rank-math-link\" target=\"_blank\" rel=\"noopener\">FICO scores<\/a>, tax returns, or other indicators traditionally used by conventional lenders.<\/p>\n\n\n\n<p>So what should you consider when choosing a hard money loan over a conventional loan?<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Pros of hard money<\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>More flexible with less criteria to meet\u2014perfect for buying a distressed flip<\/li>\n\n\n\n<li>Quicker to receive approval on the loan<\/li>\n\n\n\n<li>Might not need to have a down payment<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Cons of hard money<\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Higher fees and interest rates<\/li>\n\n\n\n<li>Leaves you at risk of losing your property\/collateral<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">What is Private Money?<\/h2>\n\n\n\n<p>On the other hand, there is private money, which is exactly what it sounds like. It\u2019s money lent by a private person or organization for a purchase. As such, terms vary widely. Private money sources can use whatever criteria they&#8217;re comfortable with when \u201cqualifying\u201d the person or entity to which they lend. It can be as basic as, \u201cI\u2019ve known you since you were in diapers, so I trust you.\u201d<\/p>\n\n\n\n<p>Before you start searching to <a href=\"https:\/\/www.biggerpockets.com\/blog\/find-private-money-lenders\" target=\"_blank\" rel=\"noreferrer noopener\">find a private money lender<\/a>, such as a wealthy relative, you should know the pros and cons of private money loans.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Pros of private money<\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Fast approval with more flexibility<\/li>\n\n\n\n<li>No minimum credit score<\/li>\n\n\n\n<li>Allows for rehab financing<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Cons of private money<\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>High fees and interest payments<\/li>\n\n\n\n<li>Shorter payback period<\/li>\n\n\n\n<li>Possible negative implications on your relationship<\/li>\n<\/ul>\n\n\n\n<p>Neither hard money nor private lenders are restricted by banking regulations because they are non-institutional. But both institutional and non-institutional lenders must comply with all lending laws, so there is no free pass for hard money or private lenders.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Examples of private money vs. hard money<\/h3>\n\n\n\n<p>Let\u2019s consider two clear-cut cases.<\/p>\n\n\n\n<p><strong>Case 1<\/strong>: Your grandma believes in you and wants to lend you money for a down payment. She would never lend to anyone else and won\u2019t charge you much. She\u2019s clearly a private lender.<\/p>\n\n\n\n<p><strong>Case 2<\/strong>: A company or person advertising as a hard money lender is <em>clearly<\/em> a hard money lender. There shouldn\u2019t be any confusion.<\/p>\n\n\n\n<p>Now let&#8217;s look at two not-so-clear-cut examples.<\/p>\n\n\n\n<p><strong>Case 1<\/strong>: Your dentist has known you for years and has several real estate investments himself. He has lent money to one other client, also a real estate investor, and is willing to fund your deal. He doesn\u2019t want you advertising his services to others though. He\u2019s a private lender\u2014not available to the general public.<\/p>\n\n\n\n<p><strong>Case 2<\/strong>: Take that same dentist, but now his real estate attorney broker is lending deals to him. He wants more clients and wants you to spread the word. He would be considered a hard money lender since his pool of borrowers could be anyone who meets his criteria, not just friends and family.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Conclusion<\/h2>\n\n\n\n<p>In conclusion, understanding the differences between hard money lenders and private money lenders is essential for anyone navigating the world of real estate financing. Both types of lenders play crucial roles in providing alternative funding solutions, but their nuances can greatly impact your borrowing experience and overall success in your investment ventures.<\/p>\n\n\n\n    \n  <div id=\"visibility-group-block_825739c60216ac56d3fcceb4be9ae47f\" class=\"visibility-group  hidden\">\n        \n\n<div id=\"hero-block_ebd348da5ddd391892b27aa6c1281ed6\" class=\"first:mt-0 hero-block py-4  alignwide   has-background has-theme-gold-light-background-color has-text-color has-theme-gold-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-theme-gold-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Get the Best Loan Today<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color\" style=\"font-size:16px\">Find trusted, <em><strong>investor-friendly<\/strong><\/em> lenders who specialize in your strategy. <\/p>\n\n\n\n<p><\/p>\n\n\n\n<div id=button-custom-event-block_bf9bea814de1e91b60026c931473e3b5 class='button-custom-event'>\n      <a href=\"https:\/\/www.biggerpockets.com\/business\/finder\/lenders\" x-on:click=\"window.analytics.track(&#039;Blog Block | B2C Marketplace Lender Finder&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/hard-money-vs-private-money&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-gold-background-color has-text-color has-white-color\" target=\"_blank\">Find a Lender<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\" first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Marketplace-Blog-Blocks-Lender-v3.png\" alt=\"investor friendly lender, investor friendly real estate loans\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>\n\n  <\/div>\n  \n\n\n<div class=\"wp-block-group\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n    \n  <div id=\"visibility-group-block_64dd31c79f00f\" class=\"visibility-group  \">\n        \n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div id=\"hero-block_64dd2875dba9d\" class=\"first:mt-0 hero-block py-4    has-background has-slate-100-background-color has-text-color has-theme-slate-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<h3 class=\"wp-block-heading my-0 tracking-tight font-extrabold has-theme-slate-dark-color has-text-color has-large-font-size\">Join the community<\/h3>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color\" style=\"font-size:16px;font-style:normal;font-weight:400\">Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more. <\/p>\n\n\n\n<div id=button-custom-event-block_64dd2888dba9e class='button-custom-event'>\n      <a href=\"https:\/\/www.biggerpockets.com\/signup\" x-on:click=\"window.analytics.track(&#039;Blog Block | Acquisition | Free Membership Signup&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/hard-money-vs-private-money&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Sign Up<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n            <\/div>\n<\/div>\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n  <\/div>\n  <\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>If you&#8217;re seeking creative ways to finance your next investment property, you&#8217;ve likely debated hard money vs private money. The topics of hard money and private money can be pretty convoluted. Learn more here.<\/p>\n","protected":false},"author":5181,"featured_media":155746,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7403,7119],"tags":[],"class_list":["post-109511","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-private-money","category-biggerpockets-daily"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/109511","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/5181"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=109511"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/109511\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/155746"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=109511"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=109511"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=109511"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}