Private Money (from a company) vs Hard Money
New to Real Estate · Dallas, TX · Member since 2021 · 22 posts · 8 votes
Private Money (from a company) vs Hard Money
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Lender · PA · Member since 2019 · 533 posts · 461 votes
4yNicole Allen I am not sure that their is a actual definition of the difference. Here is how I see it. Hard money loans were always associated with bridge lending. Short term high interest and upfront costs. What is now called fix and flip lending for construction is a hard money loan by the old definition. see
https://www.investopedia.com › ... › Real Estate Investing A hard money loan is a type of loan that is secured by real property. Hard money loans are considered loans of "last resort" or short-term bridge loans.
However, an entire industry of lenders has grown in the last ten years. National funding companies, many of them backed by hedge funds, started offering thirty year fixed loans at higher interest rates with greater money down. Prior to 2008 they would be known as sub prime loans and today they are called Non QM loans. (Sub prime referred to the status of the borrower. not a prime borrower) These loans are bundled together and sold as securities to investors. The Non-QM market place often has prime borrowers who are utilizing Non QM lenders for speed of execution and the more relaxed underwriting.
The term hard money has grown to encompass both short term bridge lending an these funding company loans which are permanent fixed term loans. It's catchy, but it is also amorphous.
see: private lending. noun [ U ] FINANCE. lending by a person or an organization to people who are having difficulty getting loans, usually at a higher rate of interest than a bank would charge : a private lending agency/company. May 4, 2022
Private lending is generally between individuals or private commercial lenders. (Family offices) So when you know an investor who will joint venture with you for interest on their money, that is a private lender. When the crowd together that is crowd funding. Although a industry has grown where companies are formed that aggregate individual investors to fund loans.
So the difference between private money and hard money is private money is individual to individual or LLC to LLC. Hard money Lenders describe the Non-QM lenders both bridge and permanent.
I believe you should build a team of real estate professionals who can aid you in every phase of your business. A good mortgage broker knows the entire marketplace where you will qualify and the best rates. The private lenders and funding companies all have niches. Some concentrate on refinancing, some are fix and flip lenders. The lenders even have restrictions on asset classes or, construction types. (Mixed use yes, office space no) Having a resource so that you have confidence that your project is being placed with the right lender is important. One lender will approve a project that another will not. Good luck.
18 Replies
- Lender · PA · Member since 2019 · 533 posts · 461 votes4y
Nicole Allen I am not sure that their is a actual definition of the difference. Here is how I see it. Hard money loans were always associated with bridge lending. Short term high interest and upfront costs. What is now called fix and flip lending for construction is a hard money loan by the old definition. see
https://www.investopedia.com › ... › Real Estate Investing A hard money loan is a type of loan that is secured by real property. Hard money loans are considered loans of "last resort" or short-term bridge loans.
However, an entire industry of lenders has grown in the last ten years. National funding companies, many of them backed by hedge funds, started offering thirty year fixed loans at higher interest rates with greater money down. Prior to 2008 they would be known as sub prime loans and today they are called Non QM loans. (Sub prime referred to the status of the borrower. not a prime borrower) These loans are bundled together and sold as securities to investors. The Non-QM market place often has prime borrowers who are utilizing Non QM lenders for speed of execution and the more relaxed underwriting.
The term hard money has grown to encompass both short term bridge lending an these funding company loans which are permanent fixed term loans. It's catchy, but it is also amorphous.
see: private lending. noun [ U ] FINANCE. lending by a person or an organization to people who are having difficulty getting loans, usually at a higher rate of interest than a bank would charge : a private lending agency/company. May 4, 2022
Private lending is generally between individuals or private commercial lenders. (Family offices) So when you know an investor who will joint venture with you for interest on their money, that is a private lender. When the crowd together that is crowd funding. Although a industry has grown where companies are formed that aggregate individual investors to fund loans.So the difference between private money and hard money is private money is individual to individual or LLC to LLC. Hard money Lenders describe the Non-QM lenders both bridge and permanent.
I believe you should build a team of real estate professionals who can aid you in every phase of your business. A good mortgage broker knows the entire marketplace where you will qualify and the best rates. The private lenders and funding companies all have niches. Some concentrate on refinancing, some are fix and flip lenders. The lenders even have restrictions on asset classes or, construction types. (Mixed use yes, office space no) Having a resource so that you have confidence that your project is being placed with the right lender is important. One lender will approve a project that another will not. Good luck.
- Lender · Boca Raton, FL · Member since 2014 · 250 posts · 133 votes4y
There is non. I just made a YouTube on this this week and its posted on the @Geltfinancial Channel. But the short answer is non. Its political and marketing reasons on the names
- 4yMatthew CrivelliBusiness MemberLender · MA · Member since 2021 · 1k+ posts · 1k+ votes
Hi Nicole,
Typically when you see investment lending ads it will be for Hard Money even if the ads says different. The line between the two can be murky for some but I believe you have the right idea on the differences between the two. Don't let the ads fool you, 95% of true private money is not being advertised online lol. @Nicole Allen
Freedom Capital Funding, LLC523 Reviews - New to Real Estate · Dallas, TX · Member since 2021 · 22 posts · 8 votes4y
Thank you so much! Great explanation. I truly appreciate all of the details. You are an asset to the BP family.
- New to Real Estate · Dallas, TX · Member since 2021 · 22 posts · 8 votes4y
Thank you Jack. I will check it out - I am a student of YouTube U. Thanks again, I look forward to watching the video.
- New to Real Estate · Dallas, TX · Member since 2021 · 22 posts · 8 votes4y
Hi Matthew - I feel like I am now an insider with this info. This helps me. Thanks for the response.
- Memphis, TN · Member since 2018 · 46 posts · 32 votes4y
It is mostly non bank financing. However, it is not to say that some banks are not investing as part of their portfolio of investments, if allowed, in hedge funds/private equity. Of course, EVERYONE wants a better rate than what the banks are offering in yields, even the banks. LOL. Insurance companies, pension funds etc. are always looking to beat the market as well.
Furthermore, lets be clear, there are upsides and downsides to EVERY investment and loan, even a 1% loan at times from your bank. I have seen those downsides in working capital when a business wants to grow and the bank isn't interested in loosening covenants. I am not speaking of personal loans here.
Those who look at hard money as only a cost AND NOT a benefit are just as wrong as those who look at a 1% loan only as a benefit and not a "cost."
Good luck!
- New to Real Estate · Dallas, TX · Member since 2021 · 22 posts · 8 votes4y
Good points. Thank you for sharing. You provided more color and I will ensure that I am considering the "good" & the "bad". I appreciate you taking the time to comment.
- Investor · Rathdrum, ID · Member since 2021 · 47 posts · 42 votes4y
The two definitely have a lot of common gray area.
Hard money lenders are typically asset based lenders. So when we give a hard money loan, we're taking 1st lien on the property we lend on, making sure there's ample loan to value, vetting our clientele, and trying to set us both up to succeed. There's a lot of benefits we can offer. Closing quickly, providing interest reserves so you're not making monthly payments for (x) amount of months, providing a rehab budget built in. Rates/fees are higher typically, but we are with you through the whole process. My company doesn't like foreclosing on anyone, and we can work with hiccups along the way.
My understanding of private money lending is more like a promissory note, and may not be secured by the asset itself. Typically provided by anyone with money in an IRA they want to lend, a person who has money just sitting in the bank, or a friend/family member. Where utilizing them and having a deal fall sour can strain the relationship you have with them.
Really, both have pros and cons. I'd definitely shop around and get in touch with both about fees/structures/exit strategies. Just find what works best for you!
If you have any other questions, I'd love to help!
- 4yBeth JohnsonPro MemberLender · Renton, WA · Member since 2018 · 215 posts · 216 votes
@Nicole Allen
The definitions of Private money and hard money will vary greatly depending on who you talk to but the primary concepts to understand is where the capital source comes from.
Private money is typically from private individuals or entities but can also be from a pooled mortgage / private debt fund. This type of capital generally has far less strict lending guidelines and may or may not have origination costs. As some have said, some private lenders will not require security from a piece of real estate because they know the individual borrowing the money. I always recommend securing the loan though for a whole host of reasons. These loans are backing relationship-based and local.
Hard money generally is from a company that either has direct access to capital or is involved in brokering loans. Many will have ties to institutional capital that make underwriting stricter.
- leveraging their pooled fund via warehouse line is credit to have access to more funds
- selling through their funded loans on the secondary market to institutions who want a loan portfolio for the interest income
- lenders who table fund deals with help from capital markets providers
These types of bridge lenders deal in larger volumes and will be a step or two below getting bank loans. They often have a national or regional presence and will often offer teaser rates that are based on credit, capital and other non-asset based underwriting which can drag out the funding process, especially when an appraisal is required.
Another way to look at it would be portfolio or balance sheet lenders who have supreme control and flexibility over the deals and terms they offer while those lenders tied to capital markets will have constraints from their capital providers. For example, any lender with institutional capital backing will likely not do a 2nd position loan but a private lender could and often does.
Why does capital source of the private or hard lender matter? In 2020 when covid hit and all the banks and capital markets shuttered in fear of what would happen; truly private, balance sheet lenders like us were still funding deals.
- Lender · CA · Member since 2022 · 48 posts · 23 votes4y
Hi Nicole! I work for a private lender who lends hard money. There isn't necessarily a difference but hard money is typically for quick fix and flips.. then on the other hand our DSCR loans are not hard money which is why we call ourselves "private", mainly, over "hard money".
Hope this helps!
- Memphis, TN · Member since 2018 · 46 posts · 32 votes4y
I know of hard money lenders that stopped lending overnight, some who totally went out of business (commercial), and others who lent through COVID. On the working capital side I had my fave non-bank SBA lender to change underwriting reqs. They still haven't returned to pre-COVID underwriting. My bank lender didn't change underwriting reqs as far as I could tell though. However, they are pretty much non-depository.
- Lender · Boca Raton, FL · Member since 2014 · 250 posts · 133 votes4y
Quote from @David Malik:
I know of hard money lenders that stopped lending overnight, some who totally went out of business (commercial), and others who lent through COVID. On the working capital side I had my fave non-bank SBA lender to change underwriting reqs. They still haven't returned to pre-COVID underwriting. My bank lender didn't change underwriting reqs as far as I could tell though. However, they are pretty much non-depository.
I hear this all of the time. I am not Self promoting by Gelt Financial has been steady since 1989, and busy during Covid and still lending.
- New to Real Estate · Dallas, TX · Member since 2021 · 22 posts · 8 votes4y
Thank you for the information. That makes alot of sense. Thanks again!
- New to Real Estate · Dallas, TX · Member since 2021 · 22 posts · 8 votes4y
Thank you. You provided a fresh perspective on this topic. Thanks for taking the time to share in more detail.
- Lender · Member since 2022 · 441 posts · 134 votes4y
There are many lableings for the same things or just companies/ people marketing incorrectly. We advertise this way because we do actually have private money- pool of partners lending their own capital. We are also a HML, as that is what the company was started for in 1997. This causes a lot of misguidance and lenders try to use every labeling possible to not be disregarded as not being able to do the loan or not approached because they don't offer that type of loan, but they actually do under a different name/ labeling.
That is why there are forums like this to educate the community, though many lenders spend no/ too little doing that, keep asking these good questions!
- New to Real Estate · Dallas, TX · Member since 2021 · 22 posts · 8 votes4y
Thank you for the additional information. We (BP newbie community) appreciate you taking the time to provide more information.
- Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 726 votes4y
Nicole there is no difference IMO. It is surprising to see others say there is. This is the world of private money. No difference between hard and private. Money is money!
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