Fix and Flip vs. Hard Money - Same thing or not?

Question

In most books involving flipping, the authors usually bring up hard money as an option to help fund your deals early on in your investing career because they are focused on the hard asset. I was under the impression that because they are focused on the property, they don't usually care much about your credit score. However, I came across a fix and flip loan that looks a lot like a hard money loan, except that they have minimum credit score requirements, liquidity requirements, and reserves requirements. After some Googling, it looks like these are two different types of loans. They're both asset-based but one has more underwriting.

I'm interested in the fix-and-flip loan if the additional requirements will end up giving better loan terms. Does anyone have experience using fix-and-flip loans with these additional requirements? How did their terms compare?

Greg Scott · Answer

A rose by any other name...

Greg Scott · Answer

@Nick Belsky  I'm not sure a lipsticked pig would smell quite  as sweet as a rose, which by any other name, would still smell as sweet.

Nick Belsky · Answer

@Greg Scott

How does the saying go?  You can put lipstick on a pig...  Lol!

Jeff S. · Answer

Fix and Flip loan = Hard Money Loan = Private Money Loan = Asset Based Loan = etc., etc., etc.

If you haven’t already figured it out @Kohei Hayashi, these loans are all the same thing.  They are all originated and held privately, compared to the conventional loans you get at a bank, which are bought or backed by one of the Government Sponsored Entities (GSEs) such as Fannie Mae or Freddie Mac.

Though some here feel strongly that a private loan is one made by your mom or dentist and a hard money loan is made by a licensed professional company, this is nonsense. In fact, there is no legal definition for any of these.  They are simply marketing terms with extremely blurry lines.

The good news is that private loans are a much less regulated market than conventional loans and these lenders are generally free to choose their lending criteria with relatively little regulation.

Accordingly, not all lenders require a credit score (we wouldn’t know what to do with yours).  Some, do their own valuations and don’t require an appraisal.  Some will loan to newbies and some not.  Other lenders will loan in many states or just locally.  Interest rates, points, LTV, repayment terms, and durations, for example, are all over the map.  There is no consistency and that’s good for you.

It only means you must be clear about the issues that are important to you and search accordingly.  I recommended you find your lenders locally and keep a stable of them in your back pocket as your deals and their lending criteria fit.

Good luck to you, Kohei.

Fix and Flip vs. Hard Money - Same thing or not?

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