Private money vs hard money—how do you decide?

Question

For those who’ve used both private and hard money:
What factors usually drive your decision?

Speed, cost, flexibility, relationships, or deal size?
Interested in how experienced investors weigh the tradeoffs.

Doug Smith · Answer

Private Money, Hard Money, and Bridge Loans are often confused, but they are different. Hard Money simply means they are only using the collateral value as the deciding factor in the underwriting process...no credit, income, etc. Private Money just mean that the lender is non-institutional. Bridge Lending is simply a short-term loan to get you through a short-period until you can sell, pay off, or refinance a property. You can have any combination including a Hard Money Bridge Loan from a Private Party. The factors are simply your personal situation and what you need. If you have terrible credit but strong equity, then a Hard Money...perhaps private loan might be in order. If you want to save in the rate, you might go with a full-doc private (or even institutional) loan. Institutional loans are often less expensive (but not always) than Private Money. I think they key is to find a really strong, experienced lender that you trust that offers Hard, Bridge, Private, and Institutional Lending and then talk through the pros and cons for your situation. Your situation will be unique to others. Good luck to you. I wish you well.

J Castro · Answer

Hey @Michael Santeusanio, Great Topic!

One that we get asked very frequently by new investors. From what I’ve seen working with experienced investors, the choice between private money vs. hard money usually comes down to a few very specific, commonly used criteria.Experienced investors usually weigh a mix of speed, certainty, and structure, and the right choice often depends on the deal’s timeline and complexity.Hard Money tends to win when:   • Speed to close is critical   • The borrower needs higher leverage or a more structured rehab draw process   • The deal requires a lender who is used to assessing value and risk quickly   • There’s a need for predictable underwriting and a clear, repeatable process

Private Money is often preferred when:   • Flexibility matters more than structure   • Borrowers want lower fees or a more relationship-based arrangement   • The deal doesn’t require renovations or complicated funding mechanics   • The investor has long-standing trust with the lender

Most seasoned investors tell us they choose based on certainty of execution—who can reliably close fast, fund clean, and stay consistent from one deal to the next. Speed gets the attention, but reliability and transparency usually make the final call.

Leroy K. Williams · Answer

J Castro, This is a great response however many investors find that predictability with Hard Money isn't always so predictable.  There are HML who will market themselves as "Asset Based Only" however when it really comes down to it they are still asking for credit scores, experience, and significant skin in the game.  I used Hard Money back in 2002-4 when it was literally Hard Money. You came with a property under contract, the HML had the property appraised and if the numbers stacked up where the purchase, loan cost, and rehab was all within the 65-75% of the ARV your deal was funded.  That was predictable. It was real Pawn shop style real estate financing. You walk in with an asset under contract, it was examined and if the numbers lined up your deal was closed.  The hard money of today is a mixed bag but to get you in the door all sorts of promises are made bv lenders.  One of our last deals was financed with Private money and it was a lender one of the partners had a previous relationship with. This relationship based private lending was faster and more reliable in the end.  In my book and from my limited experience the biggest difference is how much money does a private lender have at any given time and will that money always be available for deployment.  Not knowing if your lender has the ability to scale with you is an issue that you won't necessarily have with Hard Money.  There are so many great deals that come across my desk. I wish there was an predictable and fast lender out there who is truly asset based only, so if anyone knows of pre-2008 hard Money please inbox me I would love to talk.

Kenneth Garrett · Answer

@Doug Smith

Love this topic.  I’ve been using private lenders for many years.  The term private lender and hard money lender gets over used and there is definitely crossover, but they are different.  I see hard money lenders market their services as private lenders.

I describe a private lender as an individual, not institutional as you described.  Could be an uncle, aunt, parent, grandparent, friend, associate etc.

I like the private lender route as I can borrow 100% of the purchase and rehab money for my BRRRR and Flip projects.  I am mostly a BRRRR investor.  I pay the interest and any points during the refinance.  You can use it as a bridge loan as well.

Found my private lenders at my local REIA meeting.  Great way to scale if used properly.  Need to treat your private lender as if it were your grandmothers money.  Even if you take a hit keep that relationship solid.  It will last you a lifetime.

Kerry Baird · Answer

This was a great question, and a thorough response.

Doug Smith · Answer

Thank you. I love Melbourne! We've done a lot of business there and we have a very close friend with a 2nd home on A1A in Melbourne Beach. We actually had a beachfront property under contract with the idea of building on it, but the permitting turned out to be a nightmare. There's that little "jog" on A1A there in Melbourne Beach with that Pizza Place, a Couple of little Mom-n-Pop Restaurants, that amazing deli/market that I really, really love. I definitely need to buzz over for a short vacation there very soon.

Private money vs hard money—how do you decide?

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