Hard money vs. private money: what’s the difference?
If you are in the business of buying and selling real estate, you may already know the term “hard money”. But what is hard money, exactly? And what is the difference between hard money and private money and how does it apply to your situation?
Here’s how we define hard money:
A hard money loan is short-term, asset-based financing that is secured by the real estate you are purchasing.
You might choose a hard money loan if:
- You require a fast closing and need the cash to do so
- You have recovering credit
- You need to act on a lucrative opportunity right away
- You need however do not meet banks onerous guidelines
- You don’t have time to raise the capital you need
Hard money loans have higher interest rates attached to them, so they aren’t ideal in every situation. However, if you need to turn over a deal quickly, the expedience with which you can obtain a hard money loan is a definite advantage.
What is private money?
Private money refers to money that is put up by a family member, friend, colleague or just generally a source that is not necessarily in the business of being a lender.
Private loans may be ideal in many ways, but they also are difficult to come by. If you are in the business of buying and selling real estate on a consistent basis or if you are going in that direction, having access to a range of lending options will always be in your best interests.
Interesting fact: many hard money lenders are now starting to call themselves “private lenders” as the term hard money has negative connotations. This is a growing trend with the purpose of appearing less aggressive and more inviting to prospective borrowers.
Private money pros and cons
On the plus side, private money can provide you with greater flexibility on repayment. It can also provide you with 100 percent of the funding you need to purchase the property you want. This is an area where private money differs quite a bit from hard money, as hard money loans will typically only finance up to 75 percent of your purchase.
On the downside, due to the personal nature of your relationship to the lender, you may not be in a position to make demands, obtain additional funds, and so on.
It’s all about having options
If you are buying and selling real estate, you need to remain agile enough to jump on a great opportunity when you have the chance. Having more than one option for financing ensures that you have the resources you need when you need them.
Hard money pros and cons
Hard money lenders are generally private, non-institutional companies who specialize in real estate loans.
On the plus side, hard money loans can be obtained quickly, allowing you to strike while the iron is hot. If you need to close fast, you can make that happen in as little as five days. There are generally no prepayment penalties and no limits as to how much you can borrow. Hard money lenders are in the business of lending thus a more reliable option for funding
On the negative side, the loan terms can be more expensive. Also, a hard money lender may not be as forgiving in the event of missed payment or at maturity when the loan becomes due or scheduled to be paid off.
If you need a hard money loan, we can help. Apply now or drop us a line to learn more.
