Hard Money vs. Private Money in Real Estate Investment

Both hard money and private money can potentially help you get involved with real estate investment. While these two types of loans are very similar, there are a few key differences that you will need to be aware of. Here are the basics of hard money and private money and how they are different.

Hard Money and Private Money

Both hard money and private money can provide you with a loan if you are in need of purchasing real estate. Both of these options are outside of the traditional lending industry. You are not going to walk into a bank and secure this type of loan. Both of these types of loans are provided by individuals that have excess money to lend. The individual is going to agree to lend you the money that you need for a certain amount of interest. You will then use the money to purchase real estate and begin making payments to the lender.

Private Money

With private money, you are going to be in charge of what goes on with the money once you receive it. Private lenders are individuals that do not necessarily care about the details of the business arrangement. They are not real estate investors and they simply want to get a specified amount of return for the money that they lend. When you work with this type of lender, you are going to be able to negotiate all of the terms of the loan. You will be able to tell them how long you need money and tell them what interest rate you are willing to pay for it. The lender is going to have some negotiating ability as well. Once they give you the money, you are free to use it as you see fit. As long as you repay the debt, the investor does not care what happens.

Hard Money

Hard money is a similar arrangement except that the hard money lender is going to have a say over what happens to the money. The hard money lender typically has certain deals that they will lend for and they will stay away from other types of investment. The lender is going to have a lot more control over this type of arrangement. They are going to tell you what you can use the money for and when you have to pay it back. They are going to specify what interest rate they are willing to lend at. 

The hard money lender is going to want to find out specific information about the real estate transaction. For example, certain hard money lenders may only want to invest in rehab projects or raw land. If you do not plan on investing in this type of deal, you are not going to be able to gain access to the money that the hard money lender has to offer. 

Considerations

If you are the type of individual that likes to have control over everything, you may want to work with a private lender. However, if you just need access to money and you do not care about having to follow some rules, a hard money lender could be beneficial. 

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