It’s easy to confuse private money with hard money for real estate investment purposes, but the truth is they are quite different. There are points however where they are similar though, for instance, it is possible for hard money to originate from a private individual same as private money. This article deals with the differences of the two, though. Let’s start.
Hard money requires points paid immediately on securing the loan. It has high interest rates, is low loan to value, and it draws for any repairs. Hard money is not given just for any deal, it is typically short term and thus requires refinancing.
Private money, on the other hand has lower interest rates and no points or draws. It’s possible to apply for a long-term loan, and the conditions are more flexible.
Real estate brokers and investors who use private money to buy profitable investment property deals don’t have to experience the hassle of dealing with the caveats and demands of hard money lenders. Just thinking about paying 5 points up front and a fifteen percent interest can make any investor anxious and that doesn’t even include the lending fees and closing costs!
Hard money’s biggest detractor is its rigidity. Borrowing from hard money lenders shackles you to their requirements and lending criteria. Wondering where I learned all this? I give out hard money loans myself. I also get private money loans. I take private money from my investors and then loan that cash out. I have high standards for this, and the majority of borrowers do not meet the qualifications for my hard money loans. I have to make sure the people I’m lending to have good credit an of course, the deal has to be attractive as well.
For those real estate investors who don’t qualify for loans, this isn’t the end. I take this opportunity to give them tips on how to get private investors so they can buy those foreclosures on short sales.
Just because they don’t get the loan, doesn’t mean they will not profit on the deal. It’s just that their deal is outside that zone where I see the greatest benefits. If I had to give them advice, I’d tell them to check out private money loans more. If they had an investor backing them with private money, they can easily shape up that perfect deal without wasting time searching foe a lender that can loan them the cash needed for the deal.
Another thing, if you have to search for hard money loans for your deal, you could lose it to the cash buyers. Banks and asset managers are not going to sit around waiting for your loan to get approved so the one with the ready cash gets the deal. Also, even if your hard money loan gets approved, there’s no guarantee that it will cover what you need for the deal.
As you can see, it’s very important to widen your connections and build a network of private investors. Even with a single private money investor, it’s possible for you to access thousands of dollars for a single project. Don’t restrict your profits or potential with the strict impediments of hard money lenders. To learn more about how you can find private money investors for your deals click here.