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Understanding Hard Money/Private Money

by Ian Walsh

Hard money and private money are very misunderstood by many investors.  Many people would like to learn how to buy their next flip, cash out of a current project or take out a bridge loan to help leverage their business. True hard money and private money are very similar.  It really depends on a few things to determine what is the best fit for your needs and how to go about approaching the funding source.

Couple getting bank loan to buy property for flipping

Hard money at it’s core is the same as private money in many aspects.  True hard money is normally backed by an individual that does their own underwriting and would not need an appraisal to determine if they will lend money against a property.  The other version of hard money in today’s market is institutional back funds.  This is a fancy way of saying the company has funds via the bank as opposed to the individual.  Bank-backed hard money will tend to be less flexible on what is needed, require an appraisal and a lot of documentation because ultimately the file has to be put in front of the institution lending the money.  They are the underwriters and decision makers on deploying the funds.  With a privately backed hard money company, they are usually local, very flexible, fast and don’t require documentation.  The cost of bank-financed money is usually a bit cheaper than privately financed.  The key is for the investor to decide on what their goals are and how they want to achieve them.  If they are looking for speed, ease and quick decision, then they likely want to work with a local privately funded hard money lender.  If they have time and are looking to really search out the best price, they will probably search for institutional backed companies. 

Private money is very similar to privately backed hard money companies.  Private money is usually just a bit smaller to scale and experience than a privately backed hard money company.  This is normally where someone has a limit of deploying funds under $1,000,000.  The person sometimes lacks experience and the proper outlay of a deal compared the larger lenders but there is an advantage to working private money when an investor is searching for the maximum flexibility and terms combined.  

Each kind of money has a place in the world of finance that fits differently.  Like any industry, they are not all built the same and people should know what their goals are before deciding which type of money they would like to pursue.  Many experienced investors use all three sources at different times and for different projects because they know what fits and what doesn’t on the particular end goal for that project and their needs.   If you’d like to network with some of our money lending vendors or learn more about hard money/private money, attend one of our monthly meetings as a guest!

You can also contact Ian Walsh directly at ian@hardmoneybankers.com

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