Hard Money vs. Private Money Lender: What's the Difference?

Hard Money vs. Private Money Lender: What's the Difference?

January 12, 2024

There are various options for real estate investors looking for financing and two of these are using hard money and private money loans.

In lieu of traditional lenders which may be cumbersome and time-consuming for agile investors that are always on the lookout for great deals in the market, hard money lenders and private money lenders can be an indispensable alternative source of funds. Both can provide a creative financing solution for real estate investors and quicker access to funds than traditional lenders.

But while many people may interchange the two and consider them to be largely the same, hard money is quite different from private money. In this article, we will look into the similarities and differences between these two real estate loans.

What is a Hard Money lender?

A hard money lender such as Longleaf Lending specialize in providing short-term loans for real estate investments. These loans are asset-based, meaning they are secured by the property being purchased or renovated, and the loan amount is based on the value of the property rather than the borrower’s credit score or income.

What is a Private Money lender?

A private money lender, on the other hand, are individuals or companies that lend money for real estate investments on a more personal basis. Private money lenders are often friends, family members, or business associates of the borrower who are willing to lend money for real estate investments.

Similarities between Hard Money Loan and Private Money Loan

Both hard money lenders and private money lenders provide faster financing than traditional lenders. You can get funded in as fast as 2 days, like with Longleaf Lending.

Hard money and private money also offer more flexibility than traditional financing and often does not require you to jump into so many hoops to get access to funds.

Hard money lenders versus private money lenders: What's the difference?

  1. Knowledge and Experience: Hard money lenders specialize in providing funding for real estate investors and are licensed to do so.

    Hard money lenders can provide a highly valuable source of guidance and professional assistance for real estate investors especially those who are new to the business. In many cases, an extra set of eyes from professionals in real estate investment can provide a huge advantage towards a successful project.

    Private money lenders can be any person or any organization which has the capacity to provide funding, regardless of prior experience in real estate investing.

  2. Loan Terms and Guidelines: As hard money is a regulated business and more institutionalized than private money, the funding guidelines and terms are more organized than most private money lenders.

    With private money lenders, terms and criteria can vary widely depending on what is set by the lender.

  3. Flexibility: Hard money loans are more flexible than traditional financing but private money loans can be even more flexible than hard money. This is because in most cases, private money loans are provided by people who have a personal relationship with the borrower so they can provide an extremely flexible and more personalized arrangement.

    But be careful in going this route because there is a chance that relationships can deteriorate as a result of unsuccessful projects or failure to pay.

  4. Systems and Support: Hard money lenders are formal companies with established systems, business processes, and support staff. This can provide real estate investors with a reliable partner in their projects.

    Questions such as repayment schedules and different concerns can be answered immediately following a set of protocols compared to private money lenders who may or may not have business processes and automated systems ready to serve the borrower.

Hard Money or Private Money?

At the end of the day, it is up to the real estate investor to decide which loan is best for his or her investment property. Both hard money loans and private money loans are viable options for financing real estate investments.

It all depends on the hard money lender and the private money lender being eyed by the borrower, so a thorough analysis and comparison of the funding guidelines should be done.

While hard money loans may turn out to be more expensive and less flexible than private money loans, they can provide quick access to capital for borrowers who need it and an added edge in experience on dealing with real estate investments. Private money loans, on the other hand, can be more affordable and more tailored to the borrower’s needs. Ultimately, the choice between the two types of loans will depend on the borrower’s individual situation and goals.

If you are looking to build a partnership with a hard money lender, talk to us at Longleaf Lending. We have funded over 280 hard money loans totaling to more than $65M in loan value since 2018. Whether or not you have an existing property in mind, you can submit a request today and we can help you strengthen your next offer.