They say that hard money lenders are the solution to any real estate investor’s funding impasse. On top of that, there’s been an evident confusion on the difference between hard and private money. What are the distinctions despite seen similarities? Which one should you prefer if you wanted to scale up your business? Learn the top three answers to what makes them poles apart when it comes to funding deals.
—
I want to take a moment and welcome you and also thank you for sharing your time with me. For this episode, I will attempt to answer a question that I hear a lot in the REIA or Real Estate Investment Association meetings in the community and yet hearing it in the flesh and then seeing things online. To me, there’s some confusion there. That is the simple question of what is the difference between hard money and private money? You can start with things like the difference in the terms. Both hard money and private money can be very short-term. In fact, most hard money loans are short-term, six to twelve months. However, the difference with private money is I have some loans that are out three years. Some lenders will provide landlords a ten to fifteen-year loan at a relatively reasonable interest rate at 5%, 6% and they’re completely comfortable with it. That wouldn’t be me.
However, the real difference for me comes down to the intent and it’s not the intent of the loan or the intent of the property or the transaction. It’s the intent of the individual. For me, a private money lender or a private mortgage note investor is someone who is typically not in the business of making loans. It’s not Wells Fargo or Quicken Loans or name your mortgage company or big bank. Those companies are in the business of making loans and deriving their profits from the interest rates and the points charged. A hard money lender, like the banks or mortgage companies, is in the business of making loans and deriving business income off of those loans. The difference is a hard money lender will typically go to someone like myself or you who want to be a private lender and borrow at say 8% or 9%. Turn around and then loan that money out to an investor at a much higher interest rate. They get the points most of the time.
As long as it's our money, it's our choice.
Click To Tweet
Some hard money lenders will pay the first lender much more, 10%, 11%. However, when they loan it out to the investors, they’re pulling off points and possibly the spread, the difference in between that interest. That’s a business. That’s not what I do. It’s not what I talk about when I talk...
