Private Money Loans Vs Hard Money Loans, What's The Difference?
When you're working in the real estate industry, some of the most important people to establish a relationship with are private hard money lenders. This is true especially if you want to run a sustainable business.
It doesn't matter if you're a new investor or a seasoned veteran, you're going to want to scale your business sooner or later, and you can't do that with skill alone. You're going to need something else to generate and increase the volume of your sales and assets, and that's funding.
You need to build relationships with those that have the necessary capital to complete more deals and grow. Private hard money lenders are a critical component of a successful real estate investor career.
Private hard money lenders essentially provide the confidence and funding for investors to close more deals by privately funding a hard money loan. They offer more liquidity to investors and their businesses, giving insulation against risk and allowing a diversity of portfolios.
But what's the difference between private money lenders, and private hard money lenders? Is it really just a word?
Private Money Lender
To put it simply, a private money lender is an individual with the means and intent to invest capital. That can be anyone with a little extra money and an interest in what you can do. It's up to you to see that your business and their interests converge.
Private money lenders, more often than not, are using their own bank accounts to fund a deal. You won't have to wait for an extended period of time because of this, and thus can move quickly on time-sensitive deals. A traditional bank loan doesn't offer the same efficiency.
Hard Money Lender
A hard money lender, or private hard money lender, provides a short-term, high-rate loan and will cover the cost of purchase and renovation expenses. However, they are also typically more organized and semi-institutional. In addition, they have often have been licensed to lend to investors.
The term "hard money" does not imply a degree of difficulty in getting the funds, as that's actually quite easy. The term exists because the loan is based on the asset in question. They want to make sure that the home is deemed promising before they invest, and the more promising the home, the more likely you are to get a loan.
Hard money loans are secured by a property with 30% to 50% equity, so the investor is protected as well.
Those are just the basic differences between the two different types of lenders. If you have any questions about getting a hard money loan or a private loan, don't hesitate to contact our team at Maggio Capital.