If you’re a real estate investor looking to fund your next deal quickly, you’ve likely heard the terms hard money or private money. Sometimes these words are used interchangeably but they’re actually different. While both can help you bypass traditional banks and move fast on opportunities, they aren’t the same — and understanding the differences can make or break your next project.
Let’s break it down.
What Is Hard Money?
Hard money is a type of short-term lending offered by professional lenders, often referred to as hard money lenders. These are typically companies (not individuals) that specialize in issuing asset-backed loans.
The key characteristic of hard money? The loan is secured by the property itself, not your credit score or financial history. In other words, if the deal makes sense, the lender is in.
Typical Hard Money Terms:
- Loan Term: 6 to 24 months
- Interest Rate: 8% to 15% (sometimes higher)
- Points (Upfront Fees): 1–5 points (1 point = 1% of the loan amount)
- Loan-to-Value (LTV): Typically 65–75% of the property’s ARV (After Repair Value)
Example:
You’re looking at a fix-and-flip property listed at $200,000, and the ARV is $300,000. A hard money lender might lend you 70% of the ARV (i.e., $210,000). They’re not concerned with your W-2 or tax returns — they care about the deal and the exit strategy.
What Is Private Money?
Private money, on the other hand, comes from individuals, not institutions. These could be friends, family, acquaintances, or other investors who have cash and want a better return than they’d get from a savings account or the stock market.
These loans are often more flexible, and the terms are typically negotiated directly between the investor and the lender.
Typical Private Money Terms (can vary widely):
- Loan Term: Flexible (can be short or long-term)
- Interest Rate: 6% to 12%
- Points: 0–2 points
- LTV: Up to 100%, depending on relationship and deal
Example:
Your uncle has $150,000 sitting in a CD making 2%. You show him your deal and offer him a 10% annual return, secured by a first-position lien on the property. He agrees, and you just got private money.
Key Differences Between Hard Money and Private Money
| Feature | Hard Money | Private Money |
| Lender Type | Professional lending companies | Individuals (friends, family, investors) |
| Approval Process | Deal-based, relatively fast | Relationship-based, may be even faster |
| Interest Rates | Higher (8–15%+) | Often lower (6–12%) |
| Points/Fees | 1–5 points upfront | 0–2 points (negotiable) |
| Loan Terms | Short-term (6–24 months) | Flexible — short or long-term |
| Flexibility | Rigid underwriting, stricter rules | Highly negotiable and relationship-driven |
| Speed | Fast (7–14 days) | Very fast (can close in a few days) |
When to Use Hard Money
- You don’t have a private lender lined up
- You need to close fast and don’t qualify for a bank loan
- You’re flipping a property and only need the money for 6–12 months
- You’re OK paying higher interest for speed and access
Example Scenario:
You find a foreclosure listed below market value. There’s a bidding war, and you need to close in 10 days. A hard money lender can underwrite the deal quickly and fund based on the property’s ARV.
When to Use Private Money
- You have a strong relationship with someone willing to invest
- You want more flexible terms (e.g., no prepayment penalty, longer term)
- You’re working on a long-term rental or BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy
- You’d prefer to keep costs (fees, interest) down
Example Scenario:
You’re acquiring a duplex that needs light renovation. A friend is willing to lend you $120,000 at 8% interest, no points, over 18 months. You renovate, refinance, and pay them back — win-win.
Pro Tips for Real Estate Investors
- Vet Your Lenders (and Borrowers): Whether you’re borrowing or lending, always do your due diligence. Run comps, get inspections, and use promissory notes and recorded liens.
- Have an Exit Strategy: Whether it’s flipping, refinancing, or selling, make sure you can repay your lender — especially with high-interest debt.
- Build Relationships: Private money comes from trust. The more successful deals you do, the more capital becomes available to you.
- Don’t Over-Leverage: Just because someone will lend you money doesn’t mean you should take it. Make sure the numbers make sense.
Conclusion
Hard money and private money are both powerful tools in a real estate investor’s toolkit. Hard money is great when speed matters and you need a lender that understands investment deals. Private money shines when you’ve built trust and want more flexible, investor-friendly terms.
Mastering the use of both can give you a competitive edge — allowing you to close faster, fund more deals, and scale your real estate business with confidence.
When you’re ready for your next hard money loan, contact us and let’s talk!