When to Use Hard Money (Not Private) for Your Deal


If you’ve been around here for more than oh, like 10 minutes, you know we’re huge fans of private money and the power it can have when leveraged in your real estate investing deals.

We’ve even developed training programs that teach our fellow investors how and where to find private funding for your deals.

But, private money isn’t the only way you can fund your deals. There’s a myriad of other ways including joint venture partnerships with other investors and even hard money.

I’m sure you’re well aware that hard money tends to be the red-headed stepchild of real estate investor funding. It gets kind of a bad rap. Because of that, most investors are focused totally and completely on private money.

The fact is, there are going to be circumstances that come up in which you’ll find that hard money will have a valuable place in your investor’s toolbox. In fact, there’ll be times when hard money will be the perfect solution for your deal.

I think it’s worth hitting on those points, and that’s what I want to do in today’s post. But before I go any further, in case you’re not clear on the distinctions between hard money and private money, let me briefly explain…

What’s the difference?

Around here, we define hard money and private money as different and here’s how…

Hard Money Lenders
The individual or company that deals in hard money loans, typically, will charge more. You’re going to pay a higher interest rate for the money you borrow.

Next, you must fit within their lending program criteria. They have an established program – and you as the investor and your deal – must fit that criteria. They make the rules, and you see if you can play by those rules on their terms.

Private Lenders
Private lenders, on the other hand, aren’t in the business of lending money. Most of the time, they are individuals with access to cash – their own or someone else’s. They’ve been made aware of the opportunity to invest in your deals. They see themselves as fitting within your deal-funding program for your real estate investing business. This means you’re sitting on the opposite side of the table than when working with a hard money lender.

When hard money is the right fit

Now that you’re clear on the difference between the two, let’s take a look at some of the scenarios where private money is a perfect fit.

2015-6-8-borrowWhen you’re faced with a very tight time frame to get a deal funded, hard money can be a great option. Because hard money lenders are in the business of lending capital to real estate investors, they’re accustomed to making spur-of-the-moment decisions.

Here’s an example: There’s a hard money lender in Charleston that I’ve worked with and developed a good relationship with. I had a property under contract and I informed him of the address. He did a quick drive by and had a check at the closing attorney’s office the next day. Now that’s fast. That kind of speed is a huge value to an investor, after all, time is of the essence.

Another time you might use a hard money lender is when you don’t have any other funding available. As long as the deal makes sense, you can go the hard money route. As we’ve mentioned, hard money will usually cost a little more. So, run the numbers, and if the deal still makes sense, then go for it.

Hard money can get the job done. In the long run, what’s going to be more expensive – losing the deal or paying hard money costs?

Another time when hard money can make sense is when you have a clear exit strategy and a back-up plan. Hard money is typically characterized by short terms. A few different hard money loans I’ve gotten have been six-month loans. (The range is usually four months up to a year.)

But I always make sure that within the limited time period I’m borrowing the funds, I have a set plan to fix and flip the property – or I have some other type of funding ready that I’ll use to refinance the hard money out.

When you, as an experienced investor, have a good working relationship with a hard money lender then you can be in the position to refer other investors to them. We, as wholesalers, are always working with investor-buyers. If they don’t have their own cash, we can refer them to our lender.

I know a wholesaler who, rather than working with the big cash cows who buy dozens of houses, likes to work with newer, hungrier investors. These are the ones most wholesalers don’t want to deal with. He focuses on the newbies and walks them through getting the hard money (from him) that they need to buy the house. This, in my opinion, is another huge asset to having a solid relationship with a hard money lender.

Locating your hard money lender

These are my three go-to ways to find hard money lenders…

  1. My number one source to find any potential team member (which includes hard money lenders) is referrals. Specifically that would be referrals from active investors. Many times, investors in local community will have a hard money resource.
  2. Talk with others at your local REIA – real estate investment club meetings. Oftentimes in those meetings there will be a hard money lender sitting in the audience looking for investors. Also, ask the person who’s running the investment club, because they’re usually a ‘hub’ and know a lot of people that they could refer.
  3. Strange as this might sound, I found a hard money lender in the Money to Lend section of my local newspaper. See if there might be a corresponding section in your local newspaper. Check it out – you might just strike gold.

There you have it

As you can see, even though we talk a great deal about private money and are advocates of using private money as much as possible, that doesn’t totally close the door on hard money lending.

Hard money has its place in real estate investing. Once you know how to use it wisely and where to find it, it will become a big-time benefit in your business.

USE patrick-signature-image-1-169x300Happy Investing,


P.S. If you don’t know how to get access to local private and hard money lenders who are already lending in your area, check out this video presentation.

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