Finally, you found the property you’ve been looking for and the owner is ready to sell, but you don’t have the cash on hand to buy it. That is when you probably came across both hard money lenders and private money lenders. Both can fund your investment property but each serves a different purpose and has unique risks.
In this post, you’ll learn the differences, similarities, and everything you need to make the right choice to fund your project.
Hard money lenders are companies that loan money to real estate investors to acquire investment properties based on the potential gain from the buying price and the selling price.
Private money lenders are companies or individuals that offer a loan based on their own criteria and it could be simply to help you get started in your career. Private money lenders can be a friend, a family member, or even someone who sees your project as a good investment vs. being a licensed company or organization.
Both hard money lenders and private money lenders are similar in that there are no government restrictions in the USA (as of 2/10/2021).
In addition to that they both have benefits including:
Private and hard money lenders differ in the following ways:
When choosing between a hard money and private money lender, think about how long you’ll want before you have to pay the money back in full, what your history looks like and how much of your own personal assets you’re willing to risk.
If you only have sweat equity, a private money lender is a better choice. If you know you can flip a property within a year and you don’t mind using your home or other properties in your portfolio as an asset, hard money lenders may be the right choice for you.
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