Why Private Lending is Better than Hard Money

When it comes to investments and loans for real estate projects, you have multiple options available. The two most common loan sources are private lending and hard money lenders. Private money typically refers to funding from an individual or group connected to you in some way. It may be a friend, family member, business partner, or acquaintance. Hard money lending refers to businesses that are dedicated to lending money for real estate borrowers. 

Those who buy and renovate real estate properties should understand both resources, including the difference between them. While hard money may be quicker to access for some, private lending tends to offer more flexibility, better terms, and more personal connections. Keep reading to learn why private lending is better than hard money.

Hard money is more formal

Hard money lending is done by businesses that have strict rules and regulations for lending. Hard money lenders are focused on numbers and dollars. They are in greater supply for borrowing for real estate projects, but there is no personal connection between the borrower and lender. 

On the flip side, private lending is more relaxed. Instead of defined criteria for lending like hard money, private lenders work off their own judgement or professional industry experience. As private citizens, private lenders can loan money based on their own set of criteria or terms. 

Private lending offers more options

With private lending, you have more freedom to negotiate the terms of your loan. Hard money lenders have strict rules and terms for lending money, and you must agree to their terms or pass on the loan. Private lending has much less of a take-it-or-leave-it approach. Experienced investors can offer smaller terms and feel more confident taking a risk for real estate investment. 

If you do not fit the requirements of typical hard money lending, you still have considerable options with private lending. Private lending focuses on the asset itself, while hard money lenders require a certain credit score. Hard money lenders may also review your experience, employment, history, taxes, assets, debts, and more. Any of these criteria could exclude you from their lending requirements or create stricter terms for a loan. 

Private lending is more personal 

Personal connection plays a big role in private lending. While hard money lenders focus on credit worthiness and the facts and figures on paper, private money lenders evaluate the entire person. Loans from private lenders are often connected to the borrower in some way, including family, friends, acquaintances, or friend-of-a-friend. 

Because private lenders consist of an individual or group of private citizens, they are less corporate than hard money lenders. They do not have bosses and managers to answer to, and they are able to tailor the terms of a loan to meet the borrower. You and your track record weigh more heavily as the primary risk criteria, and the process is likely more low key than hard money lending. 

Private lending creates a network

You can find private lenders online, but most is done person-to-person. With hard money lenders, you can fill out an application online and expect an answer in just a few business days. While the process may seem faster, it is almost entirely out of your hands. Private lending enables you to pitch your investment, your experience, and yourself. 

To find private lenders, it is crucial that you grow your network. Become a member of local or national clubs, REIs, and other organizations. Join an existing network to create valuable connections, gain advice, and learn more about the options available with private lending. 

At Wealth 212, our goal is to get your property funded. If you are interested in private lending for house flipping and real estate investment projects, contact us for more information. We would love to talk to you.