Hard Money vs. Private Money: Which is Right for Your Next Real Estate Deal?

Financing is one of the biggest challenges in real estate investing. While traditional bank loans may seem like the obvious choice, they often come with slow approvals, strict requirements, and limited flexibility—making them impractical for many investors.

That’s where hard money and private money come in. Both financing options provide fast, flexible capital for real estate deals, but they work differently. Choosing the right one can mean the difference between maximizing profits or overpaying in interest and fees.

In this guide, we’ll break down:

• The key differences between hard money and private money.

• The pros and cons of each.

• When to use hard money vs. private money.

• How to find the right lender for your next deal.

By the end, you’ll know which funding option best suits your real estate strategy—whether you’re flipping houses, buying rentals, or scaling your portfolio.

How to Build Long-Term Relationships with Private Lenders for Future Deals

What is Hard Money?

Definition

Hard money loans are asset-based loans provided by professional lenders or lending companies. These loans are typically short-term (6-24 months) and are secured by the property being purchased.

Key Features of Hard Money Loans:

✅ Fast Approval – Funds can be available in 7-14 days instead of months.
✅ Asset-Based Lending – Approval is based on the property value (LTV ratio) rather than the borrower’s credit.
✅ High Interest Rates & Fees – Typically 8-15% interest with 2-5% in lender fees (points).
✅ Short-Term – Most loans must be repaid within 1-2 years.
✅ Lower Loan-to-Value (LTV) Ratios – Usually 60-75% of the ARV (After-Repair Value).

Example Use Case:
An investor finds a distressed property priced at $150,000 with an ARV of $300,000. A hard money lender provides $105,000 (70% LTV), allowing the investor to acquire and renovate the property quickly. The investor sells it within 6 months and repays the loan.

What is Private Money?

Definition

Private money loans come from individual investors or private institutions rather than professional lending firms. These lenders typically offer more flexible loan terms and lower interest rates, often based on personal relationships.

Key Features of Private Money Loans:

✅ Flexible Terms – Interest rates, repayment schedules, and loan structures are negotiable.
✅ Lower Interest Rates – Typically 6-12%, depending on the lender.
✅ Relationship-Based Lending – Borrowers often know the lender personally.
✅ Longer Loan Terms – Can range from 6 months to 10+ years.
✅ Higher LTV Ratios – Some private lenders fund up to 90% of the purchase price and 100% of rehab costs.

Example Use Case:
An investor secures a $250,000 private loan from a retired investor looking for passive income. They agree on an 8% interest rate with a 3-year term, allowing the investor to refinance after stabilizing a rental property.

Hard Money vs. Private Money: Key Differences

Factor

Hard Money

Private Money

Source

Professional lenders & firms

Individual investors (friends, family, investors)

Approval Process

Based on property value & ARV

Based on relationship & deal quality

Interest Rates

8-15%

6-12%

Loan Fees (Points)

2-5% of loan amount

0-3%, often negotiable

LTV Ratios

60-75% of ARV

Up to 90% of purchase price + rehab

Loan Term

6-24 months

6 months to 10+ years

Speed of Funding

7-14 days

Varies (Can be very fast or slower)

Flexibility

Limited (fixed terms & high fees)

Highly flexible (negotiable terms)

Pros and Cons of Hard Money Loans

✅ Pros:

✔ Fast approvals – Great for competitive deals.
✔ No personal credit requirement – Loan is secured by the property.
✔ Great for fix-and-flip projects – Short-term nature aligns with flipping strategy.

❌ Cons:

❌ Higher interest rates and fees – Can cut into profits.
❌ Short loan terms – Must sell or refinance quickly.
❌ Lower LTV ratios – Requires a larger down payment.

Best For:
✔ Fix-and-flips, auction properties, and short-term deals.
✔ Investors who need fast capital.

Pros and Cons of Private Money Loans

✅ Pros:

✔ Lower interest rates and fees – More affordable than hard money.
✔ Flexible terms – Negotiable repayment schedules.
✔ Higher LTVs available – Less money out-of-pocket.

❌ Cons:

❌ Can be slower to secure – Finding the right private lender takes time.
❌ Relationship-dependent – Lenders often fund those they know/trust.
❌ Less regulated – No standard underwriting process.

Best For:
✔ Rental property investors, BRRRR method, and long-term deals.
✔ Investors with strong personal networks.

When to Use Hard Money vs. Private Money

Scenario

Best Option

Why?

Fix-and-flip project

Hard Money

Fast funding, short-term loan.

BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat)

Private Money

Longer loan terms, lower rates.

Buying at an auction (quick close required)

Hard Money

Approvals in days, not weeks.

Long-term rental property acquisition

Private Money

Lower interest rates, more flexible repayment.

New investor without lender relationships

Hard Money

Easier to secure without prior connections.

How to Find the Right Lender for Your Next Deal

1. Finding a Hard Money Lender

• Use platforms like My Verified Investor to connect with vetted lenders.

• Search for local hard money lenders in your market.

• Compare rates, fees, and terms before committing.

2. Finding a Private Money Lender

• Network with real estate investors – Many experienced investors offer private loans.

• Join local real estate investment groups or REI clubs.

• Pitch your deal to friends, family, or accredited investors.

3. Build a Strong Relationship

• Always present a detailed investment proposal.

• Be transparent about risks and potential returns.

• Execute deals efficiently to maintain credibility for future funding.

Conclusion

Both hard money and private money are powerful financing tools for real estate investors, but choosing the right one depends on your strategy, deal timeline, and financing needs.

• Use hard money loans for fast, short-term flips when speed is crucial.

• Use private money loans for long-term rental acquisitions or BRRRR deals where flexibility and cost matter more.

At My Verified Investor, we connect investors with reliable private lenders and hard money lenders who can fund deals quickly and efficiently.

Need funding for your next real estate investment? Sign up today and get matched with the right lender for your strategy!