Real estate investors understand the importance of leveraging hard money lenders for their deals. The term, ‘hard money lenders’ can also be used interchangeably with the term ‘private money lenders’ as they provide asset-based loans protected, secured, and insured by real estate.
Hard money lenders vs Private money lenders
When discussing loan products with other investors, I prefer to make a distinction between hard and private lenders merely for the sake of clarity. For this guide, a ‘hard’ money lender is considered an institutional, professional money lender typically funded by a pool of investors with a management team dedicated to underwriting the loans they provide. They will have a codified set of lending criteria. The sole purpose of this lender’s business is to provide funding for real estate transactions. If they are not lending, they are not making any money, and they will lose their investors quickly.
For me, the best definition of a ‘private’ money lender is an individual or non-professional lender with whom an investor may need to spend more time teaching the benefits of real estate investing. This type of lender can be anyone with resources available for an investor to borrow. Maybe they have money sitting in a bank or retirement account that is not going anywhere, so when we teach them how to grow their income passively through real estate lending, we are helping them to increase their yields while being secured by a real asset.
They both have their benefits and drawbacks, so there are important distinctions to consider.
The advantages of hard money lenders include:
- Another set of professional eyes looking at your deal. After their expert evaluation, if they fund it, you know that you have a solid deal.
- Time savings. You can secure anywhere from 70-90%+ of the capital for your entire transaction from a single source in a matter of days merely by providing their required documentation.
- Hard money lenders can have access to funding for multi-million dollar transactions. If you have strong relationships with multiple lenders, you as an investor will never run out of capital.
The disadvantages of hard money lenders include:
- The cost of money. Their investors are seeking a reliable ROI plus the management team needs to get paid as well. As such, interest rates and points typically get up into the double digits, especially for inexperienced investors.
- Hard money lenders will not provide 100% funding on your property and renovation. If you as an investor fail to make payments or repay the loan, the lender may need to foreclose on the property. Funding at a discount to as-is value allows the lender to mitigate losses.
The benefits of private money lenders include:
- Terms are negotiable. Individual investors will not typically have a firm set of lending criteria.
- The possibility of 100% funding! When you have developed a solid track record as an investor, a PML will want to leverage YOU as much as possible. The more you borrow, the higher their earnings.
- Lower cost of money. Private money lenders only have themselves to repay as opposed to other investors and a management team. Therefore, borrowers with strong relationships can expect to just pay single-digit interest rates with the probability of avoiding monthly interest payments altogether.
The drawbacks of private money lenders include:
- Students do not typically receive a real estate investment education in college. They are mostly ignorant of the fact that they can lend on property transactions protected, secured, and insured just like a bank. Educating and assuring a new PML will take time.
- Unless your lender has bottomless pockets, you will find a limit to their ability to lend.
In general, hard and private money lenders provide loans to borrowers that are typically more advantageous than traditional banks for the types of transactions that investors conduct. Banks will take too much time to fund a deal and will not want to mortgage a house that needs major repairs.
The Definitive Guide to Hard Money Lenders
I travel all around the country meeting students who are aspiring real estate investors. The most common statement I hear is, “If I only had a list of lenders, I could do more deals.” Well, the business is far more complicated than that, I tell them. It is essential to be able to articulate what you are doing and provide details on your process, experience, and the outcome before you even approach a lender for funding.
Another important consideration is to have a proper entity setup before applying for a loan. Most professional lenders will not provide loans to individuals.
Once you have located your distressed property or motivated seller you will want access to a list of hard money lenders who can fund your deals in every state. That is what the resource below aims to provide. You will find professional hard money lenders, their contact information, as well as their general guidelines and places they lend.
I have curated this list of hard money lenders for those who fund either Fix-and-Flip and/or Bridge loans for real estate investors. Though they may have other lending products available, they all advertise providing short-term funding for residential property acquisitions and renovations to investors. What I found most interesting through this research is that there are several lenders open to the idea of taking 2nd or 3rd lien position!
Invest your time leveraging this resource. Bookmark and share it with your friends. Inform me of changes in the comments section below or Contact Us. I have confirmed all of the listings and guidelines as of the date of publication and will keep this resource up-to-date as time and information permits.