What are the differences of a Hard Money Lender and a Private Money Lender?

[Ethan Gidcumb]

(Before you start reading, I think the overarching theme of this question is that the definition of a Hard Money Lender and Private Money Lender has changed throughout time. That can be the reason some people have differing opinions on how each group should operate in the real estate investment space. There was a lot of information I didn't mention in this post since each company and individual can operate differently so if there was something I failed to mention, please feel free to leave a comment).

The terms Hard Money Lender and Private Money Lender can be confusing because people sometimes use them to mean the same thing. Here is how I see it:

Private Money Lenders:

• Companies: These companies give loans based on the value of the property and the borrower's financial situation.
• Individuals: Wealthy individuals usually care most about the property and the borrower's experience. If both are good, they might give the loan. Individuals and small groups of investors can be more flexible. They have their own rules and might take a share of your profits instead of charging interest.

Hard Money Lenders:

• Nowadays, hard money loans usually come from bigger companies and are more regulated, making them similar to loans from Private Money Lending companies. However, some people might describe a Hard Money Lender like an Individual Private Lender, while companies calling themselves Hard Money Lenders might follow the rules of a Private Money Lending Company.

(To avoid confusion, I ask clients what kind of lender they are looking for and what is important to them. For example, if someone has a low credit score but a great investment deal, I might suggest finding an Individual Private Lender who cares more about the property than the borrower's financial status.)

Differences:

• Hard Money and Private Money Companies: These usually follow strict rules and have more money to lend because they have many investors.
• Individuals: They might offer more flexible loan terms since they decide the rules themselves. They usually have less money to lend, so they are more selective on which projects they finance.

[Jay Hinrichs]

Quote from @Ethan Gidcumb:

Quote from @Jay Hinrichs:

PML and HML are one and the same.. HML just rebranded to PML to give the borrower the illusion that their rates would be lower or terms easier.

folks are always looking for that PML who will lend for far less than market.. and as you mention those would generally be individual lenders.

ANY COMPANY PML or HML that advertises and holds them self out as a lender no matter what they call themselves are HML or PML they are one in the same.

what your getting at with the larger companies is where they get their money.. IE they have warehouse lines with either investment houses in New York or large banks and as such there are underlying rules for them to follow.

PML or HML who has private investors in their fund or brokers for them will have a different set of underwriting rules that maybe tougher or easier depends on the company.

you meet individual lenders private folks who do not advertise or hold themselves out as a lender at REIA meetings and networking.

When i used to speak at these events first thing I would do is ask the audience who if the room is a private lender usually half the audience raised their hands.. Now to be fair this was CA. 

 Thank you for the helpful input Jay!

having cut my teeth with a HML in Oakland Ca in the mid 80s  I have watched this transformation of how the industry is marketed.