Private Money Loans vs. Hard Money Loans: Key Differences and When to Use Each

[John ONeill]

Compare and contrast private money loans and hard money loans.

Discuss scenarios where each type of loan is most beneficial.

Please share experiences and preferences.

[Jay Hinrichs]

they are one in the same .. private money technically is someone who is not in the business of lending money and does only a loan or two a year.

anyone in the bizz that does multiple loans is a HML.. rates very.. with both.

[Bob Stevens]

Quote from @John ONeill:

Compare and contrast private money loans and hard money loans.

Discuss scenarios where each type of loan is most beneficial.

Please share experiences and preferences.

 There essentially the same. Someone is lending you money, Typically 12 + 3, 

Good luck 

[Chris Seveney]

Quote from @John ONeill:

Compare and contrast private money loans and hard money loans.

Discuss scenarios where each type of loan is most beneficial.

Please share experiences and preferences.

 They are the same. Way I differentiate is private money may be a friend or family member vs. hard money which is a company or someone else. But they do the same thing. Its like Fix and Flip loans/business purpose loans are now called "RTL's" real estate transition loans - same thing just different name

I know AAPL was trying to get away from the term "hard money" because for some it has a negative connotation but to me its all the same.

[Robin Simon]

Quote from @Chris Seveney:

Quote from @John ONeill:

Compare and contrast private money loans and hard money loans.

Discuss scenarios where each type of loan is most beneficial.

Please share experiences and preferences.

 They are the same. Way I differentiate is private money may be a friend or family member vs. hard money which is a company or someone else. But they do the same thing. Its like Fix and Flip loans/business purpose loans are now called "RTL's" real estate transition loans - same thing just different name

I know AAPL was trying to get away from the term "hard money" because for some it has a negative connotation but to me its all the same.

 I agree with this high level (Private Money = Individual, Hard Money = Company Non-Turnkey Product).

I've been begging (mostly to no avail) for better clarity and definitions here for these to avoid confusion - BiggerPockets IMO has a HUGE opportunity to set and create the "gold standard" universal definitions of loan types with just a little initiative.  The AAPL issuance was a good start but BP can do better and has a better platform for this

[Jay Hinrichs]

Quote from @Robin Simon:

Quote from @Chris Seveney:

Quote from @John ONeill:

Compare and contrast private money loans and hard money loans.

Discuss scenarios where each type of loan is most beneficial.

Please share experiences and preferences.

 They are the same. Way I differentiate is private money may be a friend or family member vs. hard money which is a company or someone else. But they do the same thing. Its like Fix and Flip loans/business purpose loans are now called "RTL's" real estate transition loans - same thing just different name

I know AAPL was trying to get away from the term "hard money" because for some it has a negative connotation but to me its all the same.

 I agree with this high level (Private Money = Individual, Hard Money = Company Non-Turnkey Product).

I've been begging (mostly to no avail) for better clarity and definitions here for these to avoid confusion - BiggerPockets IMO has a HUGE opportunity to set and create the "gold standard" universal definitions of loan types with just a little initiative.  The AAPL issuance was a good start but BP can do better and has a better platform for this

I was first introduced to HML term in the mid 70s and not sure how many decade before the term was coined.. but its been that way to me for 50 plus years :)

[Erik Estrada]

Private Money= Family, Friends, JV Partner, Colleagues. May or may not go through an UW process.

Hard Money= Institutional investors or a pool of investors financing distressed and/or turnkey properties. Must go through some fashion of UW. 

They are more or less the same thing but the key difference is the leverage and exposure limits. Generally most private money lenders are going to play a lot more conservative but be able to close faster/make a faster decision on lower risk deals. 

Hard Money lenders on the other hand (Such as Kiavi, Lima One, Easy Street, Etc...) will be able to finance at a higher leverage and may have some aggressive exposure limits (Higher LTARVs, LTC, and lower borrower requirements). They will however require an UW process, valuation inspection, and need to meet certain property requirements. It may take a bit longer to close with one of these lenders since they follow the same protocol as any other mortgage company. 

[Bob Schulte]

Hey John,

Great question! Both private money loans and hard money loans are popular alternative financing options, but they’re different in key ways.

Private money loans are like borrowing from friends or family, but on a bigger scale. You're dealing with individual investors or small groups. They often offer more flexible terms and customized interest rates and repayment schedules. Plus, having a personal connection can sometimes help you get better deals.

Hard money loans, on the other hand, are usually backed by “hard assets,” typically real estate. These loans come from professional private lenders, are more structured, and have higher interest rates (8% to 15%) with shorter terms (6 months to 3 years). They're a good option if you need quick funding and have a property with significant equity.

In my experience, private loans work best when you need flexibility and have a good relationship with the lender. But if you need fast cash and have a valuable property, hard money loans could be a better fit.

Have you had any experiences with either type of loan? I'd love to hear your thoughts!