Hard Money Lenders vs Private Lenders

[Tim Reif]

Can someone explain the differences between hard money lenders and private lenders? Pros and cons of each. It seems to me there are more hard money lenders than private lenders but maybe it's because I don't know how to find private lenders. I'm new and looking to do my first deal. I want to start out by flipping three or four properties and then start mixing in some buy and hold as I move down the road. Thanks.

[Jeff S.]

Among the more incorrectly held beliefs about lending on this board, is that there is a difference between private and hard money lenders.

When someone here suggests they are looking for a private money loan, another will often jump in and provide their definition that a private money loan is from someone you know, like your dentist or Uncle Louie, and a hard money loan is from someone who does it professionally. In fact, both are non-institutional loans and the terms are completely synonymous. There are not two sets of lending laws. Everyone is subject to the same requirements and the term "private" does not mean you can avoid the regulations. There is nothing informal about lending against real estate.

This dogma is particularly unfair to anyone who borrows from his or her friends or relatives (which in my view is always a mistake, but that's another topic). It gives them a sense that since they are "non-professional" they can get away with terms and legalities to which others (i.e. "professionals") must comply and that it's ok to be informal. I can't think of anything more dangerous.

Hard money lenders have taken a bad rap, which is deserved in some (many?) cases, and have been using the term private money for a while. Some here think it's to deceive. It's not. It's marketing. Don't get hung up on this, as other seem to have.

Regardless what anyone calls themselves, you have to make sure they are honest, appropriately licensed (or use someone who is appropriately licensed to originate their loans), and in full compliance with the law.