Hard Money Or Private Lender: Which Is Better?

Q: I have a property that I am interested in purchasing with a partner. Would I be able to get a hard money loan or would I be better off with a private lender? Jack, Morristown, NJ

A: Good question, Jack. In general, hard money lenders are in the business of lending out money short term for profit–they often borrow and pay interest on the money that they lend too so they are incentivized to charge higher interest rates. Private lenders are typically individuals seeking additional income by passively investing in real estate.

Ultimately, access to capital is more important than the amount you pay for it, so if you need money to fund a deal, anything is better than nothing so long as it ends up being profitable to you. Whether you’re better off borrowing hard money or private money will depend on the specifics of the real estate deal you’re trying to finance as well as your personal financial situation.

Keep in mind that when you borrow money, the payment terms are often more important than the interest rate, points and fees you may have to pay, so I wouldn’t assume anything based on the type of lender you’re dealing with, I’d focus on the specific offer and terms of each loan made available to you on a case by case basis.

Thanks for your question, Jack. Good luck with your negotiation.

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