Hard Money vs. Private Money: What You Need to Know
Let’s face it; loans are necessary in the world of real estate investment. Whether an investor is flipping a home, purchasing an apartment complex, or renovating a rental property, it can be vital to find the right loan.
Loans vary from person-to-person and depend on various factors, so the best loan for one investor might not be the best type of loan for someone else. It is best to do extensive research before taking out any loan.
GL&L Holdings is here to make the process easier. We’ve broken down the two most prominent types of investment property loans, hard money, and private money loans, to make finding a loan a little easier.
What are Hard Money Loans?
A hard money loan is provided by an organized loan company, which is drastically different from a bank. While banks have loan officers and specific terms for their loans, hard money loans are typically given by professional money lenders with more flexibility with their requirements for loans.
Hard money lenders can sometimes even provide loans for clients that banks have rejected, making them more accessible to the average real estate investor. They are also easier to find loans with, as they typically have clearly-defined rules and requirements.
Hard money lenders can often have higher rates but a much quicker turnaround than a bank. These factors alone make hard money lenders a much more viable option for the average real estate investor.
A hard money lender will often ask that clients provide the same information they would at a bank, such as credit score, net worth, and savings information. This information is required to make sure the real estate investor is qualified to receive the loan. However, unlike a bank, a hard money lender decides based on the investment asset presented and can often work with a client that is still building credit or net worth.
For potential investors wanting to learn more about required documents when taking out a loan, GL&L Holdings is an excellent place to start researching. Our article on refinancing a rental property also features information on what is required to take out a loan, which can help investors that are uncertain about what to bring to a potential refinance loan.
What are Private Money Loans?
Private money loans don’t come from a bank or loan organization; they come from private citizens or borrowers. This private borrower could be an investor, business, or relative that sees a real estate investor’s project as a potential return.
Private lenders typically lend an investor money on their specific terms. For example, they might have more flexibility with an investor’s credit score, net worth, or other requirements. This factor makes a private citizen loan very attractive for a new real estate investor trying to establish credit or grow their net worth.
Private lenders also tend to take significantly higher risks when it comes to real estate investment, which could help an investor flip a potentially high-risk home or apartment complex. To provide an example, if an apartment complex seems like too big of an investment for a loan officer or professional moneylender, a private citizen might be willing to provide a loan.
Can a Company Offer Both?
Yes, a business can offer both types of loans! A company might be flexible enough to provide both private and hard money loans, which can be beneficial for a client that can qualify for both.
Having both of these options available can ensure a smooth loan process for any client type, no matter how much money they might need. GL&L Finance offers both private and hard money loans, which can help ensure a smooth, quick loan process for various clients.
There are a variety of loan situations available for all types of investment properties. Loans also vary based on who is applying and what property they wish to flip. It is best to do plenty of research before choosing which loan to take out.
GL&L Holdings has a helpful blog and FAQ pages, which might help make the decision process more manageable. We also recommended researching investment requirements before speaking with a professional. If possible, make sure to have a good or excellent credit score and enough savings to afford payments. These simple steps can ensure a quick, efficient loan process.
