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When I Use Hard Money (Instead of Private)

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moneyYou know how much we love using private money to leverage our real estate investing deals, and unless you’ve been living under a flat rock, you know that we love talking about private money almost as much.

But private money – believe it or not – isn’t the only way to fund your deals.

Hey guys, it’s Patrick Riddle, and for a moment, I’m going to ask you to step outside of your comfort zone, take a deep breath and think about hard money.

Yep, I said it… and I’ll say it again. Hard money.

It’s got a bad rap, I know, but where there’s bad news there’s always good news, right? When the glass is half empty it’s also half full. You see where I’m going with this...

Point is, hard money is one powerful tool that all investors should keep in their arsenals. If fact, I’ll bet there will come a time in your near future when hard money will be just what the doctor ordered for your deal.

You should consider it…

What the Heck Is Hard Money, Anyway? 

Okay, let’s kinda get technical for a hot second…

A hard money lender offers a specific type of asset-based loan financing that allows borrowers to receive funds secured by real property. Hard money loans are typically issued by private investors. Interest rates are usually higher than conventional commercial or residential property loans because hard money loans are higher risk and typically shorter in duration. 

On the contrary, private money loans come from people with access to cash. I’ve actually done some great Mogul lessons about private money, which you can and definitely should check out here and here.

Anyway… how do you know when to use hard money?

When Hard Money Makes Sense

  • When your punching the clock to fund a deal
  • When hard money is your ONLY funding option
  • When you have a concise exit strategy and a back-up loan to cover your butt
  • When you have solid relationships with hard money lenders that you trust

borrowHard money makes sense when these scenarios come into play. Run the numbers, and run with hard money if and when it makes sense. It may cost you more up front to use hard money, but I’d rather pay a bit more than lose a deal any day… and twice on Sunday.

It’s not that Hard to Find Hard Money

Referrals (from active investors, preferably) are the BEST way to find hard money lenders, so get to know investors in your area to find out who has hard money connections. Attend REIA meetings and schmooze the head honcho (respectfully and with genuine intent, of course) to see if you can tap into his or her network of potential lenders.

Don’t discount the newspaper either. I know it sounds antiquated, but the Money to Lend section can be a great resource full of possibilities, if your paper has one.

Bottom line… it’s actually pretty easy to find hard money. You just have to make time to talk and to be open-minded to some old-school means of finding it. There’s a time and place for hard money, so consider it.

It could mean the difference between just maintaining your business… and taking it to the next level.

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Do It To It! Immediate Action Steps

Network to find hard money lenders in your area.

Consider hard money when you’ve got a tight time frame.

Use hard money when you have no other funding options.

Be sure to understand when private money makes more sense.

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