Private Money vs. Hard Money: Which Lending Option Is Right for Your Deal?

Not all real estate deals can wait on a bank—and not all investors want to deal with them. That’s where private money and hard money come in.

Both offer fast, flexible capital for real estate investors—but they aren’t the same.

In this guide, we’ll break down the difference between private lenders and hard money lenders, when to use each, and how to pick the right one based on your deal type, timeline, and experience level.

What Is Private Money?

Private money refers to loans made by individuals or non-institutional investors. These could be:

• Friends and family
  
• High-net-worth individuals
  
• Local real estate investors
  
• Retired professionals
  
• Business contacts
  

Private lenders often lend based on relationships, trust, and deal quality—not formal underwriting guidelines.

✅ Pros:

• Flexible terms
  
• Little to no credit or income requirements
  
• Custom structures (JV deals, equity splits, deferred interest)
  
• Lower fees and fewer docs
  
• Ideal for newer investors with strong network
  

❌ Cons:

• Limited funding availability
  
• Higher risk if lender is inexperienced
  
• May require personal guarantees
  
• Less consistency between deals
  

What Is Hard Money?

Hard money is short-term, asset-based lending offered by licensed companies that specialize in real estate investments. These lenders make decisions based primarily on the property’s value and exit strategy, not your income.

✅ Pros:

• Fast approvals and closings (7–14 days)
  
• Rehab costs often included
  
• Loans up to 75% of ARV (after repair value)
  
• Structured draw schedules for renovations
  
• Ideal for fix and flip, BRRRR, and short-term rentals
  

❌ Cons:

• Higher interest rates (8%–12%)
  
• Origination fees (1–3 points)
  
• Short terms (6–18 months)
  
• Less flexible than private lenders
  
• Prepayment penalties may apply
  

Private Money vs. Hard Money: Side-by-Side Comparison

When to Use Private Money

Private money is best when:

• You have a network of potential investors
  
• You want custom terms or a JV structure
  
• The deal isn’t “bankable” but is clearly profitable
  
• You need more time or longer repayment flexibility
  
• You’re newer to real estate but have a solid pitch
  

Example:

You’re buying a fixer at $120K, and your uncle agrees to fund the entire deal at 8% interest with no fees. You rehab, sell, and repay him within 6 months.

When to Use Hard Money

Hard money is best when:

• You need fast, repeatable financing
  
• The deal has strong ARV and rehab numbers
  
• You’re doing a fix and flip or BRRRR
  
• You want clear structure and rehab draws
  
• You’re experienced or want to scale professionally
  

Example:

You buy a $300K home with $80K in rehab. A hard money lender offers 85% of purchase + 100% of rehab. You close in 10 days, complete the project, and refi into a DSCR loan.

Can You Combine Private Money and Hard Money?

Absolutely. Many investors use private money as gap funding for:

• Down payments
  
• Rehab costs not covered by the hard money lender
  
• Closing costs or reserves
  
• Emergency overruns
  

This stacking strategy can help you fund 100% of the project without using your own capital—if the numbers make sense.

Pros and Cons Summary

✅ Private Money

Best for: Relationship-driven deals, long timelines, creative terms
Upside: Flexible, negotiable, low fees
Watch out: Funding may not be reliable or repeatable

✅ Hard Money

Best for: Fast flips, BRRRRs, and standardized rehab deals
Upside: Fast, scalable, built for investors
Watch out: Higher cost, short term, structured

Final Thoughts

Both private money and hard money offer real estate investors access to fast capital—but the right option depends on your:

• Network and experience
  
• Deal timeline and complexity
  
• Desired level of structure vs. flexibility
  
• Need for speed and scalability
  

Newer investors often start with private lenders they trust. Experienced flippers and BRRRR investors rely on hard money lenders they can scale with.

Choose the one that fits the deal—and your strategy.