Private money vs. hard money: what's the difference?
In practice, the terms are often used interchangeably. Both describe real estate loans from a non-bank source, secured by the property. "Hard money" usually refers to an established lending company with set, asset-based criteria, while "private money" can mean any private source, including individual investors, friends or family.
Hard money lenders
A hard money lender is a business that makes asset-based real estate loans as its main line of work. Hard money lenders usually have defined guidelines, such as a maximum percentage of after-repair value, standard loan documents, title insurance and a repeatable closing process. Because lending is their business, they can typically close quickly and fund deal after deal.
Private money lenders
"Private money" is a broader term. It can mean a professional lending company, but it can also mean an individual with capital to invest, a group of investors, or a relationship-based arrangement with someone you know. Private money terms can be more negotiable, but they also vary widely, and an individual may not be able to fund quickly or repeatedly.
The differences that matter to you
- Consistency
- Hard money lenders apply the same criteria to every deal. Private individuals set terms case by case.
- Speed
- Established lenders have the process and capital ready. Individual lenders may need time to arrange funds.
- Paperwork
- Hard money lenders use standard notes, mortgages and title insurance. Private deals range from formal to informal.
- Repeat deals
- A lending company can fund your next project too. An individual may be one-and-done.
Where Prairie Stone Lending fits
Prairie Stone Lending is a private lender that makes hard money loans. We're a Wichita lending company, not a bank, and we lend our own capital on fix-and-flip, BRRRR and new construction projects. Every loan is secured by a first mortgage with lender's title insurance, and our decisions come from the owners, not a loan committee.