Hard money is essentially a short-term asset-based loan provided by a lending firm or fund. It’s typically underwritten based on the following factors:
– Property value (ARV)
– Loan-to-value ratio
– Exit strategy
– Borrower’s experience

The interest rates are higher, but the advantage is speed. Hard money lenders typically offer the following:
– 6-12 month term
– 9%-12%+ interest rates
– 1-3 points
– Renovation draw schedule
– Quick closings: 7-14 days

Hard money is essentially a systematic and process-driven approach to lending.

What is Private Money?
Private money refers to funds provided by individuals rather than companies or firms that specialize in lending money. It could be:
– A business owner
– A doctor
– A tech entrepreneur
– A family office
– Anyone with idle cash looking to deploy it at attractive returns

Private money is more relationship-based, and the terms may vary widely. It could be:
– 8% fixed returns
– 10%-12% simple interest
– Profit split
– Equity participation
– No points
– No draw schedule

The Key Differences
– Source: Company/Fund vs. Individual Lender
– Underwriting: Structured vs. Relationship-based
– Guidelines: Fixed vs. Negotiable
– Fees: Points/Fees Common vs. Often Fewer Fees
– Predictability: More Predictable vs. More Flexible
– Use: Good for Volume vs. Good for Long-term Partnerships

Neither is necessarily “better.” They are used in different ways for different strategic purposes.

When to Use Hard Money
Use hard money when:
– You need speed and certainty
– The deal is clean and easy
– You don’t want to negotiate terms
– You’re doing multiple deals at scale
– You need construction draw management

Hard money is great for predictable, repeatable flips. When it comes to a standard cosmetic flip with a clean ARV and predictable timelines, I’m generally happy to pay a premium for speed and efficiency. Certainty is king.

When to Use Private Money
Use private money when:
– You need better margins
– You need long-term capital partnerships
– The deal is non-standard or outside lender guidelines
– You need flexibility in deal structuring
– You’re syndicating a large deal

Private money is phenomenal in messy, time-sensitive deals—and that’s where the real opportunities are. When traditional financing isn’t working, or the banks are saying no, or the deal is just really, really hard, private money is where the opportunities are.

The Real Questions Aren’t About Rate
Everyone talks about rates, but no one ever asks the real questions. The real questions are:
– Does this capital make me more certain?
– Does this capital protect me?
– Does this capital improve my returns?
– Does this capital help me close the deal when no else will?

Cheap money that’s not timely is expensive. Expensive money that closes clean is cheaper.

Strategic Layering (Advanced Move)
Seasoned pros use both:
Hard money for purchase and/or construction funding
Private money for gap funding or equity

Or, they use private money for long-term holds after refinancing.
The problem is that they use only one source.
My Philosophy on Capital
After 25+ years of raising millions of dollars in private capital, I have learned this:
Hard money is transactional.
Private money is relational.
If you want wealth and control of the deal flow, you need both, and you need to understand when to use each.
In messy, timely, and often chaotic situations in the world of real estate, the party with the capital controls the outcome.
Final Thought
I think more deals fail because of the capital stack than because of the deal itself.
Get the right capital for the deal, and you’ll close more deals and create more leverage that compounds.

If you are putting together a deal and want someone to review your capital stack, hit reply. Sometimes the correct capital stack is the difference between a slim margin flip and a successful business.