Excluding banks and your own capital, there are two commonly used sources of funding for real estate investors: private money and hard money.

Knowing what each source of funding brings to the table as well as where each source may fall short will be important for you as a real estate investor looking to scale your business.

 

What is Private Money Lending?

Private money lending is typically done by individuals. Their capital may come from extra cash they have on hand, self-directed IRA/401(k), a line of credit, etc.

 

Pros of Private Money Lenders:

1. They usually lend their money locally, so they know the area well.
2. They may have lower terms than hard money lenders because they have less overhead.
3. They tend to be more flexible than hard money lenders when it comes to making a deal work.

 

Cons of Private Money Lenders:

1. They have a limited pool of capital, which means you’ll likely need to use many rather than one. This can make it difficult to manage relationships.
2. They typically have a less formal process than hard money lenders which can make doing deals more cumbersome.
3. They tend to market themselves via word of mouth or referral only, meaning you’ll likely have to search for them and vet them yourself.

 

What is Hard Money Lending?

Hard money lenders are typically businesses with capital that comes from private or institutional investors and business lines of credit. Hard money lenders get their n ... Read More…