Hard Money vs Soft Money vs Private Money Lenders and Which is Best for You!


Okay so sometimes you guys email me
questions to April at lazy girl REI.com which are more than welcome to
do it’s awesome because then I usually email back and say hey I’m gonna answer
that on a YouTube video for you. So thank you because someone sent me a question
asked me what’s the difference between hard money lenders and private money
lenders? So we’re gonna do a video on that today my name is April Crosley
welcome to my youtube channel I’m a real estate investor in Berks County
Pennsylvania we flip houses here we buy multifamily
properties and we do a little bit of private lending and today we’re gonna go
over the differences the main differences between hard money eliminate
hard money lenders excuse me and private money lenders okay so let’s get started
so I created two fancy columns for you on my fancy paper with my fancy markers
and so we can compare and contrast hard money lenders to private money lenders
so the first major difference is hard when lenders are companies this is all
they do is lend out money to other people and they typically have a lot of
capital capital is a fancy term that people like to use that just means money
they got a lot of money okay a lot of money so that’s I like to interpret
those swanky terms for you or my youtube channel but hard money lenders are a
business with a lot of capital private money lenders are individuals like me
and the people that usually lend to me are private money lenders are just
everyday people that have I arrays that they want to make more money on or they
have money in stocks and they want to move into real estate or they just have
a lot of money in savings that’s not making them a good return so they want
to lend it to another individual that flips houses or buys rentals so private
money lenders usually have a limited amount of funds hard money lenders can
fund more expensive deals because they have a ton of money lots and lots of
money so if you are in a market where it costs you three hundred and fifty
thousand dollars just to buy the house and then another 250,000 dollars to
renovate the house you’re probably gonna use a hard money lender because they
have a lot more money in my market we’re usually buying a house for like fifty
thousand seventy thousand a hundred thousand and then putting thirty five to
fifty five thousand into it not a ton of money usually a private money lender has
a good amount of money that they can do that deal so for more expensive deals
you’re probably gonna use a hard money lender the other difference is hard
money lenders typically charge points private money lenders sometimes Church
points usually not really points are basically when someone says one point
one point is one percent of the loan amount okay so they’re collecting points
upfront but by upfront I don’t mean before you close the deal I mean at the
closing table so if you take anything away from this know whether you’re using
a hard money lender a private money lender no money is exchanged until
you’re at the closing table so never give anyone money up front okay because
you’re being scammed don’t like why are someone money okay especially if they’re
from a foreign country and they’re emailing you or randomly soliciting you
on Facebook okay so hard money lenders typically charge points which are one
for one point Evil’s 1% of the loan amount and it’s a sum of money that
they’re collecting at settlement and fees hard money lenders also usually
only do short-term loans by short-term loans I mean like a six-month loan on a
flip project private money lenders they’ll do short-term loans but they’re
also more open to doing long-term loans so say I buy a rental property and I go
to a private lender and say I have two options i can get alone with a bank or i
can get a loan with you and you can hold the loan for one year or two years or
three years or five years private money lenders
times like to hold a loan for a longer period of time they also do it on flips
where their money is in a deal than out of the deal they need to deal and out of
the deal okay part money lenders don’t usually do long term and usually don’t
want them to do long term because they’re more expensive we’re going to
talk about that in a second so they usually only lend on flips her money
lenders typically have higher interest rates than private money lenders private
money lenders are typically more reasonable their rates aren’t as high so
private money lenders you might see rates of 10% 12% 13% no points hard
money lenders your privacy rates of 14% plus another percent in points or 16%
someone told me the other day they were gonna charge eighteen or twenty percent
or something that I was like that is crazy my money lenders are at ten but
they’ve been with me a long time so it sometimes takes a while to get to that
reasonable rate I know guys that are getting it at less than that
the reason hard money lenders charge higher rates is because the deal is
riskier to them it’s riskier because they’re our business this hard money
lending company might be in California and you’re doing a flip project in
Pennsylvania they don’t know you they don’t know your market they’re not here
on the ground checking it out so there’s a lot more risk for them because there’s
a lot more risk they charge a higher interest rate private money lenders if
you’re subscribe to our channel you see all the videos we do on private money
lending we’re huge on private money living private money letting you know
from watching those videos is a relationship based business these people
know you they typically have met you in a real estate investment meeting they’ve
met you for copy they’ve seen you in the real estate circles and they know your
market most of my private money lenders are living right in my backyard okay
they’re not really living in my backyard do you know what I mean they’re really
in my market they’re living in my area they know the market that’d be super
creepy if they were living in my backyard the limo market and they know
my market so they’re giving me a better rate because there’s less risk if they
want to drive by the property or go walk through the property at any random time
they can I always give them the lockbox combination here’s the lockbox combo you
want to go waltz through it go waltz through it go talk to the contractor
whatever you want to do so there’s less risk because they know you this company
doesn’t know you from Adam you’re like filling out a form online send it to
California they’re like oh they’re a headshot picture looks like I can trust
them they don’t know you them a menu for coffee this guy has so very relationship
based okay much more reasonable Ternes because of that card money lenders also
charge a lot of miscellaneous fees that private money lenders do not I’m not
saying they won’t ever but they rarely do okay harmony lenders like to charge
draw fees draw fees are anytime they send you money like we did a previous
video on private money and how they break down giving you the purchase price
and then how they give you the rehab funds make sure you subscribe you go
back and watch that video but that will charge you a drol fee every time they
give you rehab funds so in that video I think it was twelve thousand five
hundred and rehab funds if that was a hard money lender they would charge me a
fee for writing that check then when they give me the second draw they charge
me another fee for that second draw private money lenders don’t okay they
also charge inspection fees so you’ll do the first part of the rehab and when
you’re ready for the second portion of rehab money they’re gonna send someone
in the area out to the property to inspect it and take pictures and you
sending them pictures not good enough they’re gonna send someone out to
inspect it my lenders I send them pictures weekly it’s good enough for
them that I’m sending them pictures because they can drive by anytime they
want they’re gonna charge to an inspection fee when they send that guy
out they’re also going to usually charge an appraisal fee the one an appraisal
done on the property my private money lenders I send them
and I fill out like a deal package for them and for them that’s good enough
sending them comps these guys don’t know the market they want a professional
appraiser to go out and appraise the property might cost you like four or
five hundred six hundred dollars depending what they charge you they also
charge broker fees that’s a fee where you send your deal into them and they’re
basically matching you with money for that deal brokering that money so
they’re charging that broker fee to you it might not seem like a lot but it adds
up to a lot me I’ve seen these fees kill deals because a lot of investors don’t
ask hard money lenders what their fees are and then during the transaction
they’re getting charged all these fees and at the end of the transaction
they’re like holy shit I spent thousands just on fees it really can come out to
that much so no your fees upfront if you’re using a hard money lender because
they will be you out the wazoo they also like you to have skin in the game people
love this term I’ve got skin really game didn’t you have done skin them to get
you skin in the game just means they want you to put your money towards the
deal they want you to have some money in the deal that’s what skin in the game
means so you have to put money towards the deal private money lenders are more
likely to be flexible and fund a lot work the deal meaning they might fund a
hundred percent of the purchase price and a hundred percent of the rehab and
the closing costs if they do make sense and you’re under that 70% of Araby to
protect them or they might joint venture with you if you’re new where they bring
all the funds and you will receive the project there are just a lot more
flexible they don’t require as much money from you heard money lenders are
gonna come back to and say won’t fund the purchase price but not the rehab or
will fund the purchase price and will fund the rehab but not till the rehabs
done at the end and you’re like thanks buddy
so I got to come out of pocket with it anyway
you’re basically reimbursing me back but I don’t have any money
which is why I don’t want to kind of pop it in the first place you soon I’m
saying leave just in the make sense so they’ll want you to have like sometimes
they’ll say 20% of your money into the deal or 10% of your money so they want
you to have a lot more money in the deal than private money lenders who are a lot
more flexible so if you’re following my YouTube channel you already know I love
private money lenders I love them and I love raising private capital we work
with a whole bunch of private money lenders I love them way more than hard
money lenders and now you hopefully have a clearer picture of why because I don’t
like fees and people that charge me fees because it takes away from my profit and
I like the personal relationship that you have with private money lenders ok
so I hope this helped you guys out today thank you to whoever sent me the
question asking me about the difference between hard money I’m trying to open a
lender’s if you guys have any other questions that you want me to do a video
on you can email them to me April at lazy girl
REI calm you can also follow us on Facebook lazy girl real estate investing
you can follow us on Instagram April Crossley and how else there’s one on ray
oh you can check out our website WWE’s a girl
REI calm thanks guys

Leave a Reply

Your email address will not be published. Required fields are marked *