Posted by Tiffany Yang ● Feb 26, 2020 9:00:00 AM

Hard Money Lenders vs. Private/Direct Lenders

toy calculator and house models sit on a book next to a coffee

Nowadays there are so many lenders positioning themselves as the best fit for investors. So how do you know who to choose and which is really the best fit for you?

Hard money lenders and private/direct lenders market themselves in similar ways, making it difficult for borrowers to depict who’s who. Visio Account Executive, Mo Bean breaks down how to spot hard money lenders versus private/direct lenders.

Hard Money Lenders

Let’s start with hard money lenders and how you can easily pick them out from a crowd. First thing that should stand out to you are their extremely short terms. Hard money lenders typically offer terms anywhere from 6 months to 24 months. You might ask yourself how one is supposed to pay back a loan in that amount of time? Well, these loans tend to be best fit for investors who are looking for lower loan amounts, wanting a higher LTV and are making a purchase on a subject property that may need rehabbing. Hard money loans could be ideal for rehabbing because you can easily find a lender who will finance the purchase amount and rehab funds consolidated into one loan.

Here's an example of when hard money lenders could be your best fit:

An investor who’s interested in low value properties (think anything lower than $75,000) and investors who have portfolios of lower valued properties

You’re probably thinking “why would you want low valued properties?” These properties can be of low value and still bring in an adequate cash-flow. What may even surprise you more is that the cash-flow ratio is typically greater on a per month basis in comparison to higher valued properties. You will also want to keep in mind that these subject properties of lower value don’t appreciate as fast as middle-class properties, however they are extremely stable and can have a steady occupancy rate.

Private/Direct Lenders

Now onto private/direct lenders! For the investor who is looking to build their rental portfolio of higher valued properties that accrue equity faster, they should turn to a private/direct lender. Also, for the investors who are more interested in a nicer long-term value on a subject property, the safe route would be to turn to a private/direct lender that loan over 30-year full term. This will give the investor the option to buy, hold, and/or sell to have a greater return on investment.

Things to keep in mind when shopping for your best lender:

  • Both hard money lenders and private/direct lenders do not have the same terms. Each company sets their own guidelines and provisions for how they think their investors will benefit the most.
  • Depending on your investment strategy, the phase of the subject property will help you determine which type of lender is best.
  • Other factors that will help you determine which is best route to go:
    • Property Condition
    • Goals for the Subject Property
    • Amount of Capital Available to You
    • Your FICO Score
    • Rehab Timeline
    • Investor Experience

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Topics: Real Estate Investing, Fix and Flippers, Hard Money Lenders