Hard money vs private money for flips

Both are short-term, asset-based loans flippers use when a bank mortgage is too slow or won't lend on a distressed property. The difference is who is lending and how the terms get set.

	Hard money lender	Private money lender
Who	A company that lends to investors as its business	An individual: a friend, family member, colleague, or another investor
Terms	Published programs with set leverage, rates, points, and fees by experience tier	Negotiated deal by deal; can be anything both sides agree to
Underwriting	Appraisal or valuation, credit check, experience review, draw inspections	Whatever the lender asks for; often relationship-based
Rehab funds	Usually held back and released in draws after inspections	Often lump sum or informal draws
Scale	Repeatable across many deals	Limited by one person's capital and comfort

When hard money fits

You need a predictable process you can repeat deal after deal.
You want rehab funded through draws instead of fronting it yourself.
You don't have (or don't want to risk) relationships with personal lenders.

When private money fits

You have someone who trusts you and wants a secured return.
A deal doesn't fit a lender's box (odd property, very fast close, unusual structure).
You want to cover the down payment or rehab gap on top of a hard money loan. (Check that your hard money lender allows a second lien or gap funding first; many restrict it.)

Protect both sides with private money

Put it in writing: a promissory note plus a recorded mortgage or deed of trust.
Name the lender on the property insurance as mortgagee.
Agree on what happens if the project runs late or over budget.
Have a real estate attorney review it. Lending rules vary by state, and usury and licensing laws can apply.

Questions to ask any hard money lender

What's my rate, points, and every fee, in writing?
Is interest charged on the full rehab budget or only on funds drawn?
How fast are draws inspected and paid, and what does each draw cost?
Is there a prepayment penalty or minimum interest?
What happens, and what does it cost, if I need an extension?

Compare published starting rates on our hard money rates page, then plug real terms into the flip profit calculator.

General information, not legal or financial advice.