Investors
How do I find reliable hard money or private money lenders for a flip?
By Steve Lockhart
The short answer
Hard money and private money both lend against the property, not your credit profile. A hard money lender is usually a company that lends its own funds or its investors' funds; a private money lender is typically an individual lending some of their own cash.
Full answer
Hard money and private money both lend against the property, not your credit profile. A hard money lender is usually a company that lends its own funds or its investors' funds; a private money lender is typically an individual lending some of their own cash. Unlike a bank, neither underweights the deal in weeks or months, and both charge more for the speed and the risk. The trade that makes them useful for a flip is exactly the trade that makes them expensive: fast money, secured by the house, priced for a short hold.
Because the money is asset-based, the vetting is about the lender more than the loan. Ask for the full written terms, including the rate, points, origination fee, term, and any prepayment penalty, and ask what happens if the flip runs long. Check how many deals they have actually closed, talk to agents, title officers, and other flippers they have worked with, and read the promissory note and deed of trust before you sign anything. A lender who cannot show a track record or who pressures you to hurry is not a lender to use.
The reliable ones are usually found the same way good contractors are: referrals from people whose deals closed cleanly, local investor groups, and title or escrow offices that see their work. Compare at least three written quotes so the cost is a number you choose, not one you accept. I am not a lender and do not receive payments from lenders, so I can help you evaluate terms and the full cost against your flip model without selling you any particular loan.
A note from Steve: nothing on this page is investment, legal, or tax advice. Markets move, and every property is different. Run your own numbers on the specific deal, and talk to your CPA and attorney before you commit.
Go a little deeper
Frequently asked
Questions investors often follow up on
How do hard money and private money differ?
Hard money comes from a lending company that uses its own or pooled funds; private money comes from an individual lending personal cash, sometimes a friend, family member, or business acquaintance. Both are asset-based and short-term, but private lenders may offer more flexible terms because they answer to themselves, while hard money lenders are more consistent because they operate as a business.
Is hard money more expensive than a bank loan?
Generally yes, and that is the point. Bank loans are cheaper and slower because they underwrite your income and the property in detail. Hard money prices the speed and the higher risk in a higher rate and upfront points, so it belongs in a flip model that still clears a profit after the financing cost.
What should I check before signing a private lender's note?
The rate, points, origination fee, term, prepayment penalty, and what happens if the loan runs past its maturity date, all in writing. Verify the lender's identity and history, confirm the note and deed of trust match the deal you agreed to, and have an attorney review the documents if the amount is meaningful to you.
The Lockhart Method
The Lockhart Method
Your Home | My Strategy | Proven Results
My strategy: we price the financing into the flip before we find the property, compare written quotes from multiple lenders, and keep enough cushion in the model to survive a slow sale. If the loan cost still leaves a real margin, we move; if the money eats the profit, the deal is not the problem, the price of the money is.
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