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The Untold Truth About Hard Money vs Private Money

When most investors in Phoenix start looking for funding, they lump hard money and private money together. Both are short-term, asset-based loans. Both can get you to the closing table faster than a bank. But the truth is, they are very different tools — and choosing the wrong one can eat up your profits.

In a hot fix-and-flip market like Phoenix, knowing when to use hard money and when to use private money can be the difference between a deal that succeeds and one that drains your budget.

What Is Hard Money?

Hard money loans come from licensed lending companies that specialize in short-term real estate financing.

Key features of hard money loans:

• Provided by professional lending companies
• Higher interest rates (9%–15% typical)
• Upfront fees or points (1–4%)
• Strict underwriting: property value, exit strategy, and borrower history are all reviewed
• Often used for fix-and-flips, bridge financing, or short-term holds

Hard money is best described as semi-institutional lending — fast, professional, and structured.

What Is Private Money?

Private money comes from individuals — friends, family, or independent investors willing to lend their cash.

Key features of private money loans:

• Funded by individuals or small investor groups
• Flexible terms, interest ranges from 6%–12%
• Minimal paperwork, faster approval
• Relationship-driven rather than heavily underwritten
• Often used by wholesalers, beginners, or investors doing smaller rehab projects

Private money is relationship-based lending — more flexible, but limited by the size of the lender’s funds and your credibility.

Why Phoenix Investors Use Both (Hard Money vs Private Money)

Phoenix has consistently been one of the top U.S. markets for flips. Homes are affordable compared to coastal states, but demand is high, and investors compete fiercely. Because of this, both loan types are valuable:

• Hard money is used for larger projects in Scottsdale, Tempe, or high-value neighborhoods.
• Private money is common for smaller rehabs or quick wholesale deals where speed matters more than structure.
  

Real-Life Example From Phoenix

A local investor found a distressed property in Glendale:

• Purchase price: $220,000
• Rehab: $40,000
• After Repair Value (ARV): $340,000

Option 1: Hard Money

• 12% interest, 2 points upfront
• $4,400 in points + $2,200 monthly interest for 6 months
• Total cost of financing: about $17,600

Option 2: Private Money

• 10% interest, no points
• $1,833 monthly interest for 6 months
• Total cost of financing: about $11,000

By choosing private money, the investor saved $6,600 in financing costs. That savings was reinvested into staging and light upgrades, which pushed the final resale price even higher.

Pros and Cons of Each (Hard Money vs Private Money)

Hard Money

Pros:

• Predictable and professional
• Easier to scale multiple deals at once
• Designed for larger projects

Cons:

• Higher rates and fees
• More paperwork
• Requires more documentation and a clear exit plan

Private Money

Pros:

• Flexible terms
• Faster to fund
• Often cheaper than hard money

Cons:

• Limited by relationships and lender trust
• Smaller pool of funds available
• Can be risky if agreements are informal or not documented

How to Choose between Hard and Private Money

Ask yourself:

• Do I need speed and flexibility? Private money is better.
• Am I working on a larger, higher-value project? Hard money is more reliable.
• Do I already have trusted relationships with lenders? Private money will likely save costs.
• Am I trying to scale and do multiple projects? Hard money lenders are built for repeat borrowers.

Many Phoenix investors combine both Hard Money vs Private Money. For example, they may use hard money for the property purchase, while using private money for down payments, earnest money deposits, or carrying costs.

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