Hello To All:
In reading many threads and posts here, there seems to be some confusion or could end up that way in the minds of some community members with regard tot eh different types of financing and what they really mean and require, so I am going to explain the basics of several.
First, Hard Money: Hard money is private money lending for transactions that require time of the essence fun ding. Many who decide to go this route do so because they just do not have the time to wait on a bank to not only qualify the deal, but the borrower as well. Hard money is not generally for residential investments, there are a few who specialize in this area, however, most are for the purpose of commercial properties and multi family, more than 5 unit investment opportunities. Most will pull credit, however, the results play no part in the lending decision.
There are many hard costs involved and this can be expensive. Some HM lenders require 50% of the deal comes from the buyer. Some will allow that to be in the form of a seller held second.
Also, the term of the loan is not long term and unless you have a solid, timely exit strategy, this will not work for you.
Next, Transactional Funding: This is my favorite because anyone who is a investor can get this funding. The reason is that it is deal funding and not deal financing, and there is a difference.
What is required here is that you have a deal with a seller, called the A-B and a deal with a qualified end buyer, called the B-C. Both parties must be ready, willing and able to do a double closing. I like this because it is not a loan, there is no qualifying per se and because you can do residential, commercial, multi family, REO's, FSBO, Short sales.
The fees are cheaper and they come out of the deal. However, there are a few transactional funders who charge fees up front.
Private Money: This is not a favorite of mine and it probably won't be one of yours either when you read what I am about to say.
This type of funding is not preferable. The reason is that even though you don't have to qualify because it is money that a private individual lends to you, in the end it can be very costly. How so? because in the end, you are often repaying more overall than you would any other way.
Many people have heard about private money and want to do it, but when they find out in the end that they gave up a huge chunk of their profit, they ask was it worth it. That's for you to know in the end, if you go this route.
It is really joint venture money because you are repaying the funds loaned and often a percentage of the profits. Not all setup the deal like this, but many will.
Private money is not money someone hands over to you and says here, go do that great deal. They expect to be paid back fast, they want to micromanage the deal as well.
Portfolio Lending: This is a manner of funding, where a lender, often private, obtains their funds from a warehouse line of credit at a low rate of interest and then lends it out to borrowers at a higher rate of interest. This is generally for large deals, but often can be tailored down to other property investment types.
PM me with any questions.