Tag Archive for: private money

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How to Start Investing in Real Estate: Beginner’s Guide to Private Money

Where do you start with private money in real estate investing?

There are two pillars to successful real estate investing.

First, finding good, undermarket properties. And second, having the leverage to actually purchase those properties.

Private lending is the key to unlock that money side of investing. But when you’re just starting out, how do you get involved? 

How much money should you start with? How do you find the right loans for your situation?

Well, here’s your starting point:

How Much Money Do I Need to Start Investing in Real Estate?

How much money should you have if you want to start investing? It all depends on the deal.

No Money Down Investments

We regularly help people start with no money for a project. 

BRRRR rental properties work great for this. Investors can invest in them without putting any money into the property purchase or the flip.

Another way we frequently see people succeed with zero down is when they have really, really good deals. It’s a rare find, but if you do come across a property for sale for 60% or lower of the ARV, you can get 100% financing. Smaller, local hard money lenders will jump at the opportunity for such a great deal.

How Much Money Should I Normally Expect to Bring In?

Traditionally, when you’re starting out investing, you’ll use either hard money loans or a bank finance. It depends on your credit score and the amount of money you’re able to bring into a deal. 

When you’re going into these loans, it’s good to expect to pay between 10% to 20% of the total cost of the project out-of-pocket. This includes 10% to 20% of the property purchase and 10% to 20% of the fix-up costs.

As an example, say you have a $100,000 purchase that will require a $50,000 rehab budget. If you’re bringing in 20%, you’ll need $20,000 as down payment for the house, plus $10,000 to cover construction – so $30,000 total out-of-pocket to start.

What Will My Financing Depend On?

How much you as a new investor will need to bring into a deal will depend on several factors:

  • The kind of deal you find
  • Your qualifications – with or without real estate experience
  • Your income
  • Your savings
  • Your credit score

Hard money lenders tend to lend based on your deal. Banks tend to lend based on you. A higher credit score will give you better chances at bank loans. And banks love lending to those who don’t need money. So if you already have a lot of savings and income, you can get 100% financing. But the more you put in, the cheaper it’ll be.

Overall, you can get involved in real estate investing with no money, especially for rental projects. But if you really want to get a running start, you’ll need some money for your investments.

Where Can I Find Private Money Lenders?

We’re mostly focusing on private money lenders for beginner investors because that’s where you’ll naturally have to start.

The timeline of financing options for most investment careers goes:

Private Lending  →  Bank Financing  →  Cash

You’ll start with relying on private lenders and hard money. But you’ll be working your way toward less expensive methods of financing. As you gain experience, credit, and money, it gets easier to move toward cash and lower interest loans in your investment business.

So, people at the beginning of their real estate investment careers hard money lenders… But if you’re just starting out, you’re probably not sure where to find them.

Here are the basics for finding private money lenders:

1) Google

A simple Google search can help you find private lenders near you.

The majority of hard money lenders will be local investors or small companies lending in your area only. Google is a simple, reliable way to see who’s out there lending locally.

Read the Google reviews. You’ll feel more confident moving forward with a lender if you can see people who vouch for the company.

2) Ask Local Investors Online

Use resources like biggerpockets.com, connectedinvestors.com, or other online forums to learn from people in your area. See who they use, why they use them, and what some general costs are.

3) Meet-ups and Live Events

Talk to people in person. Chat with other investors to hear about their experiences with local lenders. Many events will give you the chance to meet those local lenders and get to know what they offer.

You’ll need a pool of options for money, so it’s good to know many companies and private individuals.

Communicate with banks, too. Even if you can’t get a bank loan right now, that’s the next step you’re working toward in your career. It’s never too early to build those connections.

Are Hard Money Lenders Safe?

A major question from people who are starting real estate investing is: Are hard money lenders safe? Are they just loan sharks who will take all the profits from my project?

Private Lending Business Model

Hard money is not built to be against you. Private lenders intend to: lend money, get it back, and get their interest. They only want a return on their investment; they don’t want to bleed you dry.

Granted, there is a potential for lenders to take advantage of you, and there are a small percentage of lenders like that out there.

Hard money lending is no different than any other business – there are good people in it and bad people. It’s your responsibility as an investor to be sure you’re working with good, safe people.

Finding Good, Safe Lenders

Just like anything else, it’s wise to shop around. The best ways to find good hard money lenders are:

  • Personal Experience
  • Asking about other people’s experience
  • Checking online reviews

You’ll be able to tell right away from other people’s experiences whether a lender is safe or not. You can even ask lenders for references of people who have closed with them in the past.

Doing your research should save you the trouble of trial and error with your local lenders.

Broaden Your Pool of Lenders

To successfully start in real estate investing, you’ll need to get a good list of lenders. Don’t be connected just to one. You’ll need them for different reasons, different deals, and different loans.

It’s good to have a lot of money options – something quick, something long-term, something with a lower rate, etc.

If you focus on building your base of lenders, you’ll feel safe. Spread your reliance over multiple lenders to be more confident in your real estate investing career.

What Are Private Lender Interest Rates?

You know you’ll have to buy the property, cover fix-up costs, and pay back the cost of the loan. But if you’re new to real estate investing, you also need to know what other costs will come with your loan. Like interest rates.

The biggest cost on your mind is probably: What interest rates do hard money lenders charge?

What’s a Typical Hard Money Interest Rate?

The rate depends on several factors, and interest rates will vary lender to lender.

Now, in July 2022, inflation is hitting, and the federal interest rates are rising. With these recent changes, you’ll find rates are between 9% and 11%. But just six months ago, interest rate averages where two percentage points less.

Always check on your local lenders’ rates. Especially at a time like this, they can change relatively quickly.

How Interest Works on a Hard Money Loan

We’ve had people come to us discouraged about interest rates – just because they misunderstood how interest works. 

For example, let’s say you need a loan for $800,000, but you only need it for three months. The lender gives you a 9% interest rate. Will you have to pay 9% of $800,000 for those three months? No, that’s not how interest works in hard money.

That percentage they give you is an annual rate. So in this case, you’d be paying that 9% in monthly chunks over the course of the year. If you only need that loan for three months, you’ll be paying closer to $18,000 in interest – much better than around $72,000, 9% of the full total.

Always make sure to shop around for the best deal. The more money you can put in, the lower your interest rate.

How Important Are Interest Rates?

Typically in real estate investing, it’s not just about the interest rate. It’s about how fast you can close.

We see speed make the difference for our clients all the time. Often, if someone can close a week or two earlier than other buyers, they get a better deal. 

In that case, interest rates become a non-factor. The bargain you can get on closing fast on a property can more than makes up for the interest charges.

Banks’ interest rates are generally 2% to 5% lower than private lenders. So if you can go to banks, you probably should for the better rate. But if you’re new to real estate investing, bank loans are typically out of reach, so hard money is the best way to start investing.

How Much Do Private Money Lenders Charge Overall?

Interest rates are just one of the costs to be aware of with hard money. With private lenders, there are two major costs to consider:

  • Interest rates
  • Fees and other charges

You’ll have to consider these two factors at the same time. Every lender is different. 

One company might offer a 14% interest rate but have low fees. Another may only charge 9.5% interest but their fees are much higher.

How do you calculate which loan will be the better deal for you? A simple way is to use this free loan optimizer tool. You can add in all the information from each lender, and this tool will help tell you which loan saves you the most money.

What Are the Other Costs Associated with Hard Money?

Fees can vary widely in the hard money world. There’s no standard; it’s up to each lender what they charge.

Origination Charge

The most common fee you’ll see is the origination charge. This is to guarantee profit for your lender or salesperson.

An origination fee is calculated as a percentage of the loan amount. It varies between 1 and 4 points. (A “point” is a “percentage.” So if you hear a lender say they charge 2 points for a fee, that’s 2%).

Other Fees

Some lenders have none of these fees, some have nearly all of them:

  • Processing charges
  • Underwriting fees
  • Appraisal charge
  • Legal fees
  • Title fees
  • Charges to set up an escrow
  • Charges to take draws on an escrow
  • And more.

The amounts vary widely. Some of these charges are a flat rate, and some are based on a percentage of the loan. One lender might have eight or nine of these fees, another may have just one or two.

How Do You Know Which Loan Is Best When You First Start Investing in Real Estate?

At the end of the day, you’ll have to find out what’s best for you. 

Don’t get too hung up on interest. Some people see lenders charge 10% when banks are charging 6%, and they assume it’s some sort of rip-off. Then they never use hard money, and their investment career suffers.

There’s no such thing as a loan that you don’t have to pay for. Every lender will have between one and eight additional costs besides simply paying the money back.

Sometimes people who start investing in real estate zoom in on a low interest rate from a private lender, then miss the bigger picture of fees and the length of the loan.

You’re responsible for the success of your loan. Most consumer loans will give you a detailed sheet with all the charges. Private lenders will give you that information, but it may not be in a nice little form.

This loan optimizer tool can help you understand which lender will offer the better deal for you.

Understanding these costs and loans will make or break your real estate deals. This side of investing where you’re spending money is the same side where you make money. 

Hard Money Mike Can Help You Start Investing in Real Estate

It’s a knack to find great properties, but it’s impossible to start investing in real estate if you can’t get the money to fuel those purchases.

We’ve done tens of thousands of transactions, billions of dollars in loans, in every kind of market, with any kind of deal. 

We don’t just lend our own loans. We help investors understand hard money, get help with bank loans, and be educated on the money side of real estate investment.

If you still feel unsure about the next steps to make your dream of real estate financial freedom a reality, reach out to us with your questions.

The people who understand the money side of investing are the ones who become more profitable, faster. Let’s make you one of those people.

Happy Investing.

Text reads "What Is Hard Money." Mike Bonn stands with cartoon coins surrounding him.

The Beginner’s Guide to Hard Money Loans

Hard money basics you need to know before real estate investing.

We’ve been in the hard money loan business for 20 years. Half the calls we receive are still beginner real estate investors trying to learn the money side of investing.

If that’s you, you’ve likely applied for, heard of, or thought about using hard money lenders. But maybe you don’t fully understand the private lending world yet. How does a hard money loan work? How much interest do private lenders charge? Do hard money lenders require a minimum credit score? Should you just wait until you qualify for better bank loans?

This guide will help answer:

  • What is hard money?
  • What do hard money lenders look for?
  • How is hard money different than other loans?
  • How do you qualify for hard money?
  • Is hard money better than banks?

Becoming hard money proficient will put you miles ahead as an investor. 

Ready to nail the basics?

What is Hard Money?

Hard money is a short-term loan designed for real estate investors. Hard money lenders focus on lending money on undervalued properties in need of rehab.

Hard money loans are short term – usually around six months or a year – and are designed to help buy properties to fix up.

While “easier” than traditional bank loans, hard money loans are also more expensive due to higher interest rates. Which brings us to the most important quality of hard money loans: they’re fast.

In real estate investing, discounted properties typically require fast-closing deals. Hard money loans can help you take advantage of prices while they’re low, and: 

  • Save on the property cost to begin with
  • Get more from selling or refinancing the property.

These savings more than cover the costs of a hard money loan for most investors.

The speed of hard money makes it valuable for newbie and seasoned investors alike. Hard money loans are made for real estate investors.

How Does A Hard Money Loan Work? 

What do hard money lenders look at? There are two main factors lenders of hard money consider.

Loan-to-Value Ratio

An important number a lender takes into account is the cost of the property. The ratio of the loan they offer and the cost is important for you to know.

Let’s say you have a property with a current appraisal of $200,000. Then you get a loan for $100,000. The loan is half of the value of the home, so your loan-to-value is 50%.

After Repair Value (ARV)

ARV, after repair value, is another important factor hard money lenders consider. The properties targeted by real estate investors are undervalued. They need work to be brought up to the standards of the surrounding community.

So, lenders look at not only the current value of the house, but also the future value of the house, after it’s all fixed up.

Many hard money loans are based on after repair value rather than loan-to-value. Your lender might offer you up to 75% – not of what you’re buying it for, but what you could sell it for by the end. 

What Does ARV Cover?

A key factor to ARV is that lenders will lend not only for the initial purchase, but for the fix-up costs. 

Many lenders will put money aside in escrows to use throughout the project to pay contractors and cover other renovation costs. 

If your loan considers ARV, it’s possible for you, with ZERO money down, to:

  • Buy a property.
  • Fix it up.
  • Either sell it (fix-and-flip) or refinance it (BRRRR).

After selling or refinancing, you use that money to pay the loan back.

Hard money is designed to build value into real estate. Understanding the role of the after repair value will help you immensely in your hard money investments.

How Is Hard Money Different from Other Loans?

Interest rates on hard money are between 2-5% higher than what you’ll find at banks. You can expect origination fees to be about twice as much. Appraisals will be close to the same.

So on paper, the rates and fees are higher, so it feels like you’re spending more. Which you are! But with hard money loans, you’re paying for:

  • Accessibility
  • Convenience
  • Flexibility
  • The opportunity to purchase properties you’d never be able to while relying on bank loans.

While hard money costs more than other loans, the potential value is also way higher. When sellers have discounted real estate, they want it sold fast. Banks can take 25-30 days to close. You can receive hard money in a matter of days.

Every week, we see hard money work to save people money.

When a recent client of ours bought a property, he saved 10% – just because he could close faster than the other five bidders. His savings on that purchase were $30,000: much more than double what he’ll spend on the loan transaction.

How Do You Qualify for a Hard Money Loan?

There are two kinds of hard money lenders. They each have different qualification requirements.

National Hard Money Lenders

National lenders lend in almost every state. They are larger organizations, backed by hedge funds and private equity.

National hard money lenders require:

  • A credit score check, and a good score.
  • Experience – at least five deals in the last three years. 
  • Properties to be in specific larger communities.

So if you’re new to investing, need to improve your credit score, or are looking at more rural properties, you may need to look into local lenders.

Local or Private Hard Money Lenders

A local, or private, lender will specialize in your state or area. Local lenders are much more likely to:

  • Not ask for a credit score.
  • Not require experience.
  • Lend for rural areas.

Local lenders are focused on the deal itself and whether it has good value.

When deciding which lender to use for hard money, always shop around to see what fits your situation now. And be aware that another lender may fit you better in the future.

Are Private Lenders Better Than Banks?

It’s impossible to say whether hard money lenders or banks are “better” for real estate. It all depends on your deal and where you are in your investment career.

When to Use Bank Loans vs Hard Money Loans

Bank loans will have lower rates and may be the better route if you:

  • Have had a successful investment business for over two years.
  • Make a lot of money at a W-2 job.
  • Have 3-4 weeks to close.

Hard money loans will be easier, faster,  and may work better if you:

  • Are newer to real estate investing.
  • Don’t have money up-front to invest.
  • Don’t want to put your own money into a deal.
  • Need to close within a week or two.

As long as a property promises income, hard money more than makes up for its higher rates with the speed and greater potential savings. Starting in hard money paves the way for you to work up to bigger funding opportunities.

Ultimately, your investment career should always have a mix of funding types. Bank loans, hard money, and OPM all have their place to work for you in real estate investing.

Where to Go from Here

Understanding money is key to successful real estate investments. When you put time into understanding money, you get control of it. With control, you can multiply your investment earnings four times over.

It doesn’t stop here. We want to help with your hard money education:

How To Buy a Fix and Flip: The First Key Steps

How To Buy a Fix and Flip: The First Key Steps

How To Buy a Fix and Flip: The First Key Steps

Do you know how to buy a fix and flip? Because if you’re new to investing in real estate, there’s a chance you’re not sure where to begin this process.

You might think, “Well, I’ll just get a loan.” But do you know what “getting a loan” really means?

That’s why today we’re going to take a look at the different real estate lenders you can rely on—and which ones you might have to rely on until you boost your credit score, build a real estate portfolio, or complete one of the other qualifications that some lenders require.

To begin, there are 5 popular real estate lenders. Each one has various pros and cons, so let’s start with the most simple and basic lenders.

Friend or Family Member

The upside to asking a friend or family member for a loan is, well, you’re asking a friend or family member for a loan. You know them, and you probably know them very well…well enough to ask them for money.  The only qualification you really need is a decent relationship.

The downside is, well, you know them. They’re your friend, your dad, your sister, or someone else you have deep roots with. That makes the entire loan process way more personal, which means there’s a lot of potential for drama—both now and in the future.

Business Partner

Instead of going through a family member or friend, you can get a business partner. A business partner can lend you the money to buy a value-add property with very few if any qualifications. The big pro here is they take on most—if not all—of the financial risks. It’s their money, not yours.

On the flip side, it’s their money, not yours. That means some business partners get greedy. Rather than splitting profits fairly, they demand the lion’s share. To them, it might not matter if you were the one who did all the actual work. They took the risk, so they should get a bigger reward at the end of the day.

Hard Money

If you have some basic qualifications, you can skip the first two lenders we’ve talked about and get a loan through a hard money lender. Hard money loans (aka, Fix and Flip loans) are great when you need to close a real estate deal FAST. We’re talking days instead of weeks or months.

Unfortunately, hard money can be expensive. Rates tend to be higher than other lenders. But every hard money lender varies, so it’s absolutely worth shopping around. Plus, hard money loans aren’t intended to be long term, so the high cost can actually save you a lot of pain AND money in the long run.

What is hard money? Check out our truth revealing series on YouTube!


Banks are the most traditional lender out there. In fact, most real estate investors look to this type of lender before they consider any other. And, why not? Banks usually have the lowest rates available.

Unfortunately, banks also have the strictest requirements, and if you don’t meet those requirements, you’ll get rejected. Worse, the application process is a lot more in-depth, which means closing can take A LOT longer. Which means that perfect investment property you wanted gets snatched up by someone using a faster lender.


Aka, “Other People’s Money.” This is exactly how it sounds. You use other people’s money to buy a property. This is different than asking a family member, friend, or business partner for financial help because there are more boundaries. With OPM, a lender charges interest. That’s it. There aren’t points or profits involved. It’s simple and easy.

The only downside of OPM is finding those who are willing to lend their money to you. But that’s where gaining experience and knowledge in real estate investing helps. The more you know, the more you can prove you’re worth the investment.

So, there you have it. Those are the 5 ways to buy a fix and flip property. Each one has its pros and cons, but each one is a viable option. It just depends on YOU and your financial situation.

Bad credit? No credit? You might have to start with a family member, friend, or business partner

Great credit? Solid income? Extensive real estate portfolio? You probably can jump straight to hard money or a bank loan. Or, better yet, OPM.

Each investor has a different path.

Ready to find out what your path is? Great! Our team is here to help. We’re excited to set you on a path that helps you make the kind of money you need…to live the life you want.

Happy investing!

Reach Your Cash Flow Goals

Hard Money Mike: Reach Your Cash Flow Goals

Hard Money Mike: Reach Your Cash Flow Goals

So, why do you need Hard Money Mike?

Well, our company goes far beyond providing quick hard money loans for your value-add properties. We also strive to help you reach your cash flow goals.

We think it’s fair to say that in real estate investing, cash flow is king. Right?

Generating positive cash flow is probably the key similarity among all investors. Whether you’re interested in fix and flips, rentals, or another value-add property, it’s likely main reason you risk your money, dedicate your time, and shed your tears is to make money.

A lot of it.

And the Hard Money Mike team gets that. In fact, we make it our main focus here. Because we know that cash flow means everything. It also means different things to different people. Such as:

  • Freedom from a 9-5 job
  • More time with family
  • Extra vacations
  • A safer, happier retirement
  • A comfier lifestyle
  • Daily Starbucks
  • A new house…Or, you know, a second house that you can escape to when winter hits. Because wouldn’t you’d rather spend the winter sipping piña coladas on a sandy beach than drinking hot cocoa in an ice-covered city? Well, to each their own, right?

Anyway, there are a million reasons why you might want more money in your life, and we want to support you by helping you create specific goals. And then a plan to reach each goal as quickly and efficiently as possible.

Because no matter what kind of real estate investing you’re interested in, it all comes down to numbers. If the numbers don’t work, then the real estate deal doesn’t work. And if the deal doesn’t work, then you won’t be able to generate extra income.

Then it’s bye-bye to those piña coladas. Or, you know, whatever your reason is for investing in real estate and making money.

So, if you’re ready to talk about your goals and creating a strategy to achieve them, then go ahead and reach out to us. Our experienced team is always here and eager to assist you.

Happy investing!

What To Look For In A BRRRR Property Walk-Through

Interested in succeeding as a BRRRR investor? Then check out this video! Matt Faircloth from Bigger Pockets gives us a tour of a property he invested in, and talks about numbers, lessons, and tips. Check it out!

Ready to tackle the BRRRR method and invest in your first property? Our team is here to guide you through the process and help you reach your investment goals. Contact us today.


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