What is a Hard Money Investor?

Matt Brady

A hard money investor is an individual who receives loans from a private investor rather than from a traditional lending institution, such as a bank. Hard money lenders are typically individuals who have immediate access to money that they'll quickly lend out for the right project—usually a real estate investment. If the project looks profitable to the lender, the hard money investor can receive funding for a deal at a much faster approval rate than from a bank. Hard money loans have the added benefit of placing much less emphasis on a borrower's credit score, if any at all.

Hard money lenders are typically individuals who have immediate access to money that they'll quickly lend out for the right project—usually a real estate investment.
Hard money lenders are typically individuals who have immediate access to money that they'll quickly lend out for the right project—usually a real estate investment.

One might consider becoming a hard money investor for a variety of reasons. For one, an investor may need faster access to money than a bank is able to provide. As an example, a wholesaling deal—in which an investor buys cheap property for the purpose of quickly reselling it at a profit to another investor who's willing to fix it up for even greater profit—generally requires a fast exchange of money. A bank’s lending process may move too slowly for such a deal, whereas a hard money loan might make the transaction possible. A bank might take a week or longer to approve a loan, whereas a hard money lender, especially one who knows the investor, might take no more than a few days to lend out money.

A hard money investor generally has quick access to funds which they will lend to potentially lucrative projects.
A hard money investor generally has quick access to funds which they will lend to potentially lucrative projects.

A hard money investor might also find that the lender is more lenient with repayment terms. Banks often offer a few boilerplate repayment options—10-, 15-, 30-year loans—whereas hard money lenders may be more willing to negotiate more flexible repayment terms. Such flexibility comes at a price, though; a hard money investor will most likely pay a greater amount of interest on a hard money loan than they would on a bank loan. This is because hard money loans are generally viewed as riskier.

In real estate, hard money loans don't normally cover the full amount of the investment. A hard money loan might cover up to 60 or 70 percent of a housing project, whereas bank loans typically cover the full amount, minus a down payment. With hard money loans, the investment property is used as collateral. If the borrower defaults on the loan, his or her credit won't be affected, unlike conventional bank loans. Failure to repay a hard money loan will likely result in the lender assuming ownership of the investment the loan was used to purchase.

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