Hard money vs private money: which one should fund your deal?

The short answer

Hard money comes from a company. Private money comes from a person. Both are secured by the property instead of your credit score, both fund faster than a bank, and both cost more than the 6.95% a 30-year mortgage carried in the week of September 17, 2026, per Freddie Mac's Primary Mortgage Market Survey. The label is the least interesting part. What actually decides your deal is who sets the terms, how fast the cash shows up on closing day, and whether you are even allowed to raise the money the way you plan to.

This is general information, not legal or financial advice. Rates and securities rules move and vary by state, so consult your own attorney and lender before you sign anything.

What hard money costs in 2026

A hard money lender is a nonbank firm that lends against the house. Chase, which does not write these loans itself, puts the range at 10% to 18% with 20% to 35% down, interest-only payments, and a balloon at the end of a term that runs a few months to a couple of years. Miss that balloon and the lender can take the property.

Actual 2026 pricing sits at the low end of that range for a clean deal. The California lender North Coast Financial quotes first-position loans at 9.95% to 10.95% plus 1.5 to 2 points, with second-position money at 11.95% to 12.95% plus 3 to 4 points, on 12 to 24 month terms. Points are paid up front. Two points on a $180,000 loan is $3,600 out of pocket on day one, before your first interest payment clears.

What you buy for that price is certainty. A hard money file gets underwritten by people who do this every day, and the money can land in a few days. There is a rate sheet, a checklist, and a closing date that holds.

What private money actually is

Private money is a loan from an individual. The dentist you met at a Real Estate Investors Association meeting. A retired contractor. An aunt with a self-directed IRA looking for better than a 4% CD. There is no rate card and no underwriting department. You negotiate the rate, the points, the term, and the payment schedule one conversation at a time.

That is the whole appeal, and the whole risk. A private lender who trusts you can offer 8% interest-only with zero points and a handshake. The same lender can also go silent three days before closing because their spouse got nervous, and there is no second desk to escalate to. Speed with private money is a function of one person's mood and bank balance, not a process.

Private money also comes in two flavors people confuse. One is a lender who is passive: they wire the money, hold a note and a lien, and collect interest. The other is a partner who wants a share of the profit and a say in the rehab. The first is a loan. The second is closer to a joint venture, and it changes who owns the deal and who is on the hook if the flip goes sideways. Write down which one you are agreeing to before money changes hands, because a lender expecting 10% interest and a partner expecting half the profit on a $40,000 spread are $15,000 apart on the same house.

Why the cheaper money can cost more

Most guides tell beginners to chase private money because the headline rate is lower. Put real numbers on a real deal and that advice falls apart.

Take a $200,000 purchase you plan to flip in six months. Your private lender friend offers 8%, but they are cautious and will only fund 65% of the price, so $130,000. You bring the other $70,000 plus closing. A hard money lender offers 11% plus 2 points and funds 90%, so $180,000. You bring roughly $23,600, counting the $3,600 in points.

Six months of interest on the private loan is about $5,200. Six months on the hard money loan is about $9,900, and with points the financing runs near $13,500. The private money is cheaper by roughly $8,300. Now look at what each choice does to your return. Say the flip nets $40,000 before financing. On the private deal you clear about $34,800 on $70,000 of your own cash, a 50% cash-on-cash return. On the hard money deal you clear about $26,500 on $23,600, a 112% return.

The gap gets wider once you count your calendar. Your $70,000 does one private deal at a time. That same $70,000 covers three hard money deals at once. Three deals at $26,500 is $79,500 against one deal at $34,800. The lower rate looks smart on a single spreadsheet and leaves most of your money and half your year sitting idle. Cheaper capital is not the same as more profit.

Raising private money is securities law

Here is what a lender's own blog will never tell you, because it is not selling you this part. When you take money from someone and hand them a promissory note, you may be selling a security. The SEC says it flatly: "Typically, promissory notes are securities" and must be registered with the SEC, registered with a state regulator, or qualify for an exemption.

The common exemption real estate investors rely on is Regulation D. The SEC's own summary notes that Regulation D lets some issuers sell securities without registering, but they must file a Form D after the first sale, and the antifraud rules still apply to every exempt offering. Borrowing from one lender you already know, for one deal, usually stays clear of trouble. Posting "12% returns, secured by real estate" to a room of strangers or a public group is how investors end up explaining themselves to a state securities division. Before you pool money from more than one person, pay a securities attorney for an hour of their time.

The comparison, side by side

Read the table as a decision, not a scorecard. Hard money wins on reliability and speed. Private money wins on price and flexibility, once you have someone willing to give it to you. Conventional financing wins on cost and loses on every deal that needs to close this month or involves a house a bank calls uninhabitable.

Which one fits your situation

If you have never closed a deal, start with hard money and stop feeling bad about the rate. Nobody hands 8% money to an operator with zero track record, so the "private is cheaper" advice is useless to the person most likely to be reading it. Do two or three clean flips, keep the settlement statements, and private lenders start finding you.

Use private money once you have proof and a relationship, especially for longer holds where a 2-point hard money fee eats the spread. Use hard money when the clock matters, when you want the deal underwritten by someone other than yourself, or when you would rather keep your own cash spread across three deals than parked in one. For a wholesale double close that funds and resells the same day, neither is ideal; a dedicated transactional funding product usually costs less than a full hard money term.

What every lender checks before funding

Both kinds of lender size the loan off the after-repair value, not the price you talk the seller down to. Most hard money lenders cap total exposure around 70% of the after-repair value, the same ceiling the 70% rule uses to keep a flip profitable. Bring a defensible number. If your ARV is a guess, the lender's appraisal will catch it and either reprice the loan or kill it, and a private lender who feels burned once will not answer the second call. A clean scope of work, real comparable sales, and a proof of funds letter for your down payment do more to lower your rate than any amount of haggling.

Where these loans blow up

The failure mode for hard money is time. A 12-month balloon feels far away in month one and arrives fast when a permit stalls or a contractor walks. Interest keeps running the whole time at 10% or better, and an extension, if the lender grants one, usually costs another point. Build your timeline with a buffer, then borrow against the buffered timeline, not the optimistic one. A flip that pencils at four months and takes seven has paid three extra months of interest that came straight out of the spread.

The failure mode for private money is the relationship. When a deal you funded with a friend's retirement savings loses money, you have lost a friend along with the money, and the next three lenders hear the story. Treat a private loan with more paperwork than a bank would, not less: a recorded mortgage or deed of trust, a real promissory note, a title policy, and a clear payoff. The handshake that made private money attractive is exactly what turns a bad month into a lawsuit. Paper protects the friendship.

Get a deal worth funding first

Financing is the last problem, not the first. A hard money lender at 10.95% and a private lender at 8% both need the identical thing from you before either says yes: a house under contract at a price low enough that the math works after their fees. That is the part new investors skip while they argue about rates. Finding the seller who will sell at that price is the actual job, and it is a marketing problem, not a lending one. That is where a tool like Farmrix fits, well upstream of any loan.

Farmrix exists for that step, not the funding one. It scores every owner in your market on how likely they are to sell in the next 6 to 12 months, ranks them, and mails postcards to the top of the list, so you spend your marketing on the doors most likely to turn into a contract. The entry package is 500 ranked owners and 500 postcards for $1,195. Land the deal, run the numbers against the 70% ceiling, then take it to whichever lender funds fastest. The cheapest capital in the world does nothing for a deal you never put under contract.