I interview real estate investors for my website and recently I came across a number of investors who teach about using private money to purchase real estate. However, if you would have asked me one (1) year ago about the difference between private money and hard money I would not have been able to tell you anything. The difference however is very critical.

Broken down into its simplest form the main difference is with private money you decide the terms of use and with hard money the lender decides the terms of use. Now this very basic difference has a lot of impact on your real estate investing business. One type of money is not necessarily better than the other but you should in fact no the difference.

Where does the money come from?

In both scenarios you are going to receive the money from an outside investor. There are several ways to discover these investors from holding luncheons to running ads in the local paper. The investors know that real estate will offer a higher return than the market so they are inclined to give you some dollar amount in exchange for a percentage of return.

So what about the Terms of Use?

Private Money: the terms of use with private money tend to favor that of the real estate investor. Why? Because you as the investor set the terms exactly how you want. You go to the investor and they agree to give you X amount of money and in exchange they will be paid X% return. You can structure this so they receive a monthly return exactly like any lending institution structures a basic mortgage or you may want to give a higher percentage and pay the investor in one lump sum at the close of the deal. However you slice it, you decide where to spend the money, when to spend the money, and how to spend the money. But you do need to have your business set up so that a third party holds the money until you are ready to use the money. The best part about using private money is you determine what is done with the money because you are the real estate investor, you don