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Hard Money Loan vs Equity Investments – Which is Best For You?

James Crandall
July 2, 2020

You may have heard hard money and equity loans share a lot of similarities, but what is the difference between the two?

So how are they similar and how do they differ?

Similarities? For one, they’re both asset-based loans. This means that they are from a non-traditional lender. These loans do not come from a bank or a national lender. Both hard money and equity loans may or may not be backed by the investors credentials. The loans are based more so from the property that is taken as collateral.

So whats their biggest difference? Structure.

Hard money loans have a debt structure where you receive money from a lender. This money is to be used for fix and flip, repairs, or project completion. The borrower will then have to pay this amount back plus the interest and fees agreed upon.

Private loans have an equity structure where borrowers receive money for a real estate project and agree to share the profits with the borrower. So depending on how well the project is flipped and fixed, timeline of the project, and market value, will determine profits.

Maximizing Profits

One of the tricky things with equity loans is that you don’t know how much money you’ll eventually make off the home. If you are investing in particularly successful project, you’ll end up giving more money away. A lot of house flippers don’t feel comfortable moving forward with a lender when they don’t know what their profits will be and how they will be split.

However, with hard money, the structure is straightforward. The money is paid back plus interest and fees regardless of the profits or timeline. Making it a much more consistent investment.

Where Can I Invest in Hard Money Loans

If you’re interested in learning more about hard money loans, check out Yieldi’s current offerings. Our online marketplace allows you to diversify your portfolio in one easy to use space. We do all the work, so you don’t have to. See some of our current open offerings, here.

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