What is the difference between Hard Money and a Joint Venture?
In the simplest terms…that a 5 year old can understand…
Hard money is a loan that a lender loans to a person based on the investment property only…rather than based on the borrowers (person borrowing the money) personal finance statement.
A Hard Money loan is typically from someone or a business you don’t know, who loans money like a bank, but to people based on the Real Estate deal itself.
The lenders collateral is the house itself. The house is tangible. You can touch it. Hence the term “Hard” money. So if you fail to pay the Hard Money lender, the lender takes the house from you.
So the lender would NOT look at credit score, bank account, income etc…
The Hard Money lender WOULD look at: If they would want to own the property themselves, if you have a good plan in place for the Real Estate investment (flipping it, purchase price, cost of repairs etc..)
A Hard Money lender is typically going to ask themselves “If this person messes up and doesn’t complete the project…could I complete it myself?” If the answer is yes they will most likely give you the loan.
A Joint Venture on the other hand is when you find someone who you are going to partner with on the deal itself and split the profits.
So if you made $50,000 on a flip the Joint Venture partner might get 50%, 60%, 35%..etc..
Basically the Joint Partner will get whatever you guys negotiate.
The Joint Venture partner may be someone who has money and puts it into the deal, or you may be the person with the money so your Joint Venture partner is the boots on the ground and manages the flip.
If you are someone who doesn’t have any money you will want to look for both a Hard Money lender and a Joint Venture Partner with money.
The reason is your Joint Venture Partner can make the payments to the Hard Money lender each month while you are flipping the house. It is no different than a credit card payment.
You need to make the Hard Money loan payments each month and well…if you dont have money you will need a partner who can make those payments to keep you in business.
This is how you can get started in this business with others people money.
You just have to get creative and be willing to work hard and manage the flip project while your JV partner makes the payments.
A JV parter who works in this fashion is usually where the term “Private Money” comes from.
If this is a bit confusing here is a free 2-min video lesson to help you better understand:
A Hard Money lender gives you the money to do the project and you pay a monthly fee and possibly a payment at the end but they are not “partners” on the big piece of the pie at the end.
A Joint Venture partner may also lend you money (and you would need to pay them back for that too) however they DO get a piece of the profits at the end after the loans are paid off.
The main difference is the Hard money lender wants the monthly income and the Joint Venture partner wants part of the profit at the end.
The Joint Venter/Private money partner is typically money from a person, business or group of people who you put together to do investments with. Usually it’s from people you know who you set up a return on their investment with.
It might be a relative, friend, co-worker, etc…and they will split profits with you in addition to getting a return on the money invested.
For the exact A-Z blueprint on how to make BIG money flipping houses join the Better Tomorrow Group for FREE right now.
Chris M Cordova
CFO Better Tomorrow Group
Chris is an active investor, Realtor, Broker, marketer, serial entrepreneur, and co-founder of Better Tomorrow Group. Follow Better Tomorrow Group on Instagram@bettertomorrowgroup on Twitter/Periscope @TheBTgroup and Facebook at Better Tomorrow Group. If you would like a FREE MEMBERSHIP to Better Tomorrow Group Follow this LINK.