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The Difference Between Private, Limited, Institutional, Hard Money and Private Lenders

The Difference Between Private, Limited, Institutional, Hard Money and Private Lenders

Many investors do not know where to acquire real estate investment funding when starting out or scaling. However, if you know where to look, you will find that there are many different real estate funding sources for investors to obtain capital. 

You will also find that real estate investment lenders identify themselves in many ways.  

They may call themselves “private,” “limited,” “Institutional,” or “hard money” lenders.  

Here at i Fund Cities, we define ourselves as “alternative” lenders. 

It can be really confusing to know how each one of these lenders functions, and which one is the best choice for your deal. 

Although it takes a little time to understand the differences between real estate investment funders, you will not need a PhD in lending to figure this out, and knowing which investment lender is the right lender for your particular investment will ultimately save you a ton of time. 

We are here to help! 

 

Private Investors and Limited Partners 

Private real estate investors and limited partners are individuals who take a passive approach to real estate investing.  

They do not want to operate or execute the real estate deal itself. They prefer to find a good operator and provide them with working capital to scale.  

These investors’ rates and terms vary based on the real estate investment project size, project return, and investor return appetite. The largest driver for their rates is the sponsor or operator’s real estate experience.  

They want to know—does the operator have a track record of execution? If so, they are more likely to fund real estate investment. 

 

Institutional Lenders 

This group of real estate investment lenders typically have a “diversified capital stack.” This means that the legitimate ones usually run and fund using both their own capital and investor capital.  

 

BTW, from “Acceleration Clause” to “Diversified Capital Stack,” to “PITI” and “Usury,” it is helpful to understand lending terminology when you talk with your lenders.  

That is why we created this Free and Downloadable   

iFC COMPLETE REAL ESTATE GLOSSARY FOR INVESTORS 

DOWNLOAD HERE 

 

In addition to this, they typically have large warehouse lines of credit that allow them to do far more volume for a real estate investor.  

Lastly, they typically trade some portion of their loan originations into the secondary market to large private equity companies.  

Doing this allows them to have a continuous flow of money to help grow borrowers’ real estate practices.  

 

Hard Money Lenders 

Hard money lenders often get lumped into both the private lending and the institutional lending buckets, with the terms sometimes being used interchangeably. 

Why does this happen and how do real estate investors know the difference? 

The main reason people mix up hard money lenders with private money lenders is the fact that most hard money lenders are individuals.

However, there is a different group of hard money lenders who run and operate a private debt fund, in which they use their own capital, in addition to raising money from outside investors (known as a “fund syndication”).  

They use their funds to loan to individual real estate operators. 

 

Brokers: A Sidenote 

Real estate loan brokers often appear as lenders due to their marketing capabilities, but they do not lend their own capital.  

They tend to have multiple relationships with lenders to whom they can take their customers. This typically costs the real estate investor one to two points in cost, but the real estate investment broker handles the negotiation with the lenders, which reduces the burden on the borrower. 

 

To help you keep things straight, we have put together a summary  

of what you can expect from each type of lender. 

DOWNLOAD IT HERE FOR FREE:   

 QUICK REFERENCE GUIDE:  

LENDER COMPARISON: PROS AND CONS 

 

Alternative Lenders 

i Fund Cities, is an “alternative” lender. We are a hybrid of all the above.  

We are more institutional in nature with our underwriting standards. But we have a variety of funders, including retail investors, small and big banking investors, institutional banking investors, and family office money.  

We have found that this broad-based mix of real estate investment funding for our company provides the most reliable capital for our borrowers.  

How?  

It keeps us from relying on the capital markets that many other real estate funders need to count on to keep lending to investors. This is important because it means that, even when the markets shift, we can continue lending to real estate investors. 

 

And that is basically it. You have officially graduated from “The Difference Between Lenders 101!” 

Congratulations and keep rockin’ it out there in Investor Nation! 

The iFC Team 

 

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Built for Investors by Investors 

i Fund Cities is an “alternative” lending platform offering custom real estate funding options for every level of investor, across a full range of lending products. As investors ourselves, we are just like you: hustle and grit, not suit and tie. 

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