Putting An End To The Hard Money Moniker

Focus on the positive opportunities private lending provides.

Insider

Contributing Writer

Amovement is currently underway in the private real estate lending space to phase out the term hard money once and for all. Long gone are the days of what hard money used to be, with shady loan-to-own business practices, sky-high interest rates, astronomical points, and visions of mobsters ready to break your kneecaps if you didn’t pay on time.

It’s more than fair to say that hard money has become institutionalized, and grown into its new moniker of private lending, however, so many in the industry, lenders, brokers, and clients alike, are hesitant to let go of that long-standing phrase. With the strides this industry has taken over time, why wouldn’t people want to leave behind that shady past and focus on the positive opportunities that private lending now provides to real estate professionals?

Simply put, its complicated.

The Different ‘Sides’ of the Real Estate Industry

I was recently having a conversation with someone on the residential side of real estate about the semantics of hard money vs. private lending and they pointed out that typically in the residential space, private lending refers to a wealthy individual investor that lends out their own money. It doesn’t reference the bigger private lenders that have saturated the real estate investing space as we know it today.

However, if you asked residential mortgage brokers or originators to rattle off the biggest hard money lenders, they would have no problem naming companies like RCN Capital (although I cringed at being referred to as hard money). This individual also mentioned that companies like RCN could be considered a bridge lender if we didn’t like being called a hard money lender. I countered by saying that bridge lending simply doesn’t cover the full scope of products that private lenders now offer.

Private lenders have expanded their loan program offerings to include not just short-term bridge loans or fix and flip loans. Many offer DSCR products, long-term rental products, new construction products, and much more. Again, confirming that this part of the industry has truly become that much wider reaching and legitimate. And while those that reside on the private lending side and deal primarily with clients on that side of the real estate industry may think that phasing out the term hard money is an easy task, the real challenge lies with gaining acceptance from the residential side and making a push within that side of the industry. That’s where the majority of apathy towards this whole movement seems to lie.

The Marketing Dilemma

When RCN Capital went through its rebrand, we made the conscious choice to use the phrase private lending and private lender instead of hard money in all our print advertising and company boilerplate from day one, and that was back in 2013. This was because I did not want our new brand identity associated with the term hard money. I wanted to have RCN Capital be of a higher caliber and not just another hard money lender, we were a private lender.

I ran into significant challenges when it came to digital advertising and website SEO. If I didn’t utilize keywords related to hard money in our advertising strategy, I would be missing out on a large portion of customers that were searching for our types of loan programs.

Just like the term subprime is no longer used in the world of residential real estate, it’s time for hard money to be phased out of existence.

Even today, at many residential mortgage broker trade shows, when I present my elevator pitch about RCN, which does start off with “RCN is a direct, private lender,” more often than not, I am immediately met with, “Oh, so you are hard money.” In those moments, of course I am going to agree with a potential client so they can easily understand what our loan programs are, rather than argue and say well no, we are private money. From a marketing perspective, because our client base is split between the residential world and the private world, like many other private lenders, this initiative has become a delicate balancing act of portraying our company as a private lender to show our support for moving our industry forward while still trying to attract the customers that are looking for hard money products.

R.I.P. Hard Money

With interest rates going up, inventory levels remaining limited, and so many other issues going on in the mortgage industry and real estate industry, arguing the semantics of hard money vs. private money seems so low on the list of priorities right now. However, such a small change for real estate professionals to make is all the private lending industry is asking as it would make such a tremendous impact.

Just like the term subprime is no longer used in the world of residential real estate, it’s time for hard money to be phased out of existence. The term hard money is obsolete, and it no longer reflects the players in this space and the products they offer. It is a disservice to those businesses and their customers alike to continue to use it. It is time to put hard money to bed and embrace the rise of private lending.