What is Private Money Lender?
A private money lender is an individual or small entity that lends investor capital secured by real estate — friends, family, country-club connections, or accredited investors looking for higher yields than bonds. Less regulated than institutional lenders, more flexible on terms.
Private money is the bridge between hard money (expensive but easy to qualify for) and conventional financing (cheap but bureaucratic). A typical private lender wants 8-10% interest, interest-only payments, first-position lien, 1-2 year term — earning meaningfully more than they would in bonds while you avoid hard-money points and rates.
Building a private-lender network takes time and trust. The path: (1) do your first 1-3 deals on hard money or your own capital, documenting numbers + photos meticulously; (2) present results to local high-net-worth contacts at REIAs, country clubs, family networks; (3) start with small loans ($25-100k) and grow as trust builds.
Always paper private loans with attorney-drafted promissory notes and recorded deeds of trust — never on a handshake, even with family. Loan-loss is the relationship-killer; documented terms protect the friendship as much as the money.
Concepts that connect.
A hard-money loan is a short-term, asset-based loan used by investors to acquire and renovate properties — typically 6-18 month terms at 9-13% interest with 2-4 origination points. Used when conventional financing doesn't fit (speed, condition, or borrower qualification).
Flipping is the strategy of buying a distressed property, renovating it to retail standard, and reselling at full market value within 4-9 months. Profit comes from the spread between all-in cost (purchase + rehab + carry + closing) and net sale proceeds.
Debt Service Coverage Ratio (DSCR) is the ratio of a property's annual net operating income to its annual debt service. A DSCR of 1.20 means the property generates 20% more income than it needs to cover the loan payment. Most DSCR lenders require 1.10-1.25 to underwrite.
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