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Private Money Lenders - December 2023


Last updated: December 1, 2023


Welcome to the definitive guide to learn about private money lenders for real estate. This guide is intended for experienced real estate investors and people who are just getting started. Our goal is to help you grow your real estate investing operation by providing you with a thorough educational resource that covers all things private lenders.


What is a private money lender?


Private money lenders are non-bank lenders that provide various types of loans to businesses and consumers. Private lenders can range from wealthy individuals to large institutions.


Private Money Lenders Near Me


While it can be an advantage to work with a private lender in your local market, there are large national private lenders that are likely active in your market and worth establishing a relationship with. Here are some of the best ways to find private lender:


🤝 Network -- ask people you know who they recommend. Make sure they have direct experience working with the lender.
🧑‍💻 Google Search -- a simple Google Search will expose you to several options. We recommend reading reviews and calling to see if there's a good fit.


Hard Money Lender vs Private Lender




A lot of people use the term hard money. Some people are offended by the term hard money as they believe it has a negative connotation with which they don't want their private lending business associated.


There is no difference between hard money and private money as long as the loan is backed by a hard asset, such as real estate. Private lenders do not have standardized terms, so terms vary from private lender to private lender.


What is a Real Estate Private Lender?


A private lender is a non bank lender that provides asset backed loans to real estate investors. Private lenders are either companies or wealthy individuals.


What is a Business Purpose Loan?


Private loans backed by real estate made to investors are considered business purpose loans. This means that the real estate investor is using the loan for an investment property -- it is not to be used for a property that the investor intends to live in, which would be considered a personal residence or a primary residence.


What is a Direct Lender?


A direct lender has the ability to fund your loan directly or as a loan originating affiliate of an institutional capital provider who provides reliable funding based on clearly defined guidelines.


Direct lenders differ from mortgage brokers in that mortgage brokers work with multiple lenders and charge a fee as a middleman.


Should I work with a private lender?


Real estate private lenders are critical to the real estate investing ecosystem, especially for fix and flip and rental investors who want to scale their real estate investing business quickly by leveraging reliable and competitively priced debt capital.


Real estate private lenders are specialized in specific real estate asset classes (i.e. single family, multi-family) and loan types (i.e. bridge loans, DSCR rental loans, ground up construction loans) and are comfortable evaluating, underwriting and funding deals for experienced real estate investors in a manner that allows the investor to close transactions quickly and reliably.


Private lenders in real estate do not need the borrower to be a W-2 salaried employee with a stable source of employment income and therefore empower real estate investors to pursue full-time careers in real estate investing.


Private Lenders vs Banks


Most traditional lenders -- financial institutions, credit unions -- are very strict with their lending guidelines, and investment property loans are very carefully underwritten. It's typical that you're required to have a W-2 and provide tax returns. Otherwise you don't qualify and they cannot lend to you. If you are working with a private lender, you do not need to worry about that. A private lender will happily lend on a "no-doc" basis.


Do private lenders require a personal guarantee?


Most private loans are recourse loans and require a personal guarantee. Some real estate private lending companies offer non-recourse loans, this is most common for portfolio rental loans where the loan is secured by multiple properties in the portfolio and no personal guarantee is required. Non-recourse loans tend to have a slightly higher interest rate and a "bad boy provision".


Real Estate Private Lender Qualification


The private lender underwriting your loan will look at the following items to determine whether or not you are approved for a loan.


This specific deal


  • What is the condition of the property?
  • Is the purchase price below market value?
  • Is the rehab scope of work appropriate?
  • Is the after repair value (ARV) conservative?
  • Is there strong profit in the deal?

Real estate investing experience ("track record")


The private lender will review your experience with fix and flips, rental property investing, and ground up construction. The lender wants to understand your level of experience:


  • How many flips have you completed?
  • How many rental properties do you own?
  • How have each of your deals performed?
  • What is the experience of other members in your LLC (if any)?

Thorough private lenders underwriting their first deal with you will look at what is called a Schedule Of Real Estate Owned (SREO). This includes high level details of your previous fix and flip and rental projects to understand your experience with similar rehab budgets and the outcome of each of your previous projects.


Personal financial statement


Private lenders will look at your individual financial status. Many will use a Personal Financial Statement which is a simple high-level template that serves as a snapshot of your personal balance sheet (assets, liabilities). Private lenders will want to see that you have more assets than liabilities. Assets minus liabilities is your equity, your personal net worth.


The underwriter will want to understand your financial and risk profile:


What are your assets? Cash, real estate, brokerage, real, retirement, life insurance cash value.


What are your liabilities?


  • Mortgage debt
  • Credit card debt
  • Notes payable
  • Auto loans

What is your income?


These items are commonly asked but typically not verified:


  • Salary
  • Rental property income
  • Investment income

What is your legal profile?


  • Are you a U.S. Citizen?
  • Have you ever had a foreclosure, deed-in-lieu, or loan modification?
  • Are you defendant in any legal action or have unsatisfied judgments against you?
  • Are you under indictment, on probation or parole or ever been charged or convicted for a criminal offense?
  • Have you ever gone through a bankruptcy?

What does Hard Money mean?


Hard money means the loan is backed by a hard asset. If you are not able to repay the principal and interest, then the lender has a claim on the hard asset that the loan is for, as well as other assets that you own as part of your personal guarantee as recourse.


So hard money lenders use hard assets as recourse and lend against hard assets. You'll see hard money lenders in real estate, and hard money lenders that provide personal loans and auto loans, etc.


What is a Bridge Loan?


A bridge loan is a short term loan intended to bridge the gap between two events. In real estate, bridge loans most commonly serve as gap funding between initial purchase and refinancing, or sale.

Let's say you want to purchase a property that is in poor condition for $100,000 and you plan to invest $100,000 into the renovation. Once the renovation is completed, based on comps, you're confident you can sell it for $275,000 or you refinance it at a loan-to-value ratio of 75% and cash out just over $200,000.


But you don't have enough cash on hand to cover your initial investment of $200,000. So you contact a private lender who offers competitive bridge loan terms. The private lender agrees to lend you 90% of the purchase price ($90,000) and 100% of the rehab budget ($100,000). In this case, all you have to come up with is $10,000 plus closing costs.


The bridge loan carries a higher interest rate, typically 10% to 12%, and is only intended to be used over a short period of time, no longer than 18 months in most cases.


Check the rates for bridge loans from OfferMarket Capital


Bridge loans are commonly referred to as "fix and flip loans" because it's a common source of capital used by flippers. The truth, however, is that many savvy rental property investors use bridge loans for the BRRR investing strategy -- Buy, Rehab, Rent, Refinance. The Buy, Rehab and Rent phases are enabled by the bridge loan.


What is a Draw Request?


When you use a bridge loan or a ground up construction loan, the construction portion of the loan is based on a pre-defined scope of work ("SOW") and the private lender reimburses you based on receipts and invoices for progress made according to your SOW.


The reimbursement funding is called a draw and is ordered through a "draw request".


You may be wondering, how am I supposed to afford the materials and labor and then be reimbursed? The answer is net terms from your vendors. That means your vendors allow you to pay a certain number of days after they deliver materials or complete your service order. Most net terms are 15, 30, 60 or 90 days. Credit cards effectively afford you net terms. Vendors commonly offer net terms with a small discount if you pay early.


100% funding for Bridge Loans


Across the private lending industry, the maximum loan-to-cost ("LTC") you will see is typically 90% of purchase price and 100% of rehab. If a lender is offering you 100% of purchase price and 100% of rehab, it should be considered a red flag and you should be careful (speak with borrower and title company references).


Ground Up Construction Loans


The next style of lending that a lot of private lenders offer is ground up construction loans. Let's say you find a parcel of land that is zoned for residential development and you want to build a house on it to either sell or rent out.


Real estate private lenders are a great source of capital for new construction projects. The private lender will in many cases provide up to 50% of the purchase price for the land and up to 100% of the construction costs.


Once construction is complete you either sell the property and repay the loan, or you refinance the property and hold it as a low maintenance rental property.


Rental Loans


Rental loans from private lenders, much like commercial investment property loans, are based on debt service coverage ratio (DSCR).

How to calculate Debt Service Coverage Ratio


DSCR = (Rental Income - Operating Expenses) ÷ (Mortgage Principal + Mortgage Interest)


DSCR = NOI ÷ Debt Service


Debt Service Coverage Ratio is your Net Operating Income divided by your Debt Service.


This is how much your property pulls in, minus its expenses which include property management, maintenance, taxes and insurance divided by the monthly principal and interest that you would be expected to pay if you have a loan in place on that rental property.


Typically a private lender has a minimum debt service coverage ratio of 1.2. This means the amount that they're willing to loan, the maximum loan-to-value (LTV), is based on the minimum debt service coverage ratio.


For example, let's say you buy a property that already has tenants in place, and it's generating $1,500 in net operating income per month:


  • Rental Income: $1,900/month
  • Insurance: $100/month
  • Property taxes: $100/month
  • Maintenance: $100/month
  • Property Management: $100/month

NOI: $1,500/month


And your monthly debt service (mortgage and interest payments) will be $1,000.


DSCR = $1,500 ÷ $1,000


DSCR = 1.5


A DSCR of 1.5 meets the minimum debt service coverage ratio requirement.


Let's say that same property was only rented at $1,100, and it appraised at the same amount as a previous example. So you would be otherwise looking at $1,000 principal interest, taxes, and insurance on your monthly loan costs. Unfortunately, that is a DSCR of 1.1 which is too low. So your lender would need to reduce the loan amount to get your DSCR to the 1.2 minimum.


If you're taking out a DSCR rental loan and you don't yet have tenants in place -- because you're buying a vacant property -- your lender is going to go based on market rents, and they're going to look at the appraisal to determine what loan amount they can ultimately offer based on the expected debt service coverage ratio.


No Doc Loans


No-doc means is you don't need a W-2 (salaried employment), and you don't need to provide tax returns.


The term "no doc" is a bit misleading because there are certainly documents involved. If you go through a private lender's underwriting checklist, you will provide several documents.


If you're organized and you periodically work with real estate lenders, the data request is straightforward.


What information does a private lender need?


A private lender needs the following types of information:


  1. personal information
  2. entity information
  3. property information

Personal information



What is a Personal Financial Statement?


A Personal Financial Statement, also referred to as a Loan Application, is a 1-2 page overview of your Assets, Liabilities, Income and legal profile.


Assets include cash, investments, real estate, retirement accounts, insurance cash value. Liabilities include personal loans, credit card balance, auto loans, real estate mortgages. Income does not need to be a W-2 (salaried employment), it includes rental income, real estate flipping income, investment income. Legal profile is a short list of yes or no questions to better understand your history and risk profile. Questions commonly include are you a US Citizen? Have you ever gone through bankruptcy? Have you ever gone through foreclosure?


What is a Schedule Of Real Estate Owned?


The Schedule Of Real Estate Owned or SREO is a simple list or spreadsheet that details your real estate investing experience. This includes your current real estate holdings, as well as real estate that you have sold. For fix and flip investors, it will show how much you purchased each property for, your rehab budget, how much you sold it for, and the amount of time from purchase to sale. Private lenders want to understand your performance and the real estate you own which can be used as collateral in the event of default (i.e. you are unable to repay your loan and the subject property of the loan is not enough to cover the loan amount).


For rental property investors, the SREO will detail your current portfolio in terms of monthly rent and occupancy status (occupied, vacant). It will also detail properties you have since sold.


The beautiful thing about the Schedule Of Real Estate Owned is that it's easy to keep track of once you fill it out. Simply update it as you buy and sell properties.


Entity information


If you own a property that you're trying to get a loan for in a business entity, or if you intend to purchase a property through a business entity, you'll be required to provide thorough documentation for that entity.


In real estate, and most business for that matter, the entity type is a Limited Liability Company or LLC. Here are the documents you will be required to provide to the private lender:


  • Formation: Articles Of Organization (LLC), Articles Of Incorporation (Corporation)
  • Operating Agreement (LLC)
  • Certificate Of Good Standing
  • IRS EIN (if multi member LLC)

Ownership Structure & Personal Guarantees


If you are investing with non-operating passive members, you may want to avoid the need for them to serve as personal guarantors and be subjected to data requests from the private lender. For that reason, it's important to understand the most common requirements of private lenders as it relates to personal guarantees:


  • Many private lenders require personal financial information, credit and background check for all members of the entity, even if the member is a passive investor in the property.
  • Some lenders only require personal financial information, credit and background check for members who own 20% or more of the entity.
  • Some lenders only require members representing a 51% ownership interest in the entity to serve as personal guarantors.

Property Information


The final set of information that you'll be providing to your private lender is property-specific information.


  • Contract Of Sale (for pending purchases, not for refinancing)
  • Scope Of Work (for construction component of bridge loans)
  • Existing leases (if purchasing or refinancing a leased rental property)
  • Proof of security deposit receipt (usually only required for purchases of vacant properties)
  • Settlement Statements (i.e. HUD-1 or ALTA, usually for recent purchases)
  • Insurance Policy and Mortgagee Clause (needs to meed the lender's insurance coverage guidelines)

The lender will coordinate the following property-specific evaluations:



Airbnb Loans


If you plan to purchase an investment property to rent on Airbnb, which had 4 million hosts at the end of 2020, or you want to refinance a rental property that is used for Airbnb short term rentals, you will have a more difficult time finding a private lender who will approve your loan.


Most private lenders require 12 month leases for their rental products. Here are some reasons why many private lenders do not offer Airbnb loans:


  1. Lack of certainty: demand for Airbnb rentals can be seasonal, and Airbnb rental income in low demand periods may not cover your PITI.
  2. Insurance risk: proper insurance coverage for Airbnb rentals may be difficult to obtain and expensive. Lenders are risk averse and there are many unknowns about risks associated with Airbnb lodging. What happens if your property is damaged, guests violate conditions of their stay or a crime occurs and insurers refuse to cover a resulting claim?
  3. Platform risk: what happens if you get a a complaint and Airbnb suspends your ability to list your rental?
  4. Loan re-sale risk: most mortgage loan originators and private lenders do not keep your loan on their balance sheet. Instead, they sell the loan on the secondary mortgage market. The purchases of these loans have clear guidelines that exclude vacation rentals, short term rentals such as Airbnb.

With higher perceived risk comes a higher interest rate. If you do find a lender who offers loans for Airbnb rental properties, you will likely be offered a higher interest rate.


As demand for Airbnb loans and vacation rental loans continues to grow, we expect loan products to arise and a robust secondary market to organize. In the meantime, it will be difficult to finance investment properties with the intended use as Airbnb rentals.


Rental Loans: Lease Terms


Here are the key takeaways regarding leases for rental loans:


If your rental is on a month-to-month lease, that may be OK as long as your original lease with that tenant was at least 12 months. If you do not have a 12 month lease in place, that can cause delays while you implement minimum lease terms in order for underwriting to approve your loan. If you intend to refinance with a rental loan from a private lender and your leases do not meet minimum lease term requirements, to avoid delays, you may want to get a jump on that by implementing twelve month or longer leases.


For purchases of vacant properties using a rental loan, many private lenders will require that you have a lease in place and security deposit received within a specific timeframe from the purchase date.


To reiterate an important point, the majority of private lenders do not lend for properties that are being used as short term rentals like an Airbnb. So you'll want to check with the private lender to understand their policy.


Now this is not an exhaustive list, there may be a few other items required by your lender. That said, you can imagine, if you keep your information organized, you can just run through the checklist fairly quickly for each loan approval moving forward.


Best Private Lenders for Real Estate


Finding real estate private lenders that are the best fit for your requirements varies on the following:


Private Lenders Near Me


Many borrowers prefer to work with private lenders near them who are specialized in the local market. Local private lenders may offer less competitive terms but faster speed.


Few private lending companies operate nationwide. This may be due to state-specific licensing regulations or strategic market focus on the part of the lender.


Private Loan Type Specialization


Many private lenders specialize in one loan type. Perhaps it's bridge loans and they do not offer rental loans. Or perhaps they offer other loan products that with terms that are less competitive and slower to process. For this reason, it's important to speak with several lenders to understand their strengths and limitations.


Do private lenders need to be licensed?


Private lenders offer business purpose loans and are therefore not subjected to the same state and federal consumer protection provisions and licensing requirements. While regulations are always evolving, here is an overview of specific licensing limitations among states:


States where private lenders need NMLS license


NMLS or Nationwide Multi-State Licensing System is the system of licensure for mortgage companies and mortgage loan originators (MLO) in the United States. Most stats only require an NMLS license for consumer mortgage loans. These states, however, require private lenders to have an NMLS license:


  • Arizona
  • California
  • Nevada
  • North Dakota
  • South Dakota
  • Vermont

States where primary residence cannot serve as collateral


In the following states, the private lender cannot use the borrower's primary residence as collateral for the personal guarantee of the loan:


  • Georgia
  • Iowa
  • Kansas
  • Maryland
  • Washington

States where single family residential real estate (1-4 units) cannot serve as collateral


For properties located the following states, the private lender cannot us any single family (1-4 units) property owned by the borrower as collateral for the personal guarantee of the loan:


  • Idaho
  • Minnesota
  • Oregon
  • Utah

States where loans to individuals under $25,000 are require NMLS license


The following states require an NMLS license if you are lending an individual (not a business entity) $25,000 or less:


  • Alabama
  • Florida
  • Kentucky
  • North Carolina
  • Virginia

Loan Seasoning


Many private lenders and commercial mortgage lenders require the borrower to own a property for a specific period of time before refinancing. This is called a seasoning period, and it is typically 6 months.


One reason lenders require a seasoning period to avoid a common fraud where a borrower buys a property on the cheap that has undisclosed major defects (i.e. foundation) and then does a low cost cosmetic rehab and goes to a lender looking to cash out refi. In this situation, if the defects go unnoticed by an appraiser, the borrower can pull out more cash than they invested into the deal and leave the lender with a property that is not worth the amount of the loan.


Lenders that do not require seasoning stand to attract more investor borrowers, at the risk of also attracting borrowers who may not be operating in good faith.


For example, let's say you buy a property in January and you fix it up with a bridge loan. In March you're ready to cash out refinance the property into a DSCR rental loan. This is part of the BRRR playbook, you want to keep it for your own portfolio as a rental, get out of the higher interest rate bridge loan and pull cash out of the property. Most lenders will require you to wait 6 months in order to be able to refinance at the maximum loan to value (LTV) limits. Your private lender may allow you to refinance in under 6 months but they will require a 5% haircut on the LTV that they can offer you.


So instead of qualifying for 75% loan to value based on DSCR, they can offer you a rental loan at 70% LTV.


Seasoning is an important concept to be aware of as you run your numbers and do your forecasts. Seasoning can affect your project timelines and cash on cash returns.


This concept applies to situations where you're working with the same lender for a bridge loan and then refinancing into a rental loan, as well as situations where you're working with separate lenders or no lender for the initial purchase and rehab of the property.


For example, you bought a house in cash and fixed it up using your own cash, no lender involved. 3 months later you approach private lenders for rental loans and they all tell you there are seasoning restrictions because you've only owned the property for less than 6 months.


Builders Risk Insurance


This is a property insurance policy that you would need if you're purchasing a vacant property in poor condition and doing construction. It's a short term policy for a vacant property that you would then convert into a landlord insurance or homeowners insurance policy once the property is renovated to code and occupied.


Landlord Insurance


Landlord insurance is insurance specifically for a rental property. Private lenders have strict landlord insurance requirements for policy coverage as it relates to replacement cost, uncollectible rent and medical liability.


Typically, the landlord insurance policy premium is going to be a bit higher when working with a private lender, given their policy coverage requirements. It's important to understand your lender's insurance requirements, as it may result in higher than expected annual premium than you initially forecast in your deal due diligence.


OfferMarket's preferred landlord insurance provider is Steadily Insurance.


What is a Mortgagee Clause?


A mortgagee is the person or entity who provides a mortgage to a borrower. The borrower is referred to as the mortgagor.


A mortgagee clause is a very simple statement and address that the borrower provides to their property insurer to include on the policy. The mortgagee clause memorializes that in the event a claim is filed and the insurer need to pay out to the policy holder, the lender is effectively a joint policyholder because they have an economic interest in the property.


Here's an example mortgagee clause:


OfferMarket Capital LLC ISAOA/ATIMA
627 S Hanover St
Baltimore, MD 21230


So if you have a $100,000 rental property and an $80,000 loan outstanding and there's a total loss on the property, the insurer pays out $100,000. The mortgagee clause ensures the lender receives 80% of the payout or $80,000, and you receive 20% of the payout or $20,000.


The mortgagee clause tells the insurer they can't give the full amount to the borrower because there's a loan in place and the lender needs to be made whole.

ISAOA ATIMA


On the mortgagee clause you will commonly see the acronym ISAOA/ATIMA. What that means is its successors and/or assigns as their interests may appear, and it provides protection to future mortgagees who may purchase the mortgage note on the secondary market.


Prepayment Penalty


A prepayment penalty is a fee that the lender charges in the event you pay off the loan early. This penalty is designed to deter the borrower from refinancing into a new loan at a lower interest rate with the same or different lender.


How does a prepayment penalty work?


The on the lender's term sheet, they will clarify their prepayment penalty policy. For DSCR rental loans, it is either a 5-4-3-2-1 Prepayment Penalty, 3-2-1 Prepayment Penalty or Yield Maintenance.


5-4-3-2-1 Prepayment Penalty


Using the 5-4-3-2-1 Prepayment Penalty as an example, you would be charges a fee based on the following schedule:


  • During Year 1: 5% of the loan balance
  • During Year 2: 4% of the loan balance
  • During Year 3: 3% of the loan balance
  • During Year 4: 2% of the loan balance
  • During Year 5: 1% of the loan balance

So if you have a $100,000 loan balance during year 2, and you decide to pay off or refinance your loan, you will be contractually required to pay a $4,000 prepayment penalty fee.


Yield Maintenance


Yield Maintenance Premium is a type of prepayment penalty where the borrower is responsible for paying the rate differential through loan maturity. This makes it unattractive for investors to refinance the loan and is not commonly used.

Yield Maintenance = (Present Value of Remaining Mortgage Payments) x (Interest Rate - Treasury Yield)


Get pre qualified and lock in your rate today


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Private money lenders are individuals or private organizations that lend money to real estate investors or landlords. They provide financing to borrowers for real estate investments that may not meet the requirements of traditional banks or financial institutions.


What role do private money lenders play?


Private money lenders are typically more flexible than traditional lending institutions such as banks or credit unions. Because they are not bound by the same strict regulations and requirements as these larger institutions, private money lenders are often able to offer more personalized and customizable loan terms that meet the specific needs of the borrower. This flexibility can be especially important for real estate investors who may be looking to take advantage of time-sensitive investment opportunities.


For example, a private money lender may be able to provide fast approval and funding for a real estate investment project, allowing the investor to move quickly and secure a property before other potential buyers. In contrast, traditional lenders may have more rigid underwriting processes that can take longer to complete, potentially causing the investor to miss out on the opportunity.


In addition to flexibility in loan terms and approval processes, private money lenders can also offer other benefits for real estate investors and landlords. For example, they may be more willing to work with borrowers who have less-than-perfect credit, or who are not able to provide traditional sources of income documentation. Private money lenders may also be more willing to finance properties that are considered higher risk or in need of significant repairs.


Private money lenders can provide a valuable service for real estate investors and landlords, offering more flexibility and faster approvals than traditional lending institutions. However, it is important to thoroughly research and vet potential lenders to ensure they are reputable and offer fair terms and rates.


Why work with private money lenders?


Working with private money lenders can be highly beneficial for real estate investors starting out because they offer more flexibility and faster approvals compared to traditional banks and lenders. Private money lenders are often more willing to take on higher-risk deals and offer more creative financing solutions that can help investors close on a deal that they might not have been able to otherwise. This is especially important for investors starting out who may not yet have a strong financial track record.


Once an investor has built up enough capital to no longer need a private money lender for their down payment, they may still want to consider working with them for future deals. Private money lenders can offer faster approvals, more flexible terms, and a more personalized approach to lending that traditional banks may not be able to match. Additionally, by building a strong relationship with a private money lender, an investor may be able to access a wider range of financing options and potentially even lower interest rates in the future.


Furthermore, private money lenders may have expertise in the local market that can be highly valuable for an investor. They may have connections to other real estate professionals, such as contractors or property managers, that can help an investor make the most of their investment. They may also be able to provide valuable insights into local market trends and conditions that can help an investor make more informed investment decisions not just provide funding for their deals.


Why should a landlord work with private money lenders?


As a landlord, you can also benefit from working with private money lenders. Private money lenders can provide you with the financing you need to purchase new rental properties or to make improvements to your existing rental properties. In addition, private money lenders can offer alternative financing options for landlords who may not meet the strict requirements of traditional lenders. This can include those who have a lower credit score, limited documentation or income, or a history of bankruptcy or foreclosure.


Furthermore, working with private money lenders can also help you build relationships with potential investors who may be interested in financing your future real estate ventures. These investors can provide additional funding for future rental property purchases or renovations, helping you to grow and expand your real estate portfolio.


Overall, while private money lenders may be more commonly associated with real estate investors, landlords can also benefit from their services in various ways.


What financing options do private money lenders provide?


Private money lenders offer a range of financing structures that cater to different investment strategies. One of the most common structures is the interest-only loan, which allows investors to pay only the interest on the loan for a set period of time, typically up to five years. This reduces the monthly payments, making it easier to cover the loan while generating rental income. Investors then typically refinance at the end of the five year term into another interest-only loan, this way completely paying off previous loan, extracting any cash if property has appreciated and continuing to collect the spread between rents and interest payments (that don't include amortization of principal component, thus increasing the over all cash flow of the property).


Another common structure is the rehab loan, which provides funding for both the purchase and repair components of a property. Private money lenders may work with investors to evaluate the scope of the rehab, calculate the total cost, and then provide funding in stages as the work is completed. This structure allows investors to finance a property's purchase and repairs without having to tap into their own cash reserves or expensive credit card debt.


For fix-and-flip investors, private money lenders may offer advanced draws for repairs. This means that the lender releases funds for repairs in stages, allowing the investor to complete the work without having to pay for it all upfront or use expensive credit card debt to fund the repairs, which also has a negative consequence of lowering investor's credit score and thus reducing their ability to refinance out of the property once rehab is complete and tenant is found. This structure can be especially beneficial for investors who may not have the cash on hand to complete a rehab but can earn a significant profit by flipping the property once it is repaired.


How to find the best private money lender?


Here are the best methods for quickly locating private money lenders that won't waste your time:


  1. Ask for referrals. Start by asking your network of real estate professionals, such as real estate agents, attorneys, or other investors, if they know any reputable private money lenders.
  2. Search online. You can search online for private money lenders and read reviews from past borrowers to find one that fits your needs.
  3. Attend real estate networking events. Attend local real estate networking events or meetings to connect with potential private money lenders.

Once you have a list of private money lenders you need to compare them to identify the best one. When comparing private money lenders, you should consider the following factors:


  1. Interest rates. Private money lenders typically charge higher interest rates than traditional lenders. You should compare the rates of several lenders to ensure you are getting a fair rate.
  2. Loan terms. Look for a lender that offers terms that align with your investment goals and timeline.
  3. Experience and reputation. Choose a lender with a strong track record of successful loans and a reputation for being reliable and transparent.
  4. Fees. Private money lenders may charge additional fees, such as origination fees, underwriting fees, or processing fees. Be sure to compare the fees of several lenders to avoid overpaying.

Additionally, when evaluating potential lenders, consider asking the following questions:


  • How long have you been lending money for real estate investments?
  • How much money are you able to lend for my specific investment?
  • What is the interest rate and other fees associated with the loan?
  • What is the loan term, and can it be extended if necessary?
  • How quickly can you fund the loan?
  • What is the process for evaluating and approving my loan application?
  • What happens if I am unable to make payments or default on the loan?
  • Can you provide references from other investors you have worked with in the past?

Overall, private money lenders can provide more flexible financing structures that cater to different investment strategies, allowing investors to pursue their goals more effectively.


How can I get a loan from private money lenders?


Securing a private loan typically involves meeting certain requirements set by the lender. The common requirements for securing a private loan are:


  • Creditworthiness: Private lenders usually require a good credit score to qualify for a loan. They may also consider factors such as credit history, income, and debt-to-income ratio.
  • Collateral: Private lenders may require collateral to secure the loan, such as a property, vehicle, or other valuable assets.
  • Proof of income: Private lenders will want to see proof of income to ensure that you have the ability to repay the loan.
  • Personal identification: You may be required to provide a government-issued ID, such as a driver's license or passport, to verify your identity.
  • Loan purpose: Private lenders may ask for information on how you intend to use the loan, such as for a business venture or to finance a home renovation.

How can I make myself more attractive to private money lenders?


To make yourself more attractive to secure a private money loan, you can:


  • Improve your credit score: Pay off outstanding debts, make payments on time, and avoid applying for multiple loans at once.
  • Provide collateral: If you have valuable assets that can be used as collateral, this can increase your chances of securing a loan.
  • Increase your income: If possible, increase your income by taking on additional work or finding ways to earn more.
  • Have a solid plan: Having a clear plan for how you will use the loan and how you will repay it can make you more attractive to lenders.
  • Get a co-signer: If you have someone with a good credit score who is willing to co-sign the loan, this can increase your chances of approval.


Private money lending is a form of financing where individuals or private investors, not banks, lend money to borrowers, typically for a short-term period, to finance a specific project or purchase. Unlike traditional lenders such as banks, private money lenders are not institutionalized and are typically individuals or small groups of investors who are seeking higher returns on their investments.


Private money lending can be used for a variety of purposes, such as real estate investments, small business funding, or personal loans. The terms of private money loans are often flexible and can be tailored to meet the needs of both the borrower and the lender.


Private money lending can be a viable option for borrowers who have been turned down by traditional lenders due to poor credit or lack of collateral. However, private money loans often come with higher interest rates and fees compared to traditional loans, as private lenders are taking on a higher level of risk.


Overall, private money lending can be a useful source of funding for borrowers who need access to quick cash, but it is important to carefully consider the terms and potential risks associated with these types of loans before agreeing to borrow.


Why does private money lending exist if there are banks?


The need for private money lending arises from the fact that traditional lending institutions such as banks, credit unions, and other financial institutions have strict lending criteria that may not be met by all borrowers. These institutions often require a high credit score, collateral, and a lengthy application process. Additionally, traditional lenders may not be able to provide loans quickly or in the amount required by the borrower.


Private money lending fills the gap left by traditional lenders by providing financing options to borrowers who may not meet the requirements of traditional lenders. Private lenders often have more flexible lending criteria and can provide loans more quickly than traditional lenders. Private money lenders are also able to offer unique lending options that may not be available through traditional lenders.


Another reason why private money lending may be needed is that it can provide a higher return on investment for lenders. Private lenders can earn higher interest rates on their investments compared to traditional investments such as stocks or bonds. This higher return on investment can be attractive to individuals or groups who are looking to invest their money.


Who uses private money lending?


  • Real estate investors. Private money lenders often provide financing for real estate investors who are looking to purchase and renovate properties for resale or rental purposes. These investors may not qualify for traditional loans due to the condition of the property, their credit history, or other factors.
  • Small business owners. Private money lenders can provide financing to small business owners who may not qualify for traditional loans. This can include start-ups, businesses with a short operating history, or businesses with low credit scores.
  • Individuals with poor credit. Private money lenders may be willing to lend money to individuals with poor credit who are unable to obtain financing through traditional lenders. These individuals may need funding for personal expenses, such as medical bills or home repairs.
  • Entrepreneurs. Private money lenders can provide funding for entrepreneurs who are looking to start a new business or expand an existing one. These entrepreneurs may not have a long operating history or sufficient collateral to qualify for traditional loans.

What do I need to show to get the best terms for private money lending?


To get the best terms for private money lending, you need to demonstrate to lenders that you are a low-risk borrower who is likely to pay back the loan on time and in full. Here are some things you can do to improve your chances of getting the best terms:

  • Have a clear plan for how you will use the loan funds and how you will pay back the loan.
  • Have a strong credit history and score. Private lenders will typically look at your credit report to determine your creditworthiness.
  • Have collateral to secure the loan. If you have assets such as real estate, vehicles, or other valuable property, you may be able to use them as collateral to secure the loan.
  • Have a solid track record of financial responsibility. This can include things like having a steady income, paying bills on time, and managing credit responsibly.
  • Be prepared to provide detailed financial information, such as tax returns, bank statements, and other documentation that shows your ability to repay the loan.
  • Shop around and compare loan offers from different private lenders. By doing your research, you can find lenders who offer favorable terms and conditions that meet your needs.

Remember, private money lending can be a high-risk, high-reward proposition for lenders, so it's important to be realistic about your ability to repay the loan and to approach lenders with a professional and business-like attitude. The more you can demonstrate to the lender that you are complying with their requirements to meet their lending standards the more beneficial your relationship with the private money lenders will become.



One trend in private money lending is the increasing popularity of online lending platforms, which have made it easier for borrowers to access private money lenders and for lenders to find potential borrowers. These platforms typically use technology to streamline the lending process, making it faster and more efficient.


Another trend is the increasing demand for alternative lending options, as many borrowers may not qualify for traditional bank loans due to credit issues, lack of collateral, or other factors. Private money lenders can provide an alternative source of funding for these borrowers.


In terms of lending standards, private money lenders tend to have more relaxed lending standards than traditional banks. They may be more willing to lend to borrowers with poor credit or without a lengthy credit history. However, private money lenders will still want to see that the borrower has a viable plan for repayment and may require collateral or a personal guarantee to mitigate their risk.


It's important to note that private money lending is not regulated in the same way as traditional lending, so standards may vary widely depending on the lender. It's always a good idea for borrowers to do their due diligence and carefully review the terms and conditions of any loan before accepting it.


What type of collateral or guarantees are prevalent in private money lending versus typical when working with a bank?


This is one of the great advantages of private money lending versus banks. Private money lenders may be more flexible than traditional banks when it comes to collateral or guarantees, as they are often more focused on the value of the underlying asset or the borrower's ability to repay the loan. Here are some common types of collateral or guarantees used in private money lending:


  • Real estate. Private money lenders often require real estate as collateral, such as a first or second mortgage on a property. The lender may have the right to foreclose on the property if the borrower defaults on the loan.
  • Personal guarantee. In addition to collateral, private money lenders may require a personal guarantee from the borrower. This means that the borrower is personally responsible for repaying the loan, even if the collateral does not cover the full amount owed.
  • Asset-based guarantees. Private money lenders may also accept other assets as collateral or guarantees, such as vehicles, equipment, or accounts receivable. This can give the lender additional security in case of default.
  • No collateral. In some cases, private money lenders may not require collateral at all, especially if the borrower has a strong credit history or a history of successful investments.
  • Pledge of shares. A pledge of shares agreement is a contract that is used to lower creditors risk in a lending transaction for business purpose. The contract outlines conditions under which the lender will receive the shares of the underlying LLC in the event of default of the borrower (the LLC in most cases). This way lender won't have to go through courts to take possession of the underlying asset based collateral and instead take ownership of the LLC that owns the collateral thus reducing legal risk lender might face when trying to collect on impaired debt. It can also be used to create security interests in promissory notes or loans. When a company needs funding from a lender, but lacks the creditworthiness or financial documentation to back up their ability to repay, the pledge agreement is often used to guarantee the loan company can be paid back in the form of other equity interests. This makes the loan a safer bet for lenders, which makes it easier for companies to secure funding they may not have otherwise been able to obtain.

When working with a traditional bank, collateral and guarantees may be more strictly defined and regulated. Banks may require a higher level of collateral, such as a down payment on a mortgage or a lien on a business asset. Banks may also require additional documentation or verification of the value of the collateral. In general, banks tend to have more standardized lending practices and may be less flexible than private money lenders when it comes to collateral or guarantees.


What to look for when researching private money lending?


When researching private money lending, there are several key factors to consider to help you find a reputable lender and a loan that meets your needs. Here are some things to look for:


  • Reputation. Research the lender's reputation and track record. Check online reviews, ratings, and references from other borrowers. Look for a lender with a solid history of successful loans and satisfied customers.
  • Terms and conditions. Review the lender's loan terms and conditions carefully. Look for a clear and transparent explanation of fees, interest rates, repayment schedules, and any other important terms.
  • Requirements. Understand the lender's requirements for approval. Some lenders may have stricter credit or income requirements, while others may be more flexible.
  • Funding time. Consider the lender's funding time. Private money lenders typically offer faster funding than traditional banks, but the exact timeline can vary from lender to lender.
  • Loan amount. Determine the lender's minimum and maximum loan amounts. Some lenders may specialize in small loans, while others may offer larger loan amounts.
  • Collateral and guarantees. Find out what types of collateral or guarantees the lender requires, if any. Make sure you understand the potential risks and consequences of using collateral to secure the loan.
  • Customer service. Evaluate the lender's customer service and support. Look for a lender who is responsive, helpful, and available to answer your questions and concerns.
  • Legal compliance. Make sure the lender is licensed and compliant with all relevant laws and regulations. This can help protect you from fraud or other legal issues.

By researching these factors, you can identify a reputable private money lender who offers fair terms and meets your borrowing needs.


Overall, the common thread among clients for private money lending is that they are seeking funding for a specific purpose and may not qualify for traditional loans due to their credit history, lack of collateral, or other factors. Private money lenders can provide a solution for these clients by offering flexible lending criteria and unique financing options.

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