A private lender is a person or business that provides loans directly to real estate investors or home buyers. Private lenders typically provide capital to investors and homebuyers who would otherwise have a difficult time qualifying for or obtaining a loan from a bank or financial institution.
Private lenders work with investors for renovations and BRRR rental property investments.
Private loans are typically guaranteed by the borrower and collateralized (backed) by real estate or other assets of the borrower.
There are two kinds of private loans:
Short term private loans are commonly used by fix and flip investors and rental property investors who need cash to buy a property in poor condition, rehab the property and either sell (flip) or rent and refinance (BRRR) the property in a 3 to 18 month timeframe.
Investors are willing to pay 8% to 14% for these loans because they are only needed for a short period of time in order to complete the renovation of the property.
Some private lenders are willing to provide longer term loans, in some cases 5 to 15 years at rates of 6% to 10%. These loans are attractive to investors and homebuyers who do not easily qualify for traditional mortgage loans from local or national banks.