Private money lending is how a lot of quiet wealth gets built in real estate: you become the bank, your money is secured by property, and you collect interest without tenants, toilets, or termites. But most new lenders miss the fundamentals that keep the “secured” part true. The video covers what most lenders miss; this article is the full 101.
What Private Money Lending Is
A private money lender funds a real estate deal directly — typically a fix-and-flip, a bridge situation, or a creative-finance acquisition — in exchange for interest (commonly 8–14%) and sometimes points up front. Unlike a hard money company, you are an individual lending your own capital, which means you set the terms and you carry the responsibility of vetting the deal.
What Most New Lenders Miss
1. You are underwriting the deal, not the borrower’s story
Enthusiasm is not collateral. The questions that matter: What is the property worth today? What is the realistic after-repair value, supported by comps? What is the total loan against that value? Experienced lenders keep loan-to-value at or below 65–70% so the deal still works if everything goes sideways.
2. The paperwork is the protection
A real private loan has a promissory note (the debt), a recorded mortgage or deed of trust (the security), lender’s title insurance, and your name listed on the hazard insurance as mortgagee. If a borrower resists any of those, walk. Unrecorded “loans between friends” are how lenders lose everything.
3. Money is made at the closing table, not in the pitch
Fund through a title company or attorney closing — never wire directly to a borrower. The closing verifies the title is clean, records your lien in the right position, and confirms the money bought what you think it bought.
4. Plan the exit before you fund
Every loan needs a defined way home: sale, refinance, or income from the asset. Ask what happens if the flip takes twice as long — the answer tells you whether you are lending on a plan or a hope.
Why Borrowers Pay These Rates
Speed and certainty. A flipper who can close in a week wins deals a bank buyer cannot touch, and the interest is simply a cost of doing business. That is why good operators come back loan after loan — and why lenders who treat borrowers as partners build a pipeline that compounds.
Getting Started Sensibly
- Start small and local, on property types you understand.
- Lend to operators with a track record you can verify — past closings, references from title companies.
- Keep reserves; never lend money you may need during the loan term.
- Use a real estate attorney for your first few notes until the documents are second nature.
Capital for Either Side of the Table
Whether you want to lend or you are an operator who needs capital for your next acquisition, the game is access to money at the right cost. Funding-Advisor.com is where I help business owners and investors figure out exactly what funding they qualify for — start there.