The Ultimate Guide to Private Money Lending for Real Estate Investors

If you're a real estate investor (or someone who wants to become one), private money lending might just be the most important tool you're not using yet. It's fast, flexible, and relationship-driven, giving you access to capital when banks say no. Whether you're looking to fund your next fix-and-flip, build long-term rental cash flow, or lend your own money for passive returns, understanding private money lending puts you in control of the deal. In this guide, we’ll break down exactly how it works, how to find lenders, how to become one, and how to do it all the right way.

Here’s what you’ll learn in this ultimate guide to private money lending for real estate:

• What Is Private Money Lending?
• How Private Money Lending Works in Real Estate
• Why Real Estate Investors Use Private Money
• Hard Money Lender vs Private Lender: Key Differences
• How to Find a Private Money Lender
• How to Pitch a Real Estate Deal to a Private Lender
• Typical Private Money Lending Terms & Agreements
• Risks of Private Money Lending for Borrowers
• How to Become a Private Money Lender
• Is Private Money Lending Legal? Understanding the Rules
• Private Money Lending vs Other Real Estate Funding Options
• FAQ: Private Money Lending
• Final Thoughts: Mastering Private Money Lending in Real Estate

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If you’re serious about doing your first real estate deal, don’t waste time guessing what works. Our FREE Training walks you through how to consistently find deals, flip houses, and build passive income—without expensive marketing or trial and error.

This FREE Training gives you the same system our students use to start fast and scale smart. Watch it today—so you can stop wondering and start closing.

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What Is Private Money Lending?

Private money lending is when one person loans their own money (outside of a bank) to help someone else buy or invest in real estate. It’s common among real estate investors who need fast, flexible funding to close deals. Unlike traditional loans, a private money lender usually focuses more on the property and the investor’s plan than on credit scores or paperwork. The terms are often based on trust, speed, and the value of the deal.

If you're wondering what is a private money lender, the answer is simple: it could be anyone with available cash and an interest in earning a return secured by real estate. This could be a friend, family member, local business owner, or even a fellow investor looking to put idle funds to work. These loans are often short-term and asset-based, meaning the property itself is used as collateral, making it a powerful tool for real estate investing.

Private money lending real estate loans are especially ideal for house flippers, BRRRR method investors, and anyone who needs to close fast or finance deals that don’t fit inside a bank’s narrow lending box. It's a great tool for investors looking to scale quickly without cutting through red tape or jumping through endless hoops. Whether you’re borrowing or lending, understanding private money lending real estate opens the door to more deals, more options, and more control.

Unlike hard money lenders, who operate like businesses and charge higher fees, private lenders are typically more flexible on terms and more relationship-driven. This is why many seasoned investors prefer to raise private lending money through personal networks instead of relying on banks or institutions.

In short, private money lending is all about speed, access, and opportunity. If you're in the real estate game, this is a tool you need to master.

How Private Money Lending Works in Real Estate

Private money lending works by connecting real estate investors who need fast capital with individuals who want to earn strong returns secured by real estate. The funding doesn’t come from a bank or institution; it comes from a person, often someone in your network or a local investor who’s open to lending.

These private money lending real estate loans are typically short-term (6–24 months), interest-only, and backed by the property itself as collateral. Unlike traditional mortgages, the approval process focuses more on the asset and the borrower’s plan than on credit scores or W-2 income. The paperwork is simpler, the timeline is faster, and the terms are negotiated directly between both parties.

A typical deal structure looks like this: the investor (borrower) finds a property under market value, presents the opportunity to a private money lender, and the lender funds the purchase and sometimes even the rehab. In return, the lender receives monthly interest payments, and once the deal closes or is refinanced, they get their principal back plus profit. This arrangement is formalized with a private money lender agreement, which outlines the interest rate, loan term, collateral, repayment structure, and any protections for the lender.

How a Private Money Lending Deal Works (Step-by-Step)

Here’s a simple breakdown of how private money lending real estate loans typically work, from finding the deal to repaying the lender with interest:

1. Investor finds a deal: A distressed or underpriced property with profit potential.
2. Lender funds the purchase: The private money lender provides capital, usually secured by the property.
3. Terms are agreed on: A private money lender agreement outlines interest, duration, and collateral.
4. Borrower executes the strategy: Flip, refinance, or rent out the property.
5. Lender is repaid: Principal plus interest returned once the deal closes or is refinanced.

For the borrower, private money lending real estate options offer speed, flexibility, and access to deals that banks often won’t touch. For the lender, it’s a way to turn idle cash into consistent, passive income, secured by a tangible asset. Both sides win when the deal is structured right and communication is clear.

If you’re serious about building a portfolio or creating passive income, understanding how to work with private lending money is a must. It’s the fuel behind thousands of successful real estate transactions every single year.

Watch: How to Use Private Money Lenders and Hard Money to Fund Your Flips

If you want a real-world breakdown of how investors actually use private and hard money to fund fix-and-flip projects, this video is a must-watch. It walks through exactly how leverage works, what lenders look for, and how to secure the capital you need, even if you don’t have deep pockets. Whether you’re new to the concept of OPM or looking to scale your flips, this video brings the numbers and strategy to life in a simple, practical way.

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Why Real Estate Investors Use Private Money

Ask any experienced real estate investor how they got their start (or scaled) and chances are, private money lending played a role. It’s one of the fastest, most flexible ways to fund deals that traditional banks won’t touch. Instead of waiting weeks for an underwriter to give you the green light, a private money lender can approve and fund your deal in days, often based on the strength of the opportunity and your relationship, not your credit score.

Speed and flexibility are two reasons private money lending real estate loans are so popular among flippers, BRRRR investors, and buy-and-hold landlords. Whether you're trying to win a bidding war with a fast close or need capital to rehab a distressed property, private lenders are often the difference between landing the deal or losing it.

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*For in-depth training on real estate investing, Real Estate Skills offers extensive courses to get you ready to make your first investment! Attend our FREE Webinar Training and gain insider knowledge, expert strategies, and essential skills to make the most of every real estate opportunity that comes your way!

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Private Money vs. Bank Loans: What Investors Care About Most

 

Private Money Lending vs Traditional Bank Loans: Key Differences for Real Estate Investors

Feature	Private Money Lending	Traditional Bank Loans
Approval Time	2–7 days	30–60 days
Based On	Deal strength & relationship	Credit score & income
Loan Structure	Flexible, often interest-only	Fixed monthly payments
Use Case Fit	Fix-and-flip, BRRRR, bridge	Conventional purchases only
Funding Source	Individuals with capital	Institutional banks

 

Investors also love private money because of the range of strategies it supports. With traditional financing, you're often locked into rigid rules. But with private money lending real estate loans, you can fund:

• Fix-and-flip projects that need fast cash to close and renovate
• BRRRR deals (Buy, Rehab, Rent, Refinance, Repeat) where timing and leverage matter
• Bridge loans to carry you from one closing to another
• Creative finance deals that require unique terms

While private money lending rates may be higher than bank rates, the speed, convenience, and ability to scale quickly make it well worth it for many investors. And once you’ve built a solid relationship with a private money lender, you may find they’re ready to fund your next deal before you even ask.

How Stephanie Flipped a House with Private Money and Made Over $150K

You don’t need a background in real estate to make this work; you just need the right mindset, support, and strategy. Stephanie is living proof. She came to us as a successful food service entrepreneur with zero construction experience and no real estate background. But she was hungry to learn and ready to take action.

Through the Ultimate Investor Program, Stephanie learned how to find deals, evaluate them, structure financing, and pitch to a private money lender. Within just two years, she flipped four houses using private money lending real estate loans to fund every one of them, and made well over six figures in net profit.

Stephanie made over $150,000 flipping houses with private money. She didn't do it by winging it; she did it by following proven systems and surrounding herself with a community that showed her exactly what to do. That’s the power of learning how to raise private lending money the right way.

Want to see how she did it? Watch the video below to hear Stephanie’s full story in her own words.

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New to Real Estate? Start Here First

If you're thinking about using private money lending to fund real estate deals or you're not sure where to start, you're not alone. It can feel overwhelming figuring out how to structure deals, talk to lenders, or even find your first opportunity. That’s exactly why we created the Ultimate Investor Program. We’ll walk you through the exact steps to find deals, connect with private lenders, and use other people’s money the smart way. Want a head start? Download our FREE Ultimate Guide to Start Real Estate Investing and take action today.

Hard Money Lender vs Private Lender: Key Differences

Both hard money and private money lenders serve the same audience: real estate investors who need quick access to capital. But the difference lies in who lends the money, how the deals are structured, and how flexible the terms are. If you’re trying to decide between a hard money lender vs private lender, understanding these core differences can save you money and help you close smarter.

A private money lender is typically someone in your personal or professional network; an individual lending their own capital. They’re often investing based on trust and deal potential, not rigid underwriting guidelines. On the other hand, a hard money lender is usually a licensed business that offers asset-based loans at set rates and terms.

The tradeoff? Private lenders offer more flexibility and potentially lower fees, while hard money lenders offer more structure and predictability, but at a higher cost. Let’s break it down:

 

Hard Money Lender vs Private Lender: What Real Estate Investors Need to Know

Category	Private Money Lender	Hard Money Lender
Who Lends the Money	Individuals lending their own capital (friends, family, local investors)	Licensed companies offering commercial real estate loans
Relationship-Based?	Yes — built on trust and deal history	No — more transactional
Flexibility	Highly flexible on rates, terms, and structure	Standardized terms and approval criteria
Typical Interest Rates	Varies—often 6%–12% depending on relationship	Usually 10%–14% plus points
Best For	Investors with strong networks and repeat deals	Investors who need capital fast and lack private connections

 

If you're just getting started, you may be drawn to the structure of hard money, especially if you need predictable underwriting and fast access to cash. But as your experience grows, building relationships with private money lenders can dramatically reduce your borrowing costs and give you more creative control.

Whether you’re using private lending money or going the hard money route, it’s critical to understand the deal terms, your timeline, and your exit strategy. Always compare private money lending rates, evaluate risk, and think long-term—not just about funding this one deal, but building a system that works for the next ten.

How to Find a Private Money Lender

One of the most powerful moves you can make as a real estate investor is to build your own private money lender list. Having go-to lenders gives you speed, confidence, and leverage, especially in competitive markets where traditional financing can slow you down. The good news? Private lenders are more common than you think. You just have to know where to look and how to build trust the right way.

Here are some of the best ways to start building your private capital network:

• Friends and family: The easiest place to start. Many people have capital sitting in savings accounts or IRAs that could be earning better returns through private money lending real estate loans.
• Business contacts and local professionals: Attorneys, CPAs, and entrepreneurs often have both the capital and the interest in passive real estate returns.
• Real Estate Investor Associations (REIAs): These in-person meetups are full of seasoned investors and lenders looking for reliable borrowers. Come prepared with a sample deal and elevator pitch.
• LinkedIn and online credibility: Sharing your journey, wins, and lessons online helps attract capital. Many investors find their first private money lender through social proof and consistent deal flow updates.

Once you’ve found a potential lender, the key is in the approach. Don’t ask for money on day one. Start by educating them on how private lending money works. Explain the deal structure, the expected return, and how their funds are secured. Offer a sample private money lender agreement and walk them through how you manage risk.

When you're reliable, transparent, and professional, lenders will want to fund your next deal (and then your next ten). Building your private money lender list is a skill that compounds over time, giving you a serious edge in the real estate game.

How to Pitch a Real Estate Deal to a Private Lender

When it comes to private money lending real estate deals, knowing how to pitch is just as important as finding the deal itself. If you want someone to fund your project, you need to present the opportunity clearly, confidently, and professionally. A private money lender is trusting you with their capital, so your job is to make them feel secure every step of the way.

Along with the numbers, you’ll want to provide a written private money lender agreement. This outlines the interest rate, loan term, repayment structure, and how the loan will be secured (typically by the property itself). A clear agreement not only protects the lender, but also shows that you’re serious and trustworthy.

But remember: private money lending real estate loans are built on more than just spreadsheets; they’re built on people. Private lenders care about who they’re working with. Be transparent about your experience (or inexperience), and emphasize what you bring to the table. Maybe it's your market knowledge, your contractor relationships, or your ability to manage projects under pressure.

The key is to position yourself as someone who protects capital, communicates proactively, and follows through. When you do that (and back it with a solid plan and a detailed private money lender agreement), you’ll earn trust, raise private lending money more easily, and close more deals with confidence.

Typical Private Money Lending Terms & Agreements

Before you borrow private money for a real estate deal, it helps to know what the terms usually look like. Even though every lender has their own style, most private money lending real estate loans share a few common features. We’re talking about interest rates, loan terms, repayment timelines, and the structure of a typical private money lender agreement. Here's a quick look at what you can expect:

 

Key Terms and Structures in Private Money Lending Real Estate Loans

Loan Term Element	Explanation
Interest Rates	Private money lending rates typically range from 6% to 12% annually, depending on deal risk, experience, and the borrower-lender relationship.
Loan Terms & Points	Most loans last 6–24 months and may include 1–3 points paid at closing. Terms are flexible and often negotiated directly between borrower and private money lender.
Loan-to-Value (LTV)	Private lenders typically fund up to 65%–75% of the property’s After Repair Value (ARV), ensuring a strong equity cushion to protect the capital invested.
Repayment Structure	Repayment is usually interest-only with a balloon payment due at sale or refinance. This keeps monthly payments low during the project’s hold period.
Private Money Lender Agreement	The agreement outlines the loan amount, rate, repayment terms, default clauses, and collateral. It formalizes the deal and protects both borrower and lender.

 

Whether you’re borrowing or lending, knowing these terms allows you to confidently navigate private lending money deals and avoid costly mistakes. Always document the agreement, communicate clearly, and focus on creating win-win outcomes that lead to long-term success.

Risks of Private Money Lending for Borrowers

Private money lending real estate loans offer speed and flexibility, but they’re not without risk. As a borrower, it’s your responsibility to understand the potential downsides and structure each deal to avoid costly mistakes. The table below outlines the most common risks investors face when working with a private money lender and what to look out for before signing any agreement.

 

Key Risks of Private Money Lending Real Estate Loans for Borrowers

Risk	Explanation
High Interest & Balloon Payments	Private money lending rates often range from 6% to 12%, plus points at closing. Many loans are short-term and require a lump-sum balloon payment at the end—if your exit plan is delayed, that can create serious pressure.
Lender Reliability	A private money lender is an individual, not a bank. If they default or pull out unexpectedly, it can derail your closing. Always get a signed private money lender agreement and confirm funds are ready to go before escrow.
Foreclosure Risk	Private money lending real estate is usually secured by the property itself. If you fail to repay or violate terms, foreclosure can happen fast. That’s why you must understand your private money lender agreement and have a solid backup plan.

 

Every investor loves fast capital, but smart investors respect the risk. When working with private lending money, always run your numbers conservatively, communicate openly, and protect the relationship. If you handle the details, the funding will follow.

How to Become a Private Money Lender

Private money lending isn’t just for Wall Street hedge funds; it’s an accessible, profitable way for everyday people to earn strong returns secured by real estate. If you’re sitting on idle capital in a savings account, retirement fund, or equity line, learning how to become a private money lender could be your smartest next move.

Done right, private money lending real estate loans can generate double-digit returns with collateral protection, recurring income, and far less volatility than the stock market. But like any investment strategy, success comes down to understanding the process, protecting your money, and working with trustworthy borrowers.

Being a private money lender is about building wealth with control. As long as you do your due diligence, use airtight private money lender agreements, and treat your capital like a business, you’ll position yourself to earn big returns while helping real estate investors succeed.

Is Private Money Lending Legal? Understanding the Rules

If you’re wondering what is a private money lender legally allowed to do, you’re not alone. While private money lending real estate deals are completely legal, there are compliance requirements you need to be aware of, especially if you plan to lend regularly or raise capital from others.

In most cases, private individuals can lend their own money without a license under what’s called a private placement exemption. This is a carve-out from SEC regulations that allows you to make private loans without registering as a securities dealer, as long as you’re not soliciting the general public or pooling funds into a fund or syndication. The key is keeping the relationship one-to-one and avoiding public advertising of investment opportunities.

However, some states may require licensing or registration if you’re engaging in frequent lending, even with your own capital. That’s why it’s essential to check your state’s Department of Financial Regulation or equivalent agency. In places like California, Texas, and Florida, repeat lending may trigger additional legal requirements even if you’re not issuing securities.

Bottom line? Private money lending is legal, but like any financial activity, it must be done correctly. Whether you're the borrower or the lender, taking the time to structure your loan properly protects everyone involved and ensures your deals stay compliant.

Private Money Lending vs Other Real Estate Funding Options

Real estate investors have more funding options than ever, but choosing the right one depends on your timeline, deal type, and credit profile. Here's how private money lending compares to traditional loans, HELOCs, creative financing, and partnerships, so you can decide when private lending money makes the most sense for your next deal.

 

Comparing Private Money Lending vs Other Real Estate Funding Options

Funding Method	Pros	Cons	Best For
Private Money Lending	Fast closings, flexible terms, relationship-driven	Higher rates, short terms, requires trusted connections	Fix-and-flip, BRRRR, short-term deals
Hard Money Lender	Quick approval, asset-based underwriting	Very high interest rates and points	Investors with no private lender network
Traditional Mortgage	Low interest rates, long repayment terms	Slow closing, strict underwriting, W-2 required	Buy-and-hold investors with strong credit
HELOC or Personal Loan	Fast access to funds, reusable credit line	Tied to personal credit and property risk	Supplementing smaller rehab budgets
Creative Financing / Partnerships	No credit needed, no banks involved	Complex legal structure, shared equity	Joint ventures, seller-financed deals

 

Private money lending real estate loans fit best when speed, flexibility, and simplicity are more important than low interest rates or long-term amortization. Unlike bank loans, they’re built around people, not credit scores, and that opens doors for many investors looking to scale fast.

FAQ: Private Money Lending

Whether you're looking to borrow capital or become a lender yourself, this FAQ covers the most common questions about private money lending real estate loans. Use it as your quick-start guide to understanding how private lending money works, what’s required, and how to get started.

Can you loan money privately?

Yes, anyone with capital can loan money privately through a private money lender agreement. This process involves lending your own funds to a real estate investor in exchange for interest income, often secured by a promissory note and deed of trust. It’s legal when documented properly and may require a license in some states if done frequently.

How much do private money lenders make?

Most private money lenders earn returns between 8% and 12% annually, often with additional points (1–3%) paid upfront. That means a lender offering $100,000 at 12% could earn $12,000 per year, plus $1,000–$3,000 at closing. Actual income depends on the deal terms, borrower performance, and market demand for capital.

Can I be a private money lender?

Yes, you can become a private money lender even without a finance background. What matters is having capital and a clear strategy. You'll need to understand how to evaluate deals, protect your investment, and structure terms with a solid private money lender agreement. Many lenders work with attorneys and title companies to ensure everything is done right.

How much money do I need to become a private lender?

There’s no official minimum, but most private money lending real estate loans range from $50,000 to $250,000. You can start with less by partnering on deals or offering gap funding. What's important is that your investment is properly secured and structured to earn consistent returns while minimizing risk.

Do private money lenders pay taxes?

Yes, income from private money lending is considered taxable. Interest payments are typically treated as ordinary income. Some lenders use self-directed IRAs or other vehicles to defer taxes or reduce liability. It's smart to consult a CPA who understands passive lending and real estate tax strategy.

How do private money lenders get paid?

Private lenders typically earn income in two ways: monthly interest payments and upfront points paid at closing. For example, a lender might charge 10% annual interest and 2 points on a deal—receiving monthly checks plus a lump sum when the loan funds. Payments are usually managed by escrow or a loan servicer.

Final Thoughts: Mastering Private Money Lending in Real Estate

Private money lending is one of the most powerful tools in the real estate investing world, whether you're borrowing to scale your portfolio or lending capital to earn consistent returns. Unlike traditional financing, private lending money offers speed, flexibility, and relationship-based terms that give investors a serious edge in competitive markets.

Throughout this guide, we’ve broken down everything you need to know about private money lending real estate, from how it works and where to find lenders, to how to structure deals, reduce risk, and even become a private money lender yourself.

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If you’re serious about doing your first real estate deal, don’t waste time guessing what works. Our FREE Training walks you through how to consistently find deals, flip houses, and build passive income—without expensive marketing or trial and error.

This FREE Training gives you the same system our students use to start fast and scale smart. Watch it today—so you can stop wondering and start closing.

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*Disclosure: Real Estate Skills is not a law firm, and the information contained here does not constitute legal advice. You should consult with an attorney before making any legal conclusions. The information presented here is educational in nature. All investments involve risks, and the past performance of an investment, industry, sector, and/or market does not guarantee future returns or results. Investors are responsible for any investment decision they make. Such decisions should be based on an evaluation of their financial situation, investment objectives, risk tolerance, and liquidity needs.