Private Money Lending for Real Estate: How to Find Private Lenders and Structure Deals

Private money is the engine behind a huge portion of real estate deals that never make headlines. While banks and hard money lenders get most of the attention, private individuals—regular people with capital to deploy—fund billions of dollars in real estate transactions every year.

Private money lending is simple in concept: an individual lends their own money, secured by real estate, and earns a return that beats savings accounts, CDs, and bonds. For the borrower, it means flexible terms, fast closings, and a relationship-based lending source that scales with trust.

This guide covers how private lending actually works, where to find private lenders, how to structure deals that protect both sides, and the legal guardrails you need to know.

What Is Private Money Lending?

Private money lending is when an individual (not a bank, not a professional lending company) lends their personal funds for a real estate transaction. The loan is secured by the property via a mortgage or deed of trust, just like any other real estate loan.

Private Money vs. Hard Money

People confuse these constantly. Here's the difference:

The biggest practical difference: private money terms are fully negotiable. There's no rate sheet, no committee, no underwriting box. It's two people agreeing on terms that work for both.

Where to Find Private Lenders

This is the question every investor asks. The answer isn't a website—it's your network. Private lenders are everywhere, but they don't advertise. You have to find them through relationships.

1. Your Existing Network (Start Here)

The people most likely to lend you money are the ones who already know and trust you:

• Family members with retirement savings earning 1–4% in a money market
• Friends who've mentioned wanting better returns on their savings
• Colleagues and former coworkers with accumulated wealth
• Professionals you work with: accountants, attorneys, doctors, dentists—high earners who want passive returns

You don't pitch these people by asking "Can I borrow money?" You educate them about an investment opportunity secured by real estate.

2. [Real Estate Investment](/blog/dscr-loan-fix-and-flip) Groups

Local REIA (Real Estate Investors Association) meetings are gold mines. Attend regularly. When people see you at meetings month after month, they learn you're serious. Many attendees are passive investors looking to deploy capital.

Meetup.com real estate groups, BiggerPockets local meetups, and Facebook [real estate investing](/blog/brrrr-strategy-guide) groups for your metro area are also fertile ground.

3. Self-Directed IRA Holders

There are approximately $120 billion in self-directed IRAs in the United States, and a significant portion of that capital is available for real estate lending. People with self-directed IRAs at custodians like Equity Trust, Advanta IRA, or uDirect IRA can lend money from their retirement accounts and earn tax-deferred or tax-free (Roth) returns.

To find them:

• Speak at self-directed IRA educational events
• Connect with IRA custodians who may refer investors to you
• Network at REIA meetings—many members have SDIRAs

4. Professional Networking Events

Chamber of Commerce meetings, BNI (Business Network International) groups, Rotary clubs, and industry conferences put you in rooms with people who have capital. Don't pitch at these events—build relationships. The lending comes later.

5. Existing Landlords Wanting to Go Passive

Property owners who are tired of managing rentals but don't want to leave real estate entirely make excellent private lenders. They understand the asset class, they know how to evaluate a property, and they want returns without tenants.

6. Online Platforms

Connected Investors, PeerStreet (though more institutional now), and various note investing forums connect borrowers with private capital sources. Use these as supplements, not primary sources.

How to Pitch a Private Lending Opportunity

You're not begging for money. You're offering someone an investment that's:

• Secured by a tangible asset (real property)
• Paying 8–12% returns (vs. 4–5% in a savings account or CD)
• Short-term (6–24 months)
• Backed by your track record and due diligence

The Credibility Package

Before you talk to any potential lender, prepare a professional presentation:

1. Deal summary (1 page): Property address, photos, purchase price, rehab budget, ARV with comps, timeline, and exit strategy
2. Your bio/track record: Past deals, experience, relevant background. If you're new, be honest—but show your education, mentorship, and commitment.
3. Market analysis: Why this neighborhood, what's happening with values, days on market for comparable properties
4. Proposed terms: Interest rate, term, LTV, payment schedule, security (first-position lien)
5. Risk mitigation: Title insurance, property insurance with lender as loss payee, personal guarantee (if appropriate), [escrow for taxes and insurance](/blog/what-is-escrow)
6. References: Other lenders you've worked with, contractors, real estate agents

The Conversation Framework

When you're talking to a potential lender, lead with education:

"I invest in real estate—I buy properties that need work, fix them up, and either sell or rent them. I'm always looking for people who want to earn solid returns secured by real estate. The people I borrow from typically earn 8–10% on their money, secured by a first-position mortgage on the property. Would that be something you'd want to learn more about?"

If they say yes, you walk them through a specific deal. If they say no, you move on—no pressure, no hard sell.

Common Objections and Responses

"What if you can't pay me back?" "Your loan is secured by the property. If I default, you can foreclose and take ownership of a property worth significantly more than what you lent. You're in first position—you get paid before anyone else."

"This sounds risky." "Let me show you the numbers. You're lending $150,000 on a property worth $220,000 after repairs—that's a 68% LTV. Even if the market drops 20%, there's still enough equity to cover your principal. Plus, you have title insurance and hazard insurance protecting your investment."

"I need to think about it." "Absolutely. Here's a deal package with all the details. Take your time. I'll follow up next week to see if you have questions."

How to Structure a Private Money Deal

Typical Terms (2025–2026 Market)

• Interest rate: 8–12% annually
• Points: 0–2 (many private lenders don't charge points, especially for repeat borrowers)
• Term: 6–24 months for fix-and-flip; 1–5 years for buy-and-hold
• LTV: 60–75% of current value or ARV
• Payments: Interest-only monthly, with principal due at maturity
• Security: First-position mortgage or deed of trust
• Personal guarantee: Often required, especially early in the relationship

Deal Example

Property: 3BR/2BA ranch in need of cosmetic renovation

• Purchase price: $165,000
• Rehab budget: $35,000
• ARV: $260,000
• Total project cost: $200,000

Loan structure:

• Loan amount: $165,000 (purchase price only; borrower funds rehab)
• LTV based on ARV: 63%
• Interest rate: 9%
• Monthly interest payment: $1,237.50
• Term: 12 months
• Points: 1 ($1,650)
• Security: First-position deed of trust

Lender's position: They're lending $165,000 on a property that will be worth $260,000. Even if the borrower defaults and the property only sells for $200,000 at a distressed price, the lender is fully covered. The risk-adjusted return is attractive.

Legal Documents Required

Every private money deal needs proper legal documentation. Have a [real estate attorney](/blog/how-to-build-real-estate-team) prepare:

1. Promissory note: The borrower's promise to repay, with all terms spelled out—rate, payment schedule, maturity date, late fees, default provisions, prepayment terms.

2. Mortgage or deed of trust: The security instrument recorded with the county, giving the lender the right to foreclose if the borrower defaults.

3. Personal guarantee (if applicable): The borrower personally guarantees repayment beyond just the property.

4. Loan agreement: A more detailed contract covering draw schedules (if applicable), insurance requirements, property maintenance obligations, and reporting requirements.

5. Title insurance policy: Protects the lender's lien position. The borrower typically pays for this.

Budget $800–$2,000 for legal document preparation. This is non-negotiable—template documents from the internet are a liability, not a solution.

Legal and Regulatory Considerations

Securities Law

This is the biggest legal tripwire in private lending. If you're raising money from private lenders, you need to understand when a loan becomes a "security" regulated by the SEC and state securities agencies.

General rule: A straightforward loan from one individual, secured by real estate, where the lender has direct recourse to a specific property, is generally not a security.

It becomes a security concern when:

• You pool money from multiple lenders into a fund
• Lenders have no direct lien on specific property
• You're advertising to the general public
• Returns depend entirely on your management efforts (the Howey test)

If you're doing one-to-one loans secured by specific properties, you're generally fine. If you're creating a fund or pooling capital, consult a securities attorney before accepting a dollar.

Usury Laws

Every state caps the maximum interest rate for certain types of loans. Make sure your rate complies with your state's usury statute. Common limits range from 10–18% for real estate loans, but some states are lower for specific loan types.

Dodd-Frank Considerations

If your private lender finances more than a few deals per year, they may technically be acting as a mortgage loan originator and need to comply with licensing requirements. The threshold varies by interpretation, but this primarily applies to consumer-purpose loans on owner-occupied properties—[investment property loans](/blog/best-dscr-lenders-2026) are generally exempt from the most burdensome provisions.

IRA Lending Rules

If your lender is using self-directed IRA funds, strict rules apply:

• No self-dealing: The IRA holder cannot lend to themselves, their spouse, parents, children, or their spouses.
• No personal benefit: The IRA holder can't personally use or benefit from the property.
• All returns go to the IRA: Interest payments go directly to the IRA custodian for the account's benefit.
• No personal guarantee from the IRA holder: If the loan defaults, the IRA can foreclose, but the IRA holder can't personally guarantee the loan.

Building Long-Term Lending Relationships

The real power of private money isn't one deal—it's repeat business. A private lender who trusts you will fund deal after deal, often with better terms over time.

How to Keep Lenders Happy

1. Pay on time. Every time. Set up automatic payments. Late payments destroy trust faster than anything else.

2. Overcommunicate. Send monthly updates with photos of rehab progress, market updates, and timeline status. Lenders hate silence.

3. Return their capital when promised. If you said 12 months, aim for 10. Early repayment (even if it costs you a month of interest) builds enormous goodwill.

4. Be transparent about problems. If a project hits a snag, tell your lender immediately—don't wait until you're late on a payment. They'll respect honesty far more than surprises.

5. Refer them to other trustworthy borrowers. If you can't use their capital right now but know someone who can, make the introduction. This builds loyalty.

6. Send 1099-INT forms on time. Your lender needs to report interest income. Make their tax life easy.

Scaling Your Private Lending Network

Most successful investors have 3–10 private lenders they work with regularly. To grow your network:

• Ask current lenders for referrals
• Speak at investment clubs about how private lending works
• Create educational content (blog posts, YouTube videos) about the benefits of being a private lender
• Host quarterly "investor update" events where you showcase current projects

Frequently Asked Questions

How much money do I need to get started with private money lending?

From the borrower side, you need enough for whatever portion of the deal you're covering out of pocket (down payment, rehab costs, or both—depending on the loan structure). From the lender side, most private lending deals start at $50,000–$100,000, though some smaller deals exist.

What return should I offer private lenders?

In the 2025–2026 market, 8–10% is competitive for first-position loans with conservative LTVs (under 70%). For higher-risk deals (higher LTV, less experienced borrower, riskier market), 10–12% is appropriate. Don't overpay—offering 15% when 9% would attract capital means you're leaving money on the table.

Do private lenders need a license?

In most states, an individual making occasional loans from their own funds does not need a mortgage lending license. However, if someone starts making frequent loans (more than a few per year), licensing requirements may kick in depending on the state. This is especially true for consumer-purpose loans on owner-occupied properties.

What if a private lender wants equity instead of (or in addition to) interest?

This changes the deal from a loan to a joint venture or partnership. It's common and can work well, but it's a fundamentally different structure with different legal, tax, and liability implications. If a lender wants equity participation, consult an attorney to set up a proper JV agreement or LLC operating agreement.

How do I protect myself as a private lender?

If you're considering lending: get a first-position lien (never second position for your first deal), require title insurance, verify the borrower's track record, keep LTV under 70%, and require property insurance with you named as loss payee. Have an attorney review all documents before you fund.

Can I use private money for any type of real estate?

Yes—single-family, multifamily, commercial, land, and even notes. The property type affects the risk profile and appropriate terms, but private money is the most flexible capital source in real estate.

The Bottom Line

Private money is the most relationship-driven form of [real estate financing](/blog/balloon-mortgage-explained). It doesn't scale with volume—it scales with trust. Every deal you close successfully, every payment you make on time, and every lender you treat like a valued partner expands your access to capital.

Start with the people who already know you. Be honest about your experience level. Put proper legal protections in place for both sides. And treat every dollar like it's your grandmother's retirement savings—because sometimes, it literally is.

The investors who build strong private lending networks never worry about where their next deal's funding is coming from. That's the real competitive advantage.

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