What Is Private Money Lender?
A private money lender is a person who loans you money from their own funds—not a bank or hard-money-lender company. They often offer lower rates (8–12%) and more flexible terms than hard money. You find them through networking, real-estate-investor-association, or referral-network. Structure the deal with a promissory note and deed of trust. Private money works for flips, brrrr, and bridge financing. The trade-off: they're harder to find and may want to participate in the deal (equity or profit share).
A private money lender is an individual—often a friend, family member, or accredited investor—who lends their own capital for real estate deals, typically with more flexible terms than institutional hard-money-lenders.
At a Glance
- What it is: An individual who lends personal capital for real estate
- Why it matters: Often lower rate and more flexible than hard-money-lender
- Typical terms: 8–12% rate, 6–24 months, 1–3 points
- Source: Networking, referral-network, investor meetups
- Structure: Promissory note, deed of trust, sometimes equity participation
How It Works
Finding them. Real-estate-investor-association meetings, BiggerPockets, referral-network. Some are retired investors looking for yield. Others are high-net-worth individuals who want 8–10% returns secured by real estate. Build relationships before you need money.
Deal structure. Promissory note (loan terms, rate, maturity). Deed of trust (security interest in the property). Title company handles closing. Some private lenders want equity or profit participation—"I'll lend $100K at 8% plus 20% of the profit." Negotiate.
Exit. Same as hard-money-lender: refinance or sale. Private lenders may extend if you're a good borrower—hard money typically won't.
Real-World Example
Marcus in Memphis. Marcus needed bridge financing for a brrrr deal. A private-money-lender he'd met at a real-estate-investor-association offered $85,000 at 9% for 12 months, 2 points. Hard money would have been 12% and 3 points. Marcus closed in 10 days, rehabbed in 8 weeks, rented, and refinanced at 6 months. Total cost: $3,825 interest + $1,700 points = $5,525. Hard money would have cost ~$7,200. He saved $1,675 and built a relationship for the next deal.
Pros & Cons
- Lower rate than hard-money-lender—often 2–4% less
- More flexible—may extend, waive points, or customize terms
- Relationship-based—repeat deals get better terms
- Can fund deals that banks and hard money won't
- Harder to find—not institutional
- May want equity or profit share—reduces your cash-on-cash-return
- Personal relationship—default can strain it
- Capacity limits—one person has finite capital
Watch Out
- Securities law: If you're raising from multiple private lenders, you may cross into securities territory. Consult an attorney. One-on-one loans are typically fine.
- Documentation: Use a proper promissory note and deed of trust. Don't handshake—get it in writing. Title-company can help.
- Default: If you can't pay, the relationship suffers. Have a backup exit. Communicate early if there's a problem.
Ask an Investor
The Takeaway
Private money can be cheaper and more flexible than hard-money-lenders. Build relationships before you need them. Document everything. One good private-money-lender can fund multiple deals—treat them well.