What Is Private Lending?
Private lending fills an important gap in the real estate financing landscape. When conventional financing is too slow, too restrictive, or simply unavailable — because the property is distressed, the deal requires fast closing, or the borrower has a unique financial profile — private lenders provide an alternative source of capital.
Private lenders include:
- Individual investors who deploy personal capital into real estate loans, often earning 8-12% returns secured by property
- Hard money lending companies — organized private lending operations that specialize in short-term real estate loans
- Private equity funds that pool investor capital for real estate lending
- Family offices and high-net-worth individuals seeking real estate-backed returns
How Private Lenders Evaluate Deals
Unlike conventional lenders who focus heavily on the borrower's income and credit, private lenders primarily evaluate:
- The property's value — current as-is value and, for renovation projects, after-repair value (ARV)
- Loan-to-value ratio — most private lenders lend 65-80% of current value or 65-70% of ARV
- The borrower's exit strategy — how and when will the loan be repaid? Sale? Refinance? BRRRR completion?
- Borrower experience — more experienced investors often get better terms from private lenders
- Local market knowledge — private lenders focus on markets they understand and have data for
When Private Lending Is the Right Choice
- You need to close in days, not weeks — private lenders can fund in 3-10 business days
- You are purchasing a distressed property that does not qualify for conventional financing
- You are executing a fix-and-flip with a clear exit strategy
- You need bridge financing while permanent financing is being arranged
- The deal economics justify the higher cost of private capital
When Private Lending Is NOT the Right Choice
- You qualify for conventional financing and the deal timeline is not urgent
- The deal economics do not support higher interest rates and points
- You do not have a clear exit strategy
- You are considering using private money for a primary residence purchase (better options exist)
Always compare private lending costs against conventional alternatives. For most long-term buy-and-hold investments, a DSCR loan at lower rates is far more cost-effective than private money. See our investment loans guide for a complete comparison.
Frequently Asked Questions
What is private lending in real estate?
Private lending involves individuals or private entities providing loans secured by real estate, evaluating deals primarily on property value and borrower exit strategy rather than conventional income qualification.
What interest rates do private lenders charge?
Typically 8-15%+ plus 1-4 origination points. Higher rates reflect the premium for speed, flexibility, and the lender's increased risk on non-conventional properties.
How do I find reputable private lenders?
Start with your local real estate investment association (REIA), referrals from established investors, or hard money lending directories. Always verify track record and reviews.