Mortgages & Creative Financing

Private Money Lenders: Who They Are & 3 Feasible Ways to Find Them

Expertise: Mortgages & Creative Financing, Real Estate News & Commentary, Real Estate Investing Basics
47 Articles Written
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Real estate investors often spend days, hours, weeks, and months finding the next deal. Some get lucky and find their deal within the first few prospects, but for others, it may take months of viewing prospect after prospect to finally find the deal.

But what happens after finding the elusive good deal? Now comes the second part of the real estate investment equation:

Deal + Money = Investment

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Without money, the real estate investment equation is incomplete. Real estate investors need to actively work on bringing in private money lenders to both tie up their deals and fund their real estate investment opportunities.

What Is a Private Money Lender?

A private money lender is a non-institutional (non-bank) individual or company that loans money, generally secured by a note and deed of trust, for the purpose of funding a real estate transaction. Private money lenders are generally considered more relationship-based than hard money lenders.

hand drawing on blackboard with chalk social or social media network scheme

Why Use Private Money Lenders?

One of the biggest mistakes that new real estate investors make is that they spend an inordinate amount of time learning about finding and typing up deals—but a small amount of time on how to raise equity capital from private money lenders. It's just as, if not more, important as finding deals for investors to understand the ins and outs of raising money. Finding a deal is great, but if you don't have earnest money to tie up a deal or funds to purchase it, then all that time and effort is for nothing.

When you make an offer on a piece of property, it is expected (and usually required) that you place an earnest money deposit down with your offer. If you are currently living paycheck to paycheck, coming up with even a few hundred dollars, let alone the thousands needed for a purchase, can be a big hurdle in launching your real estate investing business. Therefore, if you work on raising capital from private money lenders while locking up deals, you will have a greater chance for investment success.

The goal of this post is to help you learn how to raise capital from private money lenders so you can successfully tie up and invest in real estate projects. The first question that most investors ask is, “Who should I approach to raise the equity capital?”

Let’s try to answer that question.

Related: How I Find Private Money Lenders to 100% Fund My Deals (& How You Can, Too)

The 3 Private Money Lender Circles

1. Primary Circle: Family & Friends

The primary investor circle is composed of friends and family. Many real estate investors turn to friends and family for their first funding needs. This is because it is easy to get in front of people who know you best—they are the most inclined to say yes. But there are negative parts of raising money from friends and family. For instance, they may not be sophisticated enough to know what a good deal is and what a bad deal is, and this can lead to problems when a deal goes sour. So when you take funding from friends and family, be very clear about the risks and downside.

I would also suggest only taking capital from friends and family members who can afford to lose the investment. That way, if the investment does turn out to be bad, at least you won’t lose valuable relationships. In addition, friends and family often cannot come up with a lot of capital, so you may want to view this more as simply an initial source of funds to get you going, providing you earnest deposit money. The money from friends and family will give you time to create value by locating and locking up deals so that you can raise additional money.

2. Secondary Circle: Friends and Colleagues of Friends

The best way to explain this circle of investors is to draw an analogy to LinkedIn connections. When you log in your LinkedIn account and look up a person not in your network, on the righthand side of the screen you will see how you are linked to that person from other people within your network. When you are linked to a person directly through one of your current network contacts, then that is said to be a “secondary connection.”

The secondary circle of investors consists of the friends and colleagues of your current primary circle. (Hint: The bigger your primary circle, the bigger your secondary circle of investors—so get out there and make more friends and contacts through the BiggerPockets Forums and other social networking groups.) This is the second best source for raising capital, as this group will be more receptive to listening to you, given that you have been provided a nod of approval from your primary circle mutual contact.

Related: How to Fund Real Estate Deals Using Private Money (& Why It’s a Good Idea!)

In addition, this circle is a bigger capital pool, as there are more people in this group than in your primary circle, which will allow you to raise equity for your investment projects once you have locked up your deal using the primary circle’s capital. There are negative aspects to working with your secondary circle, as it is likely to take more time to raise money since this group is less positively inclined to say yes (since they do not know you personally). To raise money from this group, you will need to prepare an investment presentation and spend time meeting these investors at luncheons, happy hours, and dinners.

Interview of two business professionals

3. Third Party Circle: Investors You Don’t Know (Yet)

Your third party circle is made up of investors who are most removed from your network. You don’t know these individuals personally in any manner. This circle is the biggest capital pool that you can access, but it takes the longest to convert them into capital partners. The key question that comes into the mind of real estate investors when they think of a third party circle is, “How do I find these potential capital investors?”

To help bring clarity to this question, I will provide two ways on how to reach these potential investors:

  • Investor Contact Sites: You can utilize websites such as BiggerPockets, Lending Club, Prosper, Go Big Network, or Lendpost to post your investment opportunity and actively contact potential third party capital investors. A word of caution: Please make sure your contact is within the confines of the Securities and Exchange Commission at both the federal and state level.
  • Investor Direct Mail List: This a creative approach to getting in touch with potential capital investors, where you work with a list broker, such as Melissa Data and Click2Mail, to ascertain a list of potential investors who match your pre-established criteria of median household income, net worth, likelihood to invest, and responsiveness to direct mail.

Use this article as a guide as you work on raising equity dollars. Balance your experience with your capital timeline needs as you consider who you should approach for your equity capital.

I would love to hear your thoughts on how you approach private money lenders.

Leave a comment, thought, or suggestion below.

Ankit Duggal(G+) is the Investment Director of a New Jersey Income Operating & Consult...
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    Katie Rogers from Santa Barbara, California
    Replied over 3 years ago
    Sorry, but your “loan offer” screams SCAM.
    Katie Rogers from Santa Barbara, California
    Replied over 3 years ago
    “email: Password:” You think someone is going to give you the password to their email account? Take your scam somewhere else.
    Replied over 3 years ago
    Joshua and Brandon, BP has started to attract a lot of scammers. How are you weeding them out? I see they disappear from the comments eventually, but they still come into BP user’s email.
    Daniel Pollock Real Estate Investor from Brooklyn, New York
    Replied about 3 years ago
    Great article Amkit, thank you for your insight.
    Henry MAX
    Replied over 2 years ago
    I am in need of $15/k in order to stop being evicted from my home and loosing everything. Have material that replaces the sand in concrete that makes it lighter. Material tested and proven. Have applied for patent. Recuperating from gal bladder surgery. Can repay within a few months. Willing to give away a percentage of business for the funds.
    Henry MAX
    Replied over 2 years ago
    I am in need of $15/k in order to stop being evicted from my home and loosing everything. Have material that replaces the sand in concrete that makes it lighter. Material tested and proven. Have applied for patent. Recuperating from gal bladder surgery. Can repay within a few months. Willing to give away a percentage of business for the funds.
    Nacquata Bryson from Colorado Springs, CO
    Replied over 2 years ago
    I think the circle one depends on the family and friends in question. My side of the family is not one for holding on to cash, which is why I am the odd sheep out sometimes. My husbands side of the family is how do you say “upper crust” and asking them “invest” is like pouring poison in their coffee…lol. For me hard money and circle 3 of private money lending is the best in my case. To be honest even if I had the kind of family that would lend me money or “invest” I still wouldn’t ask because it would be too risky. I value the relationships I do have with my family and close nit friends, and money makes things muddy. I am more comfortable in circle 3 because the people I am interacting with know the underlining risks and the rewards of investing in real estate. Plus its so much fun throwing investment dinner parties, and other events. This is where I get my mojo. The only way I would invest with family money is if they came to me. But to each its own.
    Linda Shomo
    Replied almost 2 years ago
    I have a hard money lender who is quoting me these stipulations : Intrest only loan at 9.4%, 5 yr balloon, $500 closing fee, $500 doc, $500 title search fees, also pre payment penalty for first year. not for sure about points, but i am sure they are there, and a 3% broker fee. I own outright my home which is the basis of the secure of this loan, I am using the 70% rule that I heard hard lenders use, so that would be I am only pulling out less then 30% of this 70%. No brainer, they also only require bank statements no credit check (which if it would help mine is 724. and a quick type of appraisal and a title search. I am not sure this is a fair loan. He also is indicating that I can roll all these fees into the loan, lol which no need to. I also asked him if I could get a POF letter , he indicated that he can give me a lending letter which I can not use with that such wording . any help plz
    Miguel Motta
    Replied over 1 year ago
    Thanks for this great post, but I have a fundamental question that is not clear: what are the annual interest rates paid for these loans in the first and second circles?
    Mike Justice Rental Property Investor from Location Kentucky and USA
    Replied 11 months ago
    Great Reading, I also use National Association of Private Money Lenders! They have a database of Private Money Lenders! Scotsman is also good!
    Mike Justice Rental Property Investor from Location Kentucky and USA
    Replied 10 months ago
    I've found that, The American association of private lenders website and scotsmanguide com is a good source
    Simon Spurz
    Replied 6 months ago
    Hi everyone i am so happy that i can't keep this to my self, that is why i just want to use this medium as an opportunity to tell you all that i finally got my loan of $40,000 from Chevyloans. so if you are in need of any loan you can also contact them so that you can be happy too and Chevyloans is not a scam at all, they are honest and 100% legit, that is why i was able to get my loan. so if you also need a loan now, kindly visit And be rest assured of getting your required loan amount fully granted to you.
    Amanda Covey
    Replied about 1 month ago
    Hi it’s been about 4 months sense you posted your happy news about getting your funding from Chevyloans. Wondering are you still pleased and feel it is a fair honest company. Thanks