Finding a private money lender can be an important part of financing real estate investments. Private money lenders are individuals who lend their own money to real estate investors, and many investors find their first one among people they already know.
But how do you find private money lenders who may be interested in investing, what is the best way to approach them, and how do they work? You can widen the search to other investors in the BiggerPockets forums and at local meetups, and to people who have lent before, by searching public records. The fastest way to see lenders who work with investors in your market is the BiggerPockets Lender Finder.
What Is a Private Money Lender?
A private money lender is a person who lends their own money for real estate deals. They aren’t part of a bank, and they work out the loan terms with investors directly. This could be anyone with the financial ability to meet your monetary needs.
Investors use private money for buy and hold, fix and flip and anything in between, on whatever terms the two of you agree on. Lending terms can be short or long-term; money can come in lump sums or installments, with or without interest payments, with profit-sharing or not. The possibilities are only limited by you, the lender, and the creativity you both bring to the table.
Private money vs. hard money vs. a bank loan
Private money comes from a person, hard money comes from a company that lends as a business, and a bank loan comes from a bank.
| Private money | Hard money | Bank loan | |
|---|---|---|---|
| Who lends | A person lending their own money | A company that makes short-term loans as a business | A bank or credit union |
| What the lender looks at most | Your relationship and the deal. Some don’t check credit at all. | Your track record and the property, which secures the loan | Mostly your credit score |
| Speed | Usually faster than a bank | Faster than a bank | Slower |
| Terms | Whatever you and the lender agree on | Short term, set by the lender | Set by the bank |
Who Lends Private Money?
There are three groups of people you can ask, and many investors get their first private loan from the first one.
| Who | Who’s in it | Why they say yes | What to watch for |
|---|---|---|---|
| Friends and family | Parents, relatives, friends, coworkers, anyone you know personally | They know you and want to help | They may not know a good deal from a bad one, and a lost deal can hurt the relationship |
| Friends of friends | The friends and colleagues of the people you know | Someone they trust has vouched for you | It takes longer, and you’ll need a presentation and a meeting |
| People you don’t know yet | Investors and lenders outside your network | They’re the biggest pool of money | It takes the longest, because they have to get to know you first |
Friends and family: This circle is made up of family, friends, and acquaintances. Many real estate investors find their first funding from this circle because there’s a low barrier to entry. But they may not know a good deal from a bad one, so be clear about the risks, and only take money they can afford to lose.
Friends of friends: The secondary circle of investors is the friends and colleagues of your primary circle. The bigger your primary circle, the bigger your secondary—so get out there and make more friends and contacts through the BiggerPockets Forums and other social networking groups.
People you don’t know yet: This circle consists of people you don’t know personally, like investors removed from your network. This circle is the biggest capital pool you can access, but converting them into capital partners takes the longest since they don’t know you personally or professionally.
Where to Find Private Money Lenders
Your journey to finding private money lenders for real estate should start with lenders you know and their contacts—or the primary and secondary circles. Start with the Lender Finder and the people you already know, then widen the search.
| Where to look | Best for | How to start | Read more |
|---|---|---|---|
| BiggerPockets Lender Finder | A list of lenders to contact now | Enter your market and deal, and compare lenders | Investor-Friendly Lender Finder |
| BiggerPockets forums | Names from investors who have borrowed private money | Read recent threads, then post your own request | What are your methods to finding Private money lenders? and the Real Estate Private Lending Forum |
| People you know and work with | Your first private loan | Tell them what you’re doing and ask who they know | How to Build a Million-Dollar Network of Private Money Investors |
| Local meetups and real estate clubs | Meeting investors and lenders in person | Call your local real estate investors association (REIA) and ask who lends to investors in your area | 5 Reasons to Join a Real Estate Investor Association (REIA) |
| Public records | Finding people who have already lent on property in your area | Search your county’s mortgage records for lenders who are people, not banks | See the steps below, then use the Private Money Outreach Template to contact the lenders you find |
| Mailing lists, calls and letters | Reaching many past lenders at once | Buy a list of private lenders, then call or mail them | How to Find Out Who Owns a Property and Direct Mail 101 |
Use the BiggerPockets Lender Finder
Enter your market and answer a few questions and we’ll introduce you to lenders who fund investor deals.
Ask in the BiggerPockets forums
This is a place to talk to other investors and make contacts for private money lenders. To write a great forum post asking for private money, you should say where you’re buying, what kind of property, what you plan to do with it, how much you need to borrow, and when you need it.
One example: Member Alejandro Lopez asked: “If you’re raising private money or lending it out on deals right now—which structure do you prefer, and where do you draw the line?” Answers included one from Matthew Morrow: “I’d let the deal decide. On a predictable project where you know the rehab and the exit, a fixed note usually keeps more of the upside with you and keeps the relationship simple.”
Tell people you know and work with
The barriers to entry are lower, and people are more likely to lend you money. Share your deals on social media so people know you invest, and call or email the people you already work with, such as agents, title company reps, your CPA and closing attorneys.
Go to local meetups and real estate clubs
There’s nothing like talking to other investors in person and making connections. Go to your city’s real estate club, BiggerPockets meetups, chamber of commerce meetings, and real estate conferences. Call or visit your local real estate investors association (REIA) and ask who is lending money to investors in your area. A lender will still want a deal that makes sense.
Search public records
- 1. You can search mortgage records for those who have lent money in the past.
- 2. Go to your county recorder’s or clerk’s website. If the records aren’t online, go to the office.
- 3. Search for recorded mortgages or deeds of trust.
- 4. Look at the lender’s name on each one (the current page calls this the “grantee” line). Skip banks. Write down the lenders who are people or small companies.
- 5. Note the loan amount and the lender’s address, so you know how much they tend to lend and how to reach them.
- You can send this Private Money Outreach Template email to lenders you find.
Use mailing lists, then call or mail
Get in touch with investors you may not have met otherwise. Rather than looking up every property to find the lender, try one of these data broker sites:
- ListSource.com—“private party loan” is the key here
- DirectMail.com
- Melissa.com
- Click2Mail.com
After creating your list of potential lenders, find their phone numbers and give them a call. A basic script you can use when cold calling looks like this:
“Hello, is this John? My name is Anson, and I see you lent money for a project on 123 Main St. My company does similar fix-up projects, and I’m calling today to see if you are looking to lend more on these types of deals and what your loan terms might look like.“
From there, the conversation could go 100 different ways. This is a relationship game. Build rapport by talking about projects they are working on, other investors they work with, their kids, the local sports team, or one of a dozen different things. Show them how you bring value, and don’t just pitch. Lenders will be able to see through phony enthusiasm.
If you don’t want to call, you can send letters. You want to provoke an initial reaction, get them to call you, and start building rapport. Mention the property they lent on, so they know what you’re talking about—and, of course, bring it back to your current deal and that you are currently looking for new private money lenders. Make sure to include your call to action, asking them to contact you to discuss this further. But use the contact information you find only to build a relationship.
Warning: Asking strangers for money can break the law. To avoid issues, consider How to Raise Money for Your Next Deal, Without Legal Issues.
How to ask a private lender for money
Treat the first conversation as an introduction, and to set up a longer meeting to walk through the deal.
| What to bring | Why the lender wants it |
|---|---|
| A short summary of the deal: price, rehab budget, value after repairs and how you’ll pay the loan back | To see how they get their money back |
| The deals you’ve completed, or your team’s if this is your first | To see that you can finish what you start |
| The return you’re offering: rate, term and payment schedule | To see what they earn |
| How the loan will be secured: a promissory note and a recorded mortgage or deed of trust | To see what protects them if the deal goes wrong |
| The deals you’re looking at now | To see that you have more work for their money |
How private money deals are structured
The deal can be set up in a few ways, and the table below shows the common ones.
| Structure | How it works | Payments | Read more |
|---|---|---|---|
| Loan with interest | The lender puts up the money to buy and fix up the property, and you pay it back at the agreed rate | Monthly payments, often with a balloon payment at the end | How to Structure Your Private Loans: An Interview with 4 Real Estate Investors |
| Second loan behind a bank | The lender covers your down payment or rehab, and the bank holds the first loan | As you agree. Your lender must understand they’re paid after the bank, and the bank must allow it. | Case Studies: How to Use Private Money in the Short-Term, Medium-Term & Long-Term |
| Profit split | The lender puts up the money for a flip, and you split the profit when it sells | No monthly payments | 10 Vital Aspects of a Bulletproof Joint Venture Agreement |
Note that every deal needs paperwork to protect both sides: a promissory note, a recorded mortgage or deed of trust, and a proper closing with an attorney.
Can you pool money from several private lenders?
- Yes, with legal conditions. Investors combine money from several people into one company, such as an LLC. This is called a syndication. The Ultimate Guide to Real Estate Syndication.
- State and federal rules apply, for example on advertising, and that you can get into real trouble if you set it up wrong. Talk to a securities attorney first.
- Here are the SEC’s rules on crowdfunding.
Next steps
- For a list of lenders now, check out the BiggerPockets Lender Finder.
- If you want to ask someone they know, check out the Private Money Outreach Template, a copy-and-paste email to send a potential private money lender.
- If you have a meeting coming up, check out How to Prepare for Meetings With Potential Private Money Lenders [Including a Sample Script!].
- If you need to run the numbers on a flip before the ask, check out the House Flipping Calculator.
FAQs
- Can I get a loan from a private lender? Yes. Private lenders are people who lend their own money, so the terms are whatever you both agree on. Many care more about the deal and your relationship than your credit score. Many investors get their first private loan from someone they know. Put the terms in a promissory note, and secure the loan with the property.
- Who will give me a loan when nobody else will? Private money and hard money lenders often will, because they look mostly at the deal and the property, with less weight on your income and credit. These loans usually cost more than a bank loan and have short terms, so plan how you’ll pay them back. Hard Money Loans: The Costs And Benefits.
- How much do private money lenders charge? Say there’s no set rate, because you and the lender agree on the terms. Say that lenders get paid through interest, sometimes upfront points, or a share of the profit, that the rate is usually higher than a bank’s, and that state usury laws cap how much interest they can charge. Check the usury rule against a current state source before publishing. Don’t add rates unless you can say the date and link a current source.
