Private Lending: Pros and Cons

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One of my investors called me up today and told me he had decided he was ready to get into the lending business.  He had already purchased a number of properties over the last year or so and was ready to diversify his real estate investing strategy. Part of his decision making process had to do with the tedious financing process he had experienced when buying a property a few months prior, but I think most of the decision had to do with a desire to branch out into an area of real estate that has great earning potential with very little effort.

While private lending is not for everybody, I’ve found that real estate investors who are cash heavy tend to lean towards this type of opportunity.  This type of investor usually falls into one of two camps: An investor who simply doesn’t want the hassle of owning properties and dealing with tenants, or the investor who has already acquired a healthy number of properties and simply wants to diversify.

While there is not a right or wrong answer as to which investing strategy is better, it is worth analyzing owning versus private lending.

Here are some Pros and Cons of Private Lending:


  • Private Investors can typically earn over a 15% annualized return on their invested money.
  • Private lending is typically very secure in 1st lien position on a physical asset such as a property.
  • If the loan defaults, the lender has the ability to seize the collateral (property) through foreclosure.
  • Private lending allows an investor to invest funds in real estate without the risks and headaches associated with flipping and renting.
  • Private lending is typically short term so investor has the ability to move the money in and out if desired.


  • Private lending does not have the same favorable tax advantages that owning does (i.e. mortgage interest deduction, 1031 tax free exchange, etc.)
  • While private lending does produce tremendous yield (actually better than most cash flowing rental properties), it does not appreciate the way an owned asset does.
  • Longer term lending can be at risk of inflationary loss.

While this is a relatively high-level analysis, it is important to understand the benefits of one investing method versus the other. In my dealings with investors, it seems like a blended approach works well. I think it is important to own property and get the tax and appreciation benefits that come with it. However, I also like the secure high yield returns that can be obtained from private lending as well. Finding some balance between the two really depends on the goals and risk tolerance of the investor.

About Author

Ken Corsini

Ken Corsini G+ is the host of the Deal Farm Podcast (on iTunes) and has 10 years of full-time real estate investing experience. His company, Georgia Residential Partners buys and sells an average of 100 deals per year and has helped hundreds of investors around the country make great investments in the Atlanta market. Ken has a business degree from the University of Georgia and a Master Degree in Building Construction from Georgia Tech. He currently resides in Woodstock, Georgia with his wife and 3 children.


  1. Ken: I have been considering looking deeper into this as we have had rental property since 1982 and have self-managed the properties. We are now looking to step out of the properties and look at the private lending sector. Will probably be a few more years before we do this, but will keep checking as to any special requirements. Nice summary of the pros and cons of getting into private lending.


  2. @Dale:

    Hi Dale, I’m a young RE investor and my problems is coming up with cash to acquire more high quality properties faster. I’d love to find someone like you who’d rather just lend the funds and let me handle the property acquisition and management portion of the business so I can grow faster and provide you with as safe an investment as possible.

    Perhaps you and I can network and speak more about this over email if you’re interested?

  3. Hi, Ken,
    I loved your post. was wondering what you think. Will appreciate response. Very close out-of state friend is just starting in RE. He bought his first project house, will renovate and sell. Asking me to invest in it. I want to do it for a friend, but not sure what is the worst might happen to my $$ if the house does not sell or sells for less than paid labor invested?
    Thank you very much

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