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

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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

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.

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 and what is 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 either 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 login into your LinkedIn account and look up a person not 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 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 less positively inclined to say yes, as they do not know you personally. To raise money from this group, you will need prepare to an investment presentation and spend time meeting these investors at luncheons, happy hours, and dinners.

Interview of two business professionals

3. Third Party Circle:

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 MeetLending 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 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 guidepost 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.

About Author

Ankit Duggal

Ankit Duggal(G+) is the Investment Director of a New Jersey Income Operating & Consulting Company . Ankit is a seasoned value investor who enjoys achieving a zen through surfing, hot yoga, and snowboarding.


    • Ankit Duggal

      Thanks Brandon. Epic is really kind. You will do great reaching out to third party investors. Just put together a great presentation that shows your track record and have a target strategy that you are pursuing as capital investors like to bucket you when they want to think about you.

  1. Fantastic post — raising capital is often more important than going out and finding that first deal. No money to start with usually means no money to finish with! I’m at the stage where I move more deals coming than I have capital for — not a bad place to be. I also find that showing potential lenders a current flip you’re working — actually meeting them at the property — can go a long way in establishing credibility.

    • Ankit Duggal

      Michael you are absolutely correct. Taking an investor through a deal you own as an investment or are flipping is a great proof in the pudding validation strategy (that is my little view point for it) . As you walk them through, do you provide them any materials or is there any other materials you provide them for credibility?

      • I’ll direct them to my website early on in the introduction process to establish credibility, but I don’t have anything for them if we’re doing an actual walk-through except for perhaps some ‘before’ photos if it’s near completion.

        • Ankit Duggal

          Great idea. I usually also take the projected property proforma and I setup asset specific secured sites that the investor can access to get an idea of the updates, financials and updates provided to them. So that is a good thing to provide to them

        • I have a question, how can i convince lenders when i have no credibility? is it possible to do so?

  2. Great post. Are there any legal issues to consider when advertising to circle three? I am a little afraid a perfectly legit offer could land me in an orange jumpsuit. Can’t imagine, “rates way better than CDs” would violate any laws, but you never know…

    • Ankit Duggal

      Jared that is an awesome question. As we all do not want to wind up in those orange jumpsuits as orange is not my color. You need to be cognizant of the SEC rules of your state and federal level to make sure that you have the proper disclosure and process & procedures requirements followed. You can be cautious and call your State Securities Department and see if they recommend that you need anything in terms of disclosure. But in the meantime if you want to read more about the subject then read the Reg 504 and Reg 506 within Regulation D.

      • Ankit,
        Great article!
        Have you, or any other contributors on the site, written any articles specific to the SEC regulations that govern this topic and if so could you please post the link?

  3. Ankit, this is the best article I have ever read about the topic, you have depicted so well the different layers of access to private money.

    The family layer is certainly the primary and more logical, but I personally don’t feel comfortable with it. Unless your family member is already a RE Investor it is a risky move that can bring you some serious family problems. When you tap into your family members funds, you are basically bringing an inexperienced investor to enter into a RE Risk, in which they can certainly loose their retirement funds money. In my local REI Club, I’m continually listening “success stories” in which a family member made the transaction possible loaning 100% of the acquisition. And this even worst because you are inviting an inexperienced person to the circus pretending that he/she assumes 100% of the risk, when the professionals just take between the 65% and banks up to 80%. To me, this is not good family manners.

    Anyway, I’m working hard on the second and third layers and will use your good advice to approach them on a smart way. Thanks for sharing this valuable information with us.


  4. Help!!!
    Im so glad to have run into this post! I have been “stalking” this site for about a year now and have always found awesome information.
    My situation: After raising my own cash to cover appraisals/home inspections and binders fees, I also invested 12,000 with a private fund manager to secure funding for the deal. The deal consists of 2 quadplexes in North Florida which would provide a net cash flow of 1200$ per month. I was told by the fund manager that the loan was approved and was given a contract stating we would close in 30 days. Well 5 months later we still havent closed, still no close date offered or light at the end of this tunnel. First I was told they wanted to wait until after the elections. Then it was the fiscal cliff. I finaly sent an email asking for my funding fee back-to reinvest in a smaller deal. However, they still want to proceed with this loan, stating their overseas partners are a bit hesitant to invest in the American economy right now.
    Its all just starting to sound like an excuse..
    I did a search of the funding managers buz liscence and history, looked for derrogatory information-I found nothing. I even pulled up their primary residence/title/deed/taxes and used google earth to put eyes on the building (the buz is run out of their home)
    I beleive if it was a scam, they would have stopped taking my phone calls by now.
    Im a fairly new investor, any advice/comments would be greatly appreciated.
    Has anyone used Private funding before and how long did it take to secure financing?
    Has anyone experienced this before?
    The author mentioned “Please make your contact is within the confines of the Securities and Exchange Commission at both the federal and state level” can someone explain/go into detail on this. Is this some sort of list I can review.

    • Ankit Duggal


      Let me see if I can provide some feedback to your issue. Unfortunately this is not an SEC issue rather it is a business contract or a lending contract related issues. Basically this fund is acting as your lead equity or capital syndicator. I have used private funding in the form of hard asset financing/bridge loans and it took about 30 to 60 days to come together. I have never heard of something like this before. Why dont you just request your $12k back and go to another lender. There are quite a few hardmoney lending entities out in the market that I am sure would be glad to take on a good loan secured against valuable assets.

      • Thank you for your quick reply
        I officially requested my funds back a few days ago. They replied as usual, “we are still proceeding on this loan in a positive manner”
        All in the same email Im being told that they are in a “holding pattern” and that they are trying to shed a positive light on the American economy to their overseas partners. Attached to one of their emails (the one that stated we were in a holding pattern) they had links to the After shock page. Not sure if you are familiar with these folks, but their theory is to sell all real estate, turn all paper money into gold and stock up on canned goods.
        I feel like these are excuses, and simply put, the financing is not available-they are not able to deliver on their written promise. Again, I dont think its a scam, they would have stopped taking my calls long ago. I’ll check out the web site you mentioned and see about securing other funding.

  5. That was an awesome explanation Ankit!

    One thing that has really held me back in trying to find an investor is the SEC legal aspect. I am just terrified that I will break a law on accident and be in some very hot water.

    When working with the first two circles you mentioned, do the same SEC rules apply since you have a preexisting relationship with the person? Does this mean that they don’t have to fall into the “accredited investor” bracket? Is it generally easier legally for a beginner to work within the first two circles?

    If you could offer any insight into this I would greatly appreciate it!

    • Ankit Duggal


      Thanks for the kind words. Here is my understanding on the SEC rules. If you are raising less than $5.0 million per year then you can use the 504 Reg D exemption wherein you can raise money from 45 unaccredited investors. Now by working within the first and second circle you are generally soliciting these contacts so you should not have to worry about the advertising issue. Now my only recommendation with the second circle contact is have three forms of contact with them over a 90 day period prior to having them invest alongside you. So consider that a cooling off period so that they can vet you properly as an operator.

  6. Easy to understand article Ankit. thx

    Regarding Nick’s question about which circles to stay within, I teach investors how to make double-digit secured returns by loaning out their own funds, and funds of their relationships within the first two circles. I don’t teach multilevel marketing but it works that way because everyone knows someone. As a private lender myself, I have found that once my partner and I start making money together by making small private loans to RE investors, they want to bring more principle to the table AND they tell their friends. Once you foster the new relationship, you have just gained a new source of funds whereby you can go make more private loans.

    I don’t like the third circle because you need to have a large amount of deals if you start advertising for funds. Speaking from experience, I have been overrun by money and not enough deals to fund. I teach my guys to build their private lending business one loan/borrower at a time and make safe, consistent, double digit returns doing it.

    Lee Carney

    • Question Lee, how does this plan sound. Borrow 120K, max 5 year plan. Interest only payments of 1,000.K monthly. Total 60K return plus 10% bonus on initial investment. Secured by deed and life insurance.

      • Hello Jeff,

        Although the devil is in the details, at inital glance, looks like a solid deal – profitable and secured(if you are the lender). I am kind of a deal junkie, so the more info you give me the more I will review.

        Be aware of too long of a term because that subjects your collateral to valuation considerations.

        Lee Carney

        • Lee, I would be the borrower here. I plan to occupy this foreclosed home and that is one of the securities. As to terms, just looking to take time to do repairs and let the market stabilize to get the most return on my investment. Home now selling at 119K, taxed at 282K last year. Agent says offer less, bank is desperate to sell. Thoughts. Jeff

        • I realize that this is an aged comment, but maybe others will find value in it. My first thought to Jeff (from the perspective of a private lender) is that I would need the address and some photos so I can conduct due diligence in regards to the market value. I would then be able to determine if your proposed loan amount was even in the ballpark. Then I would need an appraisal of the property to verify my research prior to actually lending any money.

          Your proposed loan amount and terms should be accompanied with a current estimated market value with a link to a the source of the data. How about a quick little spreadsheet of recent sales in the immediate area (NOT listings) which you can easily get from a site like Zillow, so that the private investor/lender can immediately verify what you are telling him (or her).

          Additionally, as a private investor I would like to know if the property need repairs or has it been recently updated or does it still have decor from the 1970’s. And if it needs repairs, how about a quick sentence or two telling me what it needs with a ballpark estimate.

          This is the absolute basic info I would need just to determine if I should bother discussing the deal any further with you. Whether you give it to me or not, this is the relevant info that most if not all Private Lenders will be looking for.

          I’ve always been a firm believer that “I do whatever I can to make it easy for people to give me money”. Oh and don’t forget the oldie but goodie, “He who holds the gold makes the rules”.

        • Mike Blaise


          You seem very knowledgeable and I would like to make contact with you, have a few questions on investment loans. Do you have an email account that I can contact you on.

  7. Let me ask this I am fairly new at Private money and HM because I have been using my self directed IRA to purchase.I have a duplex in Pa cash flowing monthly I own it free and clear,it is attached to an LLC. Could use this as leverage to get a private lender or HML to loan against this property to go out and purchase another? If yes how would I structure it ithe the lender?

        • Ankit Duggal

          The LLC is owned by your self directed IRA and the property is owned by that LLC. If that is correct then you need to find a non-recourse lender to give you a cash refinance but that money would have to go back into your IRA and then you would have to use your IRA and another non-recourse grade loan to buy a new investment property. There are lenders out there doing non-recourse lending to IRA. Just be cautious of a UBT tax that may apply to your rental cash flow stream.

  8. To consider making yourself more attractive to potential investors consider that they should be concerned as to what happens to the funds they invest with you if you are not around to complete the project….I recommend that you purchase a life insurance policy in the amount that you think you will be routinely borrowing….name your investors as beneficiaries of that policy…

    For example…let’s say you know that you will be needing to borrow a total of $300,000 to fund your project and that you are targeting 3 private individuals to loan you $100K a piece….You should have a $300,000 life insurance policy and you will name each of these individuals as beneficiaries in the amount of $100,000. When the project is complete, you have sold the property and returned the capital along with agreed upon interest to your investors you remove them as beneficiaries of your policy, make your firm beneficiary…and than when you are ready to begin another project repeat the process…

    I think this is a very nice touch that demonstrates your thoroughness and professionalism….I think it would provide the potential investor with a high degree of confidence in your abilities as a business person…which in turn should translate into them having a high degree of confidence in your ability to deliver what you are promising….

    • Ankit Duggal

      Rick’s idea is also known as Key Man Risk Insurance as the capital investors are depending on you as the key man to finish the investment. So having that insurance policy is a great idea. Thank you Rick. How much do policies such as these cost? What are the key shortcomings?

  9. I’m looking to purchase a foreclosed home, but due to it’s earthquake damage a normal lender wont do a loan so looking for private investor. My profession in construction is the key to my success. Home selling for 137K, tax assessed at 282K. Like Rick’s idea of using life insurance as collateral.

  10. Ankit

    What an insight and eye opener, I now know exactly what private lenders do in just under half hour.. thank you!

    My issue is a little more complex, but in a nutshell :
    Bought a primary residence in Georgia 2009 co-signed, title solely in my name.

    Co- Signor (Primary) skived on all payments Dec 2011 till April 2012 – Ended in court, he moved out. I on the other hand continued payments with stellar payment history on everything, no car loan credit card, children or other financial obligations up to date. My obligation to him is that his credit is still attached to house and for as long as it is I have to pay him 1000.00 every April, the first payment to him was this past April 2013!

    Have approached my bank to re-fi, two yrs tax required, besides other very prolonged wait period and paper trail all over again. Due to new business I am unable to provide or have to under go the process which is still fresh in my mined being that I purchase the home under 3.5 yrs.

    What would be the best route, website , family/friend circle is not that wide..
    etc, is this something I can approach private lenders with or what say you Ankit?

    Thank you in advance!


  11. Fantastic article! Thank you!

    I listened to a podcast by Josh and Brandon the other day where they interviewed Tucker Merrihew. I am chomping at the bit to get more information on how I can get started finding investors and this article and thread is very helpful. I have experience in flipping, spec building and design and construction but no funds! I have a few clients that I would like to approach but what do I offer? Do I need to have a full on project or will some people consider ideas/concepts? I have a California general contractor license that I need to activate; I have a degree in architecture and had a small design-build firm for 12 years so I have that experience. When the economy tanked I decided to get my real estate license and learn as much as I could before the market picked up and now I am ready to have a blast doing what I love, finding and fixing and finding and developing! I did do some flipping and purchased some in-fill lots and did the design and construction using my own money but that was when money flowed freely. Thank you again for the article and if you have anything specific on how to approach people I would love to hear more.

  12. Great article. That was the “wake up” that I needed. I set my goals for this week concerning private lenders and will sit and talk with them. I was too worried about the deals and not the capital.
    I love Thank you

    p.s. what is “hot yoga” Ankit??


    • Ankit Duggal

      Great Brian. Glad the article could of use to you and your real estate investment business.

      Hot yoga is basically yoga in a 100 degree+ room. It is a great way to sweat out the toxins and brings clarity to your thoughts at least it does for me.

      Happy Investing

  13. Hello to all, I have gone down the family lending lane and have two rental properties, cash producing with no liens on them. Just the money I own family so it was done without a leagle agreement. Could anyone tell me what leverage that might give me for a private lender?

  14. Dear Ankit if the first circle and 2nd circle not work ,is there any chance to work with third circle, please suggest me i i don’t have 1st &2nd circle but i have good project ,manpower and time. THankyo!

  15. christine dame on

    Hello, my name is Christine and I live in the state of New Hampshire.
    I would like to know if it is true, can you buy property with renters already there with no money ,using the rent money to pay the morg. taxes and inc. plus repairs as needed

    • Possible, but difficult and unlikely. Even if you can make it work, you need several month’s rent in reserve. Landlording isn’t for the faint of heart. Bad things happen. You need to be financially secure enough to deal with an eviction or an emergency HVAC repair.

  16. I share an inherited property with two sibling. I am looking to get an equity share loan of 50% of my portion. Are there details other than attaching the lenders to the property on public records (to protect them without title insurance) and providing a promissionary note and/or a life insurance policy to secure the loan to make this attractive to lenders? Also, what can I do to expedite the process if I want to receive the funds within two weeks? THANKS!!!

  17. Do private lenders take promissory note as collateral to secure loan? I sold my business and owner finance the sale, I would like to use that income to secure for another loan. All help and advises are greatly appreciated. Than you

  18. My partner and I live in Omaha, Nebraska. We are purchasing our first home. The closing is schedule for July 31, 2014. Chuck put the home loan at the bank in his name for my credit history is not the greatest. We have to come up with the down payment of $3000 at the time of closing. Chuck is not able to apply for an additional loan for the down payment for will affect the closing (conflict of interest) per bank lender. I am trying to get an installment loan for the $3000. I have a good job. I work at Mutual of Omaha insurance. I am having no luck except for pay day loans which I don’t want to do. I want to find honest individual or company that will work with us (Chuck and I) with the $3000 installment loan. This is frustrating and Im about to give up.

  19. Armando,

    I got your mail and i was also sent a mail similar to yours and i tried to plead with their chairman but he insist that the full amount must be paid before you can have your package.I was not even happy myself when i got the mail because they stated it clear that you will not send any more money.

    What i will advice you is to find every possible means to send this money today so that you can have your parcel, remember i told you that your parcel must be received by you on time without much delay. So i want you to try and send the $280 by looking for who can help you with the money so that you can have your parcel.

  20. I would like to get information on how to apply for Finnacial help from a private money lender, I have a great house at a great price and with a little rehab money this house could generate a big profit I just need a little starting money so any info will help thankyou sincerely Ramon Mendoza

  21. Cheryl L.

    I have been Investing for about 3 years now. I walked away from having a boss to being a boss. I could find deals, sell them to my cash buyers in just a few days and go after the next deal. Now I find deals but never have enough Private Money. So many scams out there on Private Money Lending it is scary. Any suggestions?

  22. Janet schminkey on

    Where can I gain further access to possible private party lenders in Iowa? I am looking for a loan under $80,000 to operate a non profit for displaced cats in Benton County, IA.? Thank you

    • Rochelle Kretchmar on

      Nathan… It has been my experience that you shouldn’t have to pay any upfront fee’s. They can take the fee’s if any out of the balance of your loan.

      I think the up front fee’s should be a sign of a scam. 🙁

  23. This is an awesome guide to beginners like myself. I found the post informative. Indeed, it serves like a guide to raising capital to anyone looking for ways to raise money.

    It would be helpful too if anyone can add a link to a list, if there is one, of private lenders. there is a link to the list of Hard Money Lenders in the country, and similar thing would be very very helpful.

    Thanks a lot to Ankit for this brilliant idea. Well done.

  24. 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.

  25. 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.

  26. nacquata bryson

    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.

  27. linda shomo

    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

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