5 Compelling Reasons Why I Like Private Lending

by | BiggerPockets.com

Also known as hard money lending, private lending is a great way for real estate investors to earn a passive income through real estate.  I was actually meeting with some investors today about this very topic and the easiest way to explain it was simply: “You become the bank for somebody else.”

For an investor who needs quick financing for an acquisition and renovation, hard money can be a great source of funds. And for somebody looking to take a more passive role in real estate investing, it can be a very secure way to get a great return while still participating in the real estate market.

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Here are the top 5 reasons why I like private lending as an income producing investment:

1.)    It’s a very secure investment.  Lenders take a first lien position on a property and have the ability to take the property back (through foreclosure in a worst case scenario).  Plus, the secured deed is recorded at the local courthouse so that there is no misunderstanding as to the lender’s interest in the property.

2.)    Unlike stocks or bonds, the investment is a tangible asset that has inherent value. Whereas a company can go bankrupt and an ownership interest can be worth zero, a property will never do that.  As a lender, it’s always nice to actually have the ability to touch, see, smell (well, maybe not smell) exactly what your money is invested in.

3.)    Compared to most traditional investments, private lending offers a much higher return. Many private lenders can get origination points up front and anywhere from 10-15% interest. This can add up to annual yield of well over 15%.

4.)    For those investors who don’t want the hands-on approach associated with owning real estate, private lending offers a much more passive option. Many investors simply don’t want the headache and liability that comes along with owning real estate and as such find that private lending is a great alternative.

5.)    Unlike longer term CD’s or private funds,  private loans are typically only 6 months or so. It’s a great way to park your money, earn a great yield, but have the option to pull out and do something different after a fairly short loan term.

I realized early on that owning real estate as an investment was not for everybody. I’ve found that for many of these individuals, private lending can be an excellent alternative investment strategy.  Or, perhaps an additional investment strategy that allows for a diversified real estate investment portfolio.

What are your thoughts on private lending? Share below!

Photo: carolyntiry

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. We’re having great success lending to professional “flippers” while earning our investors a double digit return. We manage the whole process and all the investors have to do is deposit their check each month. We are also set up to be able to support investors who have money stuck in an IRA.

  2. We want all private lending on our projects! Smart way to use your own self-directed retirement funds! You have to make your own roi. Great way to do it! Who doesn’t want 10-14% return on a loan even if it’s short term. You build that relationship with borrows and do it over and over again!

  3. Private money is the lifeblood of my flipping business here in Hawaii. I have almost $2M in private capital in projects right now with about another $2.5M in funding opportunities on new flips opening up right around the corner. When structured properly, it’s a fantastic win-win situation for both parties.

  4. Good Article Ken, We have over $2.5M in private lender funding. It took about 2 years to build and develop but without it we would not have the business we have. It is worth the investment to find a key private lender and build from there.

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