How to Find and Use Private Money for Your Real Estate Business


Getting the money for your first few rental properties is a relatively easy process. Go into almost any bank, and if you have decent income and credit, you will likely be approved for a loan. You will likely be able to do this a few more times before the spicket of easy bank money gets turned off. Why? Because you will have too many properties and will no longer neatly fit into their computer programs.

So then what?

You could go after commercial/portfolio loans with a local bank. These types of loans are often a good alternative and can keep you building your portfolio, but they also often come with many strings attached and terms that may make working a deal difficult.

Hard money is often out of the question. It is just too expensive.

For me, private money is they way to go. But what is it? How does it work? How do you find it?

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An In Depth Look at Private Money

What is Private Money?

Private money is exactly what you think it is. It is money held by a private individual. It could be anyone who has money in a checking account, an IRA or a CD. It is basically just cash, cash that could be lent to you for your real estate projects.

What’s So Great About Private Money?

The main thing about private money is that it is so much easier to work with than bank loans. Plus, there is a lot more flexibility with what can be done. It is just you and your private lender, sitting down and working out something that is mutually agreeable. There are no silly seasoning rules or other mumbo jumbo to deal with. You really can think outside of the old box when using private money and get really creative in order to get the deal done.

Why Would Someone Lend You Their Money?

People will lend you the money because they are looking for a much better rate of return than they can find anywhere else. Think about it. Where can a retiree or young investor put their money to gain a decent return? Banks are generally offering less than a 1% return on CD and money market accounts. If someone is trying to live off of the income from their savings, a 1% return makes that nearly impossible without dipping into the principal. Where can a young person invest enough to save for their retirement?

The stock market is a possible alternative, but many consider that too risky, too complicated, too prone to dramatic fluctuations and out of their control. As a borrower, you can offer the lender a steady income for a set period of time with something solid that they can understand: real estate.

The Ins and Outs of Obtaining Private Money

First Thing To Do, Determine Your Private Money Needs

What type of funding do you need? What terms will work for you? The answers to these questions will help determine your needs. If you buy and hold, you will need some kind of long term loan, perhaps 5 years or even longer if you can get it. If you flip, your term can and should be much shorter, maybe only 6 months or so.

Related: 4 Essential Steps to Take BEFORE Seeking Private Money

How much will you need? Is it $10,000, $50,000, $100,000 or more? What about interest? Does 8%, 10% or 12% work for you? How much can you afford and still have a good deal? Could you possibly do an interest only loan or a profit sharing plan? Figure out your lending needs before you go out looking for private money so you can be ready to explain them to potential lenders.

Where Do You Start Looking for Private Money?

One place to start looking is with friends and family. Friends and family make good potential first time lenders for many reasons. One is that these folks will likely know and trust you (hopefully). Another is that they might understand what it is you do in your real estate business. Still another is that you have an established relationship with them, which is important when it comes to the laws regulating the solicitation of private money, which I will touch on a bit later. Plus, they may like the idea of knowing exactly who is holding their money, where their money is invested and being able to drive by and see the property it is invested in. Finally, it will allow you to practice and refine your sales and business techniques with people you know.

Develop Your Elevator Speech

As you expand from friends and family members, you need to be prepared to do a bit of salesmanship with an elevator speech. An elevator speech is a 10 to 15 second quip about what you do. It is just long enough to explain your position during a short elevator ride, hence the name. Imagine for example just happening to get into the same elevator with Donald Trump; you are likely to never get that chance again. What are you going to say to him? Will you bumble and stumble or be succinct with something like:

Hello, Mr. Trump. I am a real estate investor in Memphis, TN who buys, holds and manages rental properties. I do this using private financing from individuals such as yourself and offer returns in the 10% to 12% range. We could talk more about that sometime if you would like.

That is an elevator speech. Use something like it the next time some asks you, “So, what do you do?” and you may just find your next lender.

Related: The Definitive Guide to Finding Private Money Lenders in Your Network

Where Else Are These Lenders Hiding?

Funny thing is, they are not hiding. They are out there, oftentimes looking for places to invest. They are actually looking for you! You can find them by networking. Go to your local REIA meetings (I have met several lenders there). Check out your local BNI meetings or chamber of commerce meetings. Hand out plenty of business cards and develop your elevator speech. Not everyone you meet or talk to will jump on board, but some will, and that is all you need.

Can You Advertise for Private Money?

The answer to that question is yes, technically you can, BUT there are a number of regulatory hoops that you have to jump through to do so. There are both Federal and State laws governing how you can advertise and who you can advertise to. Plus, registration with your state securities commission is also likely a must. The government takes a very cautious eye if you solicit money from people who you do not have a prior relationship with. They are trying to protect the proverbial grandma from getting her savings wiped out from unscrupulous business. The hammer can fall hard and fast if you do not follow the rules.

All in all, those rules are a bit too much for me. Not that I am trying to hide anything, but I have found that I just have not needed to advertise for lenders. Instead, I have found them by discussing my business with friends and family and by developing relationships at networking events. But if you choose to advertise, please be very sure you understand all of the complexities involved.

Final Thoughts

Private money is a great tool to help your business grow. Once you use it, you may never want to use anything else. Here are some closing thoughts on acquiring and using private money:

  • Prepare some marketing materials explain how an investment with you would work. Do not assume that people understand how money works. Be ready to teach them in simple, easy-to-understand formats.
  • Never judge a book by its cover. You never know who has money. Do not ruin a possible windfall by being prejudicial.
  • Be sure to make everything as easy as possible for your lenders. Explain and handle all of the necessary paperwork.
  • Most importantly, always do what you say you are going to do, especially with friends and family, unless you want to lose your lenders. Keep everything legal and above board, use the same contracts, notes and deeds, just as you would a regular bank loan. If you keep your word and do what you say, you will likely have access to more money than you will ever need to grow your business. Word spreads quickly if you are a good investment and even faster if you don’t hold up your end of the bargain.

What are your thoughts on using private money investors? What tips would you add to my list?

Please join in the discussion with your comments.

About Author

Kevin Perk

Kevin Perk is co-founder of Kevron Properties, LLC with his wife Terron and has been involved in real estate investing for 10 years. Kevin invests in and manages rental properties in Memphis, TN and is a past president and vice-president of the local REIA group, the Memphis Investors Group.


  1. KevinP,
    Nice name! I like ya already.

    Good advice. As a private lender, I want to see what you have done in the past, your successes, why you feel you can take this property from zero to hero, pay me back and still make a profit. Most private lenders, including myself have their ARV targets, some higher some lower. As a new or recent investor, don’t expect someone you don’t know to put up 100% of ARV or even 80%. We are going to want you and your significant other if ya have one to sign on the dotted line providing personal guarantee.

    Provide a make ready list and estimate. Show me that you have walked through the property and have an idea what will be replaced and what it will cost. If you are not doing this already in your rehabs, this will benefit you in future rehabs. Have your list.

    One of the best clients I have worked with, remotely, for the first two rehabs we did together, after providing the money, he sent videos every week, usually Saturdays. That was fantastic. Lesson here is, even after you get the cash, be transparent, communicate, go the extra mile.

    Don’t expect seasoned terms if you are not seasoned. If you hear that I am giving 10% + 1pt to one builder that I’ve worked with for multiple deals, we will get there, be patient and earn the trust. Your lenders will then come to you with a lower rate before having more risk with a newer investor.

    Great advise about judging people. They have a saying at our REI meetings. Find the guy/gal with the grey/no hair and talk to them. I partner with another lender on some deals and neither of us will walk into a REI meeting looking like “money”. I’ll wear jeans and a ball cap (to cover what little grey hair I have remaining). I don’t wear a Rolex, my jeans are not Levi’s.

    Please explain to your closing team that your lender wants to see the paperwork early. If you provide a deed/note to me at 1:00pm and want money at 4:00pm, well, your closing ain’t going to happen. Give your lender time to review your paperwork. I’ve only ever found a few mistakes and only one that was major, but that one could have cost well over 100K.

    That’s all I have for now. Hoe it helps some one new to the biz. I’m in a ‘burb Raleigh, NC

    • Kevin Perk


      Thanks for writing in and sharing such great info from a lenders perspective. I really like how you explain that you are going to “test the waters” so to speak with new clients. But if they do what they say they will do, then the door will be opened to more deal in the future. Integrity goes a long way.

      Thanks again for the great comment,



  2. I recently invested in a house in Spokane. I couldn’t get a loan from the bank because I didn’t have the experience and slightly less than perfect credit. I’m a contractor by trade, so I knew I could make it work if I secured the loan. On a whim, I attended a free, quick seminar given by a successful local, Lee Arnold. I took a few more of his education classes and he actually has a company that connects borrowers with lenders. ( It can be slightly higher interest based on your background, but for short-sale, it was perfect and I made 20k on my first flip. I’ve already been connected with another private money lender and I’m on my second project.

    I’m a very motivated person, but it’s nice to reap the rewards. When I come across articles like this, it inspires me to comment because I think it’s really creative that a company did all the work for me in finding backing. Not to mention, the education piece…

    • Kevin Perk


      Glad it worked for you and congrats on your flip. Thanks for sharing your experience.

      There are many companies out there that do what you explained. The money is likely to be a bit pricy but if you know that going in and budget for it, everyone should win.

      It also gets back to one of my points, getting out there and networking. You never know who has money.

      Thanks for reading, commenting and the kind words,


  3. Daniel Whitehead on

    Both Kevins,

    Thank you for the great article from the borrowers AND lenders perspective. The words “Private Money” are tossed around in forums all of the time but not so frequently described. It was great to see the article on what it is and how one can obtain it, and then also to hear from a lender on what he would like to see. Reading an article is one thing, but to hear from both sides of the transaction was truly informative. Thank you both.

  4. Kevin, great article. Question for you:

    I am a buy and hold RE investor. I have been buying with cash and shortly thereafter perform a cash out refinance, get all our funds back plus a little bit more, and move on to the next buy and hold property. It has been working really well. We are working on our fourth now.

    I am now looking at small apartment buildings that cost more than I have, so my strategy doesn’t work with this. I have a great relationship with a bank that would provide 80-85% of the purchase price, and I would like to partner with private lenders to cover the remainder. Who sets up the promissary note for the private lenders, and would they typically be in the form of a second mortgage? Who would I pay, a third party escrow company or the individual themselves.

    I am also considering putting the money down myself initially for about 4-6 months so show prospective lenders that it is cash flowing as advertised before then using their money to get my funds back. Have you come across this technique before?


  5. dan noci

    Very good article . I have been a private money lender in Las Vegas 15 years I agree with most of your advice except the one Borrower from your Family or friends. Not a good idea especially if your family are novice they will expect miracles from you . I have personally experienced this with my Sister and Uncle real bad idea .Unless they understand the business first hand…
    Thank you

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