Stephen Parker Real Estate Investor & REALTOR®

Private Money Loans

Private Money Loans: What Are They and How Can Real Estate Investors Use Them to Their Advantage?

Unlocking the Power of Private Money Loans for Real Estate Investments, Flips & BRRRRs

Real estate investing has become an increasingly popular way to build wealth and achieve financial freedom. There are many strategies that real estate investors investors can use, including house hacking, flipping, or using the BRRRR method (Buy, Rehab, Rent, Refinance, Repeat). However, getting started in real estate investing can be daunting, especially if you’re new to the field. One of the biggest challenges that real estate investors face is finding the funding they need to purchase properties and execute their investment strategies. Traditional bank loans can be difficult to obtain, especially for investors with less-than-perfect credit, limited income, or tight timelines. This is where private money loans come in. In this article, I’ll explore the concept of private money loans and answer some common questions about this unique and helpful financing option.

What are Private Money Loans?

Private money loans are a type of alternative financing used by real estate investors and flippers. They are typically provided by private investors or companies, rather than traditional banks or financial institutions.

What is the Difference Between Hard Money and Private Money Loans?

Although both hard money loans and private money loans are types of alternative financing, there are some differences between them. Hard money loans are typically provided by a company or individual who specializes in providing short-term loans for real estate investors. They are usually secured by the property being purchased, and the loan amount is based on the property’s value rather than the borrower’s creditworthiness.

On the other hand, private money loans are typically provided by individual investors or companies who are looking for higher returns than they can get from traditional investments. These loans are often unsecured or partially secured, and the loan amount is usually based on the borrower’s creditworthiness, income, and other factors. Private money loans are often used for a wider range of purposes than hard money loans, such as buying a rental property, or purchasing a fix-and-flip property.

What are Examples of Private Lenders?

Private lenders can come from a variety of sources, including:

  • Individuals who have extra money to invest like high-net worth individuals: physicians, executives, etc.
  • Companies that specialize in providing private loans
  • Groups of investors who pool their money together to fund loans
  • Even friends & family can be considered private lenders

Private lenders may be found through networking events, online forums, or by working with a Realtor, broker, or consultant who specializes in alternative financing.

What Do Private Money Lenders Look for During the Application Process?

Private money lenders typically look for a few key factors when evaluating loan applications, including:

  • Creditworthiness: Private lenders want to make sure that borrowers have a good credit history and are able to repay the loan.
  • Income: Lenders may ask for proof of income to ensure that borrowers have the means to make loan payments.
  • Purpose: Private lenders want to know what the loan will be used for and how it will be repaid.
  • Equity: If the loan is for a real estate purchase, lenders may want to see that the borrower has some equity in the property.

What is the Average Private Loan Amount?

Private loans can range from a few thousand dollars to several million dollars.

What is the Interest Rate on Private Money Loans?

Interest rates can vary widely depending on the lender, but they may range from 7% to 15% or higher. The interest rate on private money loans is typically higher than traditional bank loans as private lenders are taking on more risk by lending to borrowers who may not meet the same credit requirements as traditional borrowers.

Why Would Anyone Pay Higher Fees for Private or Hard Money Loans?

There are several reasons why real estate investors might be willing to pay higher fees for private or hard money loans:
  1. Speed: Traditional bank loans can take weeks or even months to process, which can be too slow for some real estate investors who need to move quickly on a property. Private and hard money lenders can often fund loans in a matter of days, allowing investors to close deals faster and take advantage of time-sensitive opportunities.
  2. Flexibility: Traditional bank loans often have strict underwriting requirements that can make it difficult for investors with less-than-perfect credit or income to qualify. Private and hard money lenders are often more flexible with their lending criteria, and may be willing to work with investors who don’t meet traditional bank loan standards.
  3. Asset-based lending: Private and hard money lenders may look at the value of the property being purchased more than the borrower’s creditworthiness. This means that investors who are unable to qualify for traditional bank loans may still be able to secure funding based on the value of the property they are purchasing.
  4. Short-term financing: Private and hard money loans are typically shorter-term loans, with terms ranging from a few months to a few years. This can be beneficial for investors who are looking to flip properties or execute short-term investment strategies.
  5. Access to capital: Private and hard money lenders may be willing to provide financing for properties that traditional banks are not willing to finance, such as distressed properties or properties that need significant repairs.

Final Thoughts:

Private money loans are a valuable financing option for real estate investors who are unable (or unwilling) to get traditional bank loans. Private loans can provide funding quickly, with fewer requirements and a faster approval process than traditional loans. However, it’s important for borrowers to understand the risks involved in taking out a private loan, including higher interest rates and fees. By working with a reputable private lender and carefully evaluating the terms of the loan, investors can use private money loans to their advantage and achieve their investment goals.

No matter what funding route you decide, it is important to work with a Realtor who is also an investor and a private money lender like me who can guide you through the process. With the right information and guidance, you can make the best decision for your unique situation.

Let me know if you have questions or if I can be of help to you or anyone you might know. Also be sure to follow me on Instagram and YouTube⁠ for more Nashville real estate and real estate investing news.

Stephen Parker, Realtor® & Real Estate Investor  
Buy, Sell, Invest, Relocate
Call/Text: (615) 829-6410

Helpful Links:
BiggerPockets – BiggerPockets is one of the most popular online communities for real estate investors. The site offers a wealth of resources, including forums, articles, podcasts, and courses.

Real Estate Investopedia – Investopedia is a trusted source of financial information, and its real estate section is no exception. The site offers articles, tutorials, and calculators to help investors learn about the real estate market and make informed decisions. – is a popular real estate listing site that allows investors to search for properties based on location, price, and other criteria. The site also offers resources for homebuyers and sellers, including guides and calculators.

LoopNet – LoopNet is a commercial real estate listing site that allows investors to search for properties based on location, price, and other criteria. The site also offers resources for buyers and sellers, including market reports and property valuations.

Zillow – Zillow is a popular real estate listing site that allows investors to search for properties based on location, price, and other criteria. The site also offers resources for homebuyers and sellers, including guides and calculators.

Roofstock – Roofstock is a real estate investing platform that allows investors to purchase single-family rental properties in markets across the US. The site offers a variety of resources for investors, including market reports and investment calculators.

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For education & entertainment purposes only. Stephen does not provide legal, tax, or investment advice and nothing posted, linked, or referred to here should be construed as such. Please consult with your attorney, accountant, and/or tax advisor for advice concerning your particular circumstances.