What Is Private Money Lending?

Private money lending, as the name implies, means borrowing money from an individual investor. Real estate investors use private lenders to finance deals that either won’t qualify for a traditional loan or can’t wait the usual 30 days or so that a conventional mortgage loan needs for approval.

How Does Private Money Lending Differ From Hard Money Lending?

Think of it this way: private lending involves borrowing money from people with the means to invest capital in your venture (there’s no financial institution backing this investor). A good example of a private money lender would be a friend or family member — anybody in your inner circle — or an individual investor who was intrigued by your proposal and wants to be a part of your investment.

Hard money lending is something that lives between private money lending and conventional bank financing. Though hard money lending doesn’t require the usual hoops to jump through that conventional financing does, hard money lenders are semi-institutional and do have their own set of established criteria. Both types of lending should be part of an investor’s financing tool box.

What Are The Advantages Of Private Money Lending?

As Nasdaq accurately points out, private loans are particularly ideal for investors who want to buy a property that needs a lot of repairs. Conventional financial institutions often refuse to grant mortgage loans for properties that have been vandalized or seriously damaged in some way. Private investors, on the other hand, see the potential in a property that can be purchased cheaply, fixed for a reasonable price and then resold for a tidy profit.

Additionally, a private money lender will have fewer requirements than other lenders. More specifically, private investors focus on the potential profitability of the real estate purchase rather than the borrower’s financial history and credit score. Furthermore, private money loans can be granted relatively fast, whereas a loan from a conventional lender may not be approved for up to 45 days.