If you’re searching for a private money lender to help financially support a real estate investment, it can be a challenge to find one that offers terms and conditions that apply to your investment needs. You’ll need to be prepared to set aside some time to search for a lender and take actionable steps to ensure it’s a good fit.
We’ll walk you through how to find private money lenders—from determining what types of lenders are available to you and networking, to choosing a lender and closing the deal.
Step 1: Understand How Private Money Lending Works
Private money lenders are usually individuals or organizations of high net worth who invest in and lend money to various projects or businesses. Most commonly, they offer financing opportunities to invest in real estate. Utilizing them allows a borrower to bypass certain regulations and qualification criteria necessary for most traditional lending institutions and take advantage of more flexible financing options.
These lenders generally offer short-term loans. They also have higher interest rates than standard commercial real estate loan types to account for the risk associated with borrowers with less-than-ideal credit. Typically, they are more accepting of borrowers with bad or limited credit history, as long as you demonstrate you can provide a worthwhile return on investment.
There are some risks involved, as is the case with any loan, but using a private lender for your financing needs can come with unwanted complications. Ensure this is the best course of action before proceeding with a private lender.
Step 2: Determine Which Lenders Are Accessible to You
You’ll need to determine what kind of private money lender is accessible to you. A few factors to consider are your budget, geographical location, and ideal repayment terms. From there, you can begin the search for a lender willing to invest.
There are several types of investors you can approach when seeking a loan, and they include:
- Friends and family
- Hard money lenders
- Mortgage companies
- Online lenders
- Private lending firms
Various terms and conditions will be expected depending on the lender, so ensure they’re within your budget, as interest rates can vary based on who you choose. For instance, if you:
- Borrow from a family member or an acquaintance, you may be eligible for more favorable rates and terms; they are also likely to be the most accessible resource for you and may be easier to approach when presenting a pitch
- Decide to consult other private lenders that offer products such as hard money loans, you’ll likely be presented with higher rates and fees; you may also have to fulfill certain qualification requirements pertaining to your credit score, financial status, and industry experience
Geographical location can play a part if you’re hoping to work closely with your investors.
- Friends and family may be close by and can help oversee the development.
- Online lenders or other private companies simply looking to invest in a promising project will have a more hands-off approach.
While some lenders work with both new and established borrowers, it helps to provide them with details of your prior investment experience, if applicable. This will help you secure more favorable repayment terms and can help manage the timeline or long-term plans of your investment.
Step 3: Build Your Network
When shopping around for a private money lender, it’s worthwhile to network and consider all your options.
- Connect with lenders: Not only do you have the opportunity to be connected with a lender who will financially support your investment, but you can also connect with seasoned and credible investors who can offer guidance.
- Connect with borrowers: You should also make an effort to connect with those who have sought similar real estate investments to learn more about the financing options they used to source funds for their endeavors. A lot of fix-and-flip users utilize private money lenders and may be able to offer insight into the process of securing funding.
- Search for various networking opportunities: This is ideal and can be done by browsing social media platforms, cold-calling industry professionals, using database services, attending real estate events, and searching the internet for investors near you.
- Market a campaign: This allows interested investors the opportunity to come to you. There are various online platforms and communities in which you can promote your investment. For example, you can visit Private Lender Link to see how others are marketing their real estate investments and attracting private lenders.
Step 4: Draft Your Business Plan & Present Your Pitch
Once you’ve determined which private lenders to approach, you’ll need to schedule a meeting in which you can present your pitch. You’ll need to come prepared with a detailed business plan and pitch deck that represents your investment plans. Lenders will want to learn more about your project details, including
- The amount of funds needed
- Your plans for the use of funds
- Your prior experience
- What they can expect as a return on investment
Presenting your pitch deck should address exactly how you plan to turn a profit and what the lender can expect to see as a return on their investment. Demonstrating your knowledge and abilities through your business plan will also help the lender understand your intentions and feel better about taking on risks.
You should aim to keep your pitch detailed but brief and be prepared to answer any follow-up questions about your plans. Most successful pitches take no more than 10–20 minutes and have slides that include succinct information that’s easy to follow.
Step 5: Select a Private Lender
After you have presented your pitch and gained the interest of lenders, you’ll need to select one that provides you with your ideal loan terms. Practice due diligence, and ensure the lender you choose is credible and experienced. This is also your chance to iron out specific details and ask questions about the deal.
Here are some important factors to consider:
- What will be the loan amount provided?
- What will be the applicable interest rate?
- What will be the term of the loan?
- How will the loan be secured?
- How quickly will funds be available?
- What will the repayment schedule look like?
- Are there any closing or lender fees involved?
- What are return expectations?
Once you’ve settled on the terms and conditions with the lender, you can continue with the process of coming to an agreement.
If you’re still looking for a private lending resource, our partner Kiavi offers various real estate investment loans of up to $3 million, with repayment terms of up to 24 months. It can provide quick access to funds for both new and experienced borrowers, with funding in as little as seven days. To learn more, visit Kiavi.
Step 6: Close the Deal
Closing the deal requires various legal elements that you’ll need to consider. This includes following applicable federal and state regulations depending on the loan you receive.
If you are to raise money from friends and family, you’ll still need to draft a legal agreement outlining the terms and conditions of the loan. Other more established lenders may already include this as part of their closing process; however, it’s worth consulting a legal professional so that they can ensure compliance and answer any outlying questions you have before you finalize the details.
Alongside the loan agreement, be prepared to furnish any documentation required by the lender that may be necessary to the closing process. This can include a purchase and sale agreement, proof of down payment, appraisals, and contractor bids. It’s good practice to keep these on hand even before you begin your search to find a private lender.
Depending on the type of loan, disbursement of funds is usually a quick process, but the timeline will be determined by the lender. More often than not, funds are received within a few days. From there, it’s standard for the borrower to repay the loan in monthly installments until it’s paid off.
Frequently Asked Questions (FAQs)
Yes. Some private lenders are limited to the amount of loans they can provide (depending on the state they operate in), so if you need more funding than one lender has to offer, you can utilize multiple private lenders to help finance your investment.
It depends on the lender, but it’s usually a very quick turnaround time from approval to disbursement. Some lenders may only take a few days, while others can take up to 90 days.
Yes. While they differ from traditional loans offered by licensed lending institutions, private money loans are regulated on both a federal and state level—just with fewer restrictions.
Bottom Line
Finding private money lenders can be a worthwhile effort to help you secure financing for your real estate investment. While it may be time-consuming and challenging to find a lender that suits your needs, it’s a viable option for those who either don’t qualify or don’t want to be locked into terms that come with getting a small business loan. Now that you know how to find private money lenders, you can prepare accordingly, close the deal, and put the funds towards your investment.
