Private money is financing from individuals — often people in the investor's network: colleagues, family offices, self-directed retirement account holders, local business owners — who lend on a property for a negotiated rate and term, secured by a note and a mortgage or deed of trust, with proper closing and recording. Unlike hard money, there is no standard product: rate, points, term, and guarantees are all negotiated, and the relationship and documentation carry the deal. Unlike a bank, the lender is lending on the deal and the operator, both of which they can inspect directly.
The formula / structureNo standard structure — the terms are the contract: principal, rate, term, payment schedule, security, and default terms, all in writing.
Private Money: a worked example
Worked example. An investor funds a $98,000 purchase plus $40,000 rehab with a private lender at an example 9% interest-only for 12 months, no points, first lien, monthly statements from a loan servicer. The lender earns steady interest secured by a property worth substantially more finished; the investor gets flexible terms and one relationship to manage. Example only — real arrangements need an attorney's documents.
What affects Private Money
- The relationship and track record behind the loan
- Security position (first lien vs. junior)
- Documentation quality — notes, recording, servicing, insurance
- Securities and lending law — structure with an attorney, especially when pooling funds
Get the First-Deal Math Pack — free.
The Math Sheet, the MAO one-pager, and the comping checklist — the one-page math we run before any offer.