Private money — capital from individuals rather than institutions — can be faster and more flexible than a bank loan, but it's built entirely on relationships and trust, since you're generally borrowing from people, not underwriting departments. Finding private lenders is less about a single tactic and more about consistently putting yourself in front of people who have capital and understanding what they actually need to hear to say yes.
Where private money actually comes from
- People you already know — friends, family, former colleagues, and professional contacts who have capital sitting in savings, a retirement account, or an underperforming investment, and who trust you personally. This is where most new investors find their first private lender, and it starts with simply telling people what you do.
- Local real estate investor associations (REIAs) and meetups, where both active investors and passive capital-holders show up specifically to network around real estate deals.
- Self-directed IRA and 401(k) holders who are looking for alternative investment vehicles and may be open to lending against real estate as a note-secured investment.
- Professionals who work around real estate — real estate attorneys, CPAs, title company staff, and property managers — often know clients with capital looking for a return, and can be a source of warm introductions.
- Online private lending and hard money marketplaces, which connect investors to individual and small-fund lenders, though these often function more like hard money (fee-based, business-purpose lending) than a purely relationship-based private loan.
How to actually approach someone about lending to you
- Lead with education, not a pitch. Most people you approach have never lent against real estate before. Explain simply how a real estate-secured note works, how they're protected (a recorded deed of trust or mortgage against the property), and what a realistic return looks like — without overselling.
- Show them your track record honestly. If you're new, be upfront about that and lean on your team (contractor, agent, attorney) and a clearly documented deal rather than pretending to more experience than you have.
- Bring a real deal, not a hypothetical pitch. A specific property with real numbers — purchase price, ARV, rehab budget, exit timeline — is far more persuasive than a general request for "capital to invest."
- Put everything in writing and record the lien. A promissory note and a recorded deed of trust or mortgage protect both sides and signal that you're running this professionally, not casually.
- Start small if it's a new relationship. A smaller first deal that closes cleanly and pays as promised is often what turns a one-time lender into a repeat source of capital.
What private lenders typically want to know
- What exactly is the money being used for, and for how long?
- What's the loan-to-value or loan-to-cost ratio, and how is their position protected if the deal goes sideways?
- What's the exit strategy — sale, refinance, or something else — and what happens if that exit is delayed?
- What's your experience and who's on your team (contractor, agent, attorney)?
- What return are they earning, and how and when do they get paid (monthly interest, a lump sum at payoff, or some combination)?
Structuring the relationship for the long term
The investors who build a reliable stable of private lenders tend to treat each lender relationship as ongoing, not transactional: communicating proactively if a timeline slips, sending regular updates during the project, and paying exactly as promised even when it's inconvenient. A lender who has a good experience — clear communication, on-time payments, no surprises — is far more likely to lend again and to refer other capital your way than one who was only ever pitched once and then went quiet.
Common mistakes when seeking private money
- Treating it like a bank loan pitch instead of a relationship conversation. Private lenders are usually deciding based on trust in you as much as the deal itself.
- Not documenting the loan properly with a note and recorded lien, which exposes both parties and looks unprofessional to anyone with real capital to lend.
- Overpromising returns or timelines to close the deal, which damages the relationship the first time reality doesn't match the pitch.
- Only reaching out to people when you need money rather than building the relationship and educating them over time before you need capital.
- Skipping legal review of loan documents to save a small upfront cost, risking a much larger problem if terms are unclear or unenforceable later.
Frequently Asked Questions
Q: What's the difference between private money and hard money?
A: Private money typically comes from an individual you have a personal or professional relationship with, often with more flexible or negotiated terms. Hard money usually comes from a business that lends professionally at scale, with more standardized underwriting, fees, and terms.
Q: How much should I offer to pay a private lender?
A: Terms are negotiated between you and the lender and vary by relationship, deal risk, and what alternative returns are available to that lender elsewhere — there's no fixed market rate that applies universally, so this is a conversation, not a lookup.
Q: Do I need an attorney to set up a private money loan?
A: Having an attorney draft or review the promissory note and lien documents is strongly recommended for both sides, even between friends or family, precisely because clarity up front prevents disputes later.
Q: Can I use private money from a lender's retirement account?
A: Some lenders use a self-directed IRA or similar vehicle to lend against real estate, but this involves specific rules and a custodian to administer the account correctly — the lender's own IRA custodian or financial advisor is the right resource for structuring that correctly, not general guidance.