Glossary
Private money lender
A private money lender is usually an individual, often someone you know, who lends you money for a deal on terms you negotiate. The loan is normally secured by the property with a note and a mortgage or deed of trust.
Private money can cover a down payment, the rehab or the whole purchase. Because there is no set program, the rate, points, term and payment schedule are whatever you and the lender agree to.
Private money vs hard money
| Private money | Hard money | |
|---|---|---|
| Who lends | An individual | A lending company |
| Terms | Negotiated | Set programs |
| Speed | As fast as you both agree | Often a couple of weeks |
| Draws | Whatever you agree | Inspections and draw fees |
- Loan
- $60,000
- Rate
- 10% a year, interest only
- Term
- 6 months
Illustrative only.
Document it properly
- A promissory note with the rate, term and what happens if you are late.
- A recorded mortgage or deed of trust so the lender is secured.
- The lender named on the insurance policy.
- Advice from an attorney, and from a securities attorney if you raise from several people.
Model the cost with the hard money loan calculator by entering your private terms.
Questions
Where do investors find private money lenders?
Often through people they already know: friends, family, business contacts and local investor groups. Rules on how you can ask for money vary, so talk to an attorney first.
Written by Austin Frangoules | Updated
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