Definition
Private money loans come from individuals with capital willing to lend for real estate investments. Interest rates (typically 6-15%), terms, and conditions are negotiated directly. Perfect for fix-and-flips when you need fast, flexible capital.
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Private money loans come from individuals with capital who want to generate returns by lending. Private money is flexible in terms, rates, and documentation; interest rates, terms, and conditions are negotiated directly. Private money is popular in real estate investing because it's fast and flexible, particularly for fix-and-flip projects or when investors need quick capital. However, private money relationships can strain personal relationships if deals go wrong. Legal documentation is essential to protect both parties.
Pro Tip
Private money relationships require clear written terms; protect both parties with promissory notes and mortgages, even with family.
Example
An investor borrows $150,000 from a family member for a rental property at 6% interest over 10 years, documented with a promissory note and mortgage.