Private money
Private money is financing from individuals or private entities rather than from institutions. Terms are negotiated directly and the loan is secured against the property.
Against hard money#
The line is blurry and the practical difference is formality.
Hard money generally means an established lender running a lending business — published terms, a defined process, points and rates that are broadly consistent between borrowers.
Private money generally means individuals. A relationship, a self-directed retirement account, a family member, a former colleague with capital and no appetite for managing property.
Terms are set case by case, and there is no process except the one the parties build.
What makes it attractive#
Flexibility. Structure, timeline, draw schedule and security can be arranged around the deal rather than around a lender's product.
Speed, where the lender is decisive.
Price, frequently between hard money and conventional, which is a range where both sides do better than their alternatives — the borrower pays less than hard money, the lender earns more than passive investment.
Willingness on property nobody else will finance. A private lender who understands the specific asset can lend where a programme cannot.
What makes it dangerous#
Relationships. A loan between people who know each other is a loan that damages something beyond money when it goes wrong.
Informality. The flexibility that makes it useful is the same property that leaves terms unclear when they are tested.
Concentration. A private lender frequently has a large share of their capital in one loan on one property, which is a different risk profile from an institution's.
Document it properly#
Non-negotiable, and the point at which most private lending fails.
A promissory note stating the amount, rate, term, payment schedule and what happens on default.
A recorded mortgage. An unrecorded interest is not security — it does not bind a subsequent purchaser and it does not establish priority.
Title insurance, so the lender knows what they are lending against.
Hazard insurance naming the lender.
Every one of those is standard on an institutional loan precisely because experience made it standard. Skipping them between friends does not remove the risk; it removes the protection.
For the lender#
Understand the exit. A loan secured against property is repaid by a sale or a refinance, and both depend on things outside the borrower's control.
And understand the security position. A second-position private loan on a property with little equity recovers nothing in a foreclosure — which is precisely when it matters.