Private Money Loans for Rental Properties: The Complete Landlord’s Guide

How Private Money Lending Works

At its core, a private money transaction is a loan secured by real property. The borrower — you, the landlord — receives capital to acquire, rehab, or refinance a rental property. The lender receives a promissory note spelling out the repayment terms and a recorded deed of trust or mortgage that gives them a secured interest in the property. If you don’t pay, they can foreclose. That security is what makes real estate-backed private lending attractive to lenders and what separates it from simply borrowing money from a friend on a handshake.

Beyond that basic framework, everything is negotiable. Interest rate, loan term, amortization schedule, payment frequency, origination fees, prepayment penalties, default provisions, and exit strategy — all of it is determined by what you and your lender agree to. There are no standard terms. A private loan at 6% interest-only with a five-year balloon exists in the same ecosystem as a private loan at 12% with monthly principal and interest due over twenty-four months. The structure depends entirely on the relationship, the deal, and what each party needs.

The Advantages of Private Money

Unmatched Flexibility in Deal Structure

This is the headline advantage and it’s not even close. No other loan product gives you the ability to engineer terms around the specific needs of a deal. Need six months of deferred payments while a property is being renovated and isn’t generating income? A conventional lender will laugh. A hard money lender will charge you for the privilege. A private lender who understands your plan might agree to capitalize the interest into the loan balance and collect nothing until the property is rented.

Need a lower rate in exchange for giving your lender a small equity stake in the property? That’s a structure you can negotiate. Want to offer a higher rate with a short term to attract capital from someone who needs cash flow? Also negotiable. Private money molds around your deal instead of forcing your deal to fit a product box.

Speed That Competes With Cash

A private lender with available capital can fund a deal as fast as you can get title work completed. There’s no underwriting committee, no processing department, no queue of other applications ahead of yours. If your lender is ready and the title is clear, you can close in a week or less. In competitive markets where sellers favor fast closers, this speed is a genuine competitive advantage — second only to actual cash, and often indistinguishable from it at the closing table.

No Personal Income Verification

Private lenders lend based on the deal and the relationship, not your tax returns. This is a critical advantage for self-employed landlords, investors with complex tax situations, or anyone whose on-paper income doesn’t reflect their actual financial position. You won’t need to produce two years of W-2s, explain write-offs that reduce your taxable income, or justify your debt-to-income ratio. If the deal makes sense and the property provides adequate collateral, your personal income picture is largely irrelevant.

This puts private money in the same ballpark as DSCR loans in terms of accessibility, but without the institutional overhead, minimum credit score thresholds, or standardized rate structures that come with DSCR products.

No Property Count Limits

Conventional financing caps you at ten financed properties through Fannie Mae. DSCR lenders don’t have a hard cap, but many tighten their terms as your portfolio grows. Private money has no portfolio limit whatsoever. Your twentieth deal gets evaluated the same way as your first — on its own merits. For landlords in aggressive growth phases, this is the financing channel that never closes.

Relationship-Based Underwriting

A private lender who has funded three deals with you and watched you perform exactly as promised is going to approach your fourth deal differently than a stranger would. Repeat borrowers build track records that translate into better terms, faster funding, and a willingness from the lender to stretch on deals that might be marginal on paper but strong in context. That compounding trust is an asset that doesn’t show up on any balance sheet but becomes one of the most valuable things you own as an investor.

The Disadvantages of Private Money

Higher Cost Than Institutional Debt

This is the trade-off for flexibility. Private lenders are deploying personal capital and taking on concentrated risk in a single asset. They expect compensation for that risk. Interest rates on private money loans typically range from 8% to 14%, depending on the relationship, the deal’s strength, the loan-to-value ratio, and the local market. Some lenders also charge origination points, typically one to three percent of the loan amount.

Compare that to a conventional investment property mortgage in the 6% to 7% range or a DSCR loan in the 7% to 9% range, and the cost difference is real. On a $200,000 loan, the spread between 7% and 11% is $8,000 a year in additional interest expense. That’s money that comes directly out of your cash flow. Private money needs to be used strategically on deals where the math still works at the higher cost, or where the flexibility and speed create enough value to justify the premium.

Shorter Loan Terms

Most private money loans are structured with terms of one to five years, with a balloon payment due at maturity. Thirty-year fully amortizing private loans exist, but they’re uncommon. That means you need an exit plan before you ever take the money. Whether you plan to refinance into a DSCR or conventional product, sell the property, or negotiate a term extension with your lender, you need to know how you’re getting out before you get in.

The risk is obvious. If the market shifts, your property value drops, or rates spike and you can’t refinance on favorable terms, that balloon payment is still due. A good private money deal always includes a clear, realistic, and preferably multi-option exit strategy.

Finding Capital Requires Effort

Institutional lenders market to you. They run ads, they attend conferences, they have loan officers whose job is to find borrowers. Private money works in reverse — you have to find the lender. That means networking, building relationships, articulating your investment thesis clearly, and often educating potential lenders about how real estate-backed lending works. Not everyone with capital understands that a mortgage secures their investment against the property. Not everyone is comfortable with the mechanics of foreclosure as a remedy for default. You’ll spend time having these conversations, and not all of them will convert into a lending relationship.

The lenders in our Lender Directory include private capital providers who actively work with landlords, which shortens the search considerably. But the best private money relationships are still built one conversation at a time.

Relationship Risk Cuts Both Ways

Borrowing money from people you know introduces personal dynamics that don’t exist with institutional lenders. If a deal goes sideways — a major repair you didn’t anticipate, a tenant who destroys the property, a market downturn that kills your refinance options — you’re not dealing with a faceless bank. You’re dealing with a person who trusted you with their money. That pressure can strain relationships in ways that go far beyond the financial transaction.

The best protection against this is brutal honesty upfront. Be transparent about risks. Underwrite conservatively. Don’t oversell the deal. And structure every loan with proper legal documentation so that both parties understand exactly what happens in every scenario, including the bad ones. A well-documented deal protects the relationship as much as it protects the money.

Regulatory Exposure if Structured Poorly

Private lending is legal in every state, but it’s not unregulated. State usury laws cap the interest rate you can charge (or pay) on certain types of loans. Some states require private lenders to hold a lending license if they make more than a certain number of loans per year. Federal regulations like Dodd-Frank impose additional requirements on loans secured by owner-occupied residential properties, though investment property loans are generally exempt from the most restrictive provisions.

The point is that you can’t simply draft a napkin agreement and record a mortgage. Both parties need competent legal counsel to ensure the note and security instrument comply with state and federal law. An unenforceable note doesn’t just put the lender’s capital at risk — it can expose both parties to legal liability.

Structuring a Private Money Deal the Right Way

Every private money loan should include at minimum a promissory note that details the loan amount, interest rate, payment schedule, maturity date, late payment provisions, default triggers, and prepayment terms. It should also include a deed of trust or mortgage recorded with the county, giving the lender a security interest in the property. Title insurance protects both parties against title defects. And a clear written agreement about what happens in default — cure periods, foreclosure rights, and communication expectations — eliminates ambiguity before it becomes a dispute.

If your lender is using self-directed IRA funds, the IRA custodian will have additional documentation requirements. The loan must be originated through the IRA, not the individual. Payments must go to the IRA, not the person. And the IRA holder cannot personally benefit from the transaction beyond the investment returns. These rules are strict, and violating them can trigger tax penalties for your lender. Make sure both parties understand the mechanics before closing.

When Private Money Makes Sense

Private money is not an everyday financing tool. It’s a strategic one. The best use cases include acquiring a deal quickly when institutional lending can’t match the timeline, funding a property that doesn’t qualify for conventional or DSCR financing due to condition or occupancy, bridging between acquisition and long-term refinance, structuring creative terms that allow a deal to work when standard products make it too tight, and building a financing pipeline that isn’t dependent on institutional approval.

If you’re buying a stabilized, rent-ready property with strong cash flow and you have the credit and income to qualify for a DSCR loan or a conventional mortgage, those products will almost always be cheaper. Use them. Save private money for the deals where its unique advantages — speed, flexibility, and creative structuring — actually move the needle.

Finding Private Money Lenders

Start with your existing network. Real estate investor meetups, local REIA groups, and online landlord communities are full of people who have capital and are looking for returns that beat the stock market without the volatility. Real estate attorneys and CPAs who work with investors often know clients sitting on cash. Even property managers hear from property owners who are tired of active management and want passive returns instead.

Our Lender Directory includes private capital providers who actively fund rental property deals, searchable by state. It’s a good starting point, but don’t stop there. The strongest private lending relationships are built through repeated performance. Fund one deal successfully, return the capital on time, communicate proactively throughout — and that lender will come back with more money and better terms the next time.