A plain-language explanation of private money lending — what it is, how it differs from bank financing and hard money, and why real estate operators use it. Includes a walkthrough of a typical promissory note structure.
What is private money lending in real estate?
Private money lending means you — an individual investor — provide capital directly to a real estate operator in exchange for a defined return. There is no bank involved. No mortgage broker. No committee approval. Just a written agreement between two parties, secured by real property.
How is this different from hard money lending?
Hard money lenders are typically institutional — specialty finance companies that lend at high interest rates (often 10–15%) with short terms (6–12 months) and require significant origination fees. They lend to anyone who can show collateral, regardless of track record.
Private money is different. It comes from individuals — often people who know the operator, have vetted their track record, and want a better return than their bank account offers. Terms are negotiated directly. Relationships matter.