Private lenders are individuals who wish to “invest” in real estate without the tenants or repairs. Private lenders take a variety of forms with varying levels of risk. Some private lenders become non-voting partners in a deal, taking a share of the profits when a property sells or losing their investment if the deal falls apart. For those preferring less risk (and possibly less reward), private lenders can lend their money or money from their Individual Retirement Account to an investor. The loan would be secured by a mortgage on the property. In other words, the private investor would be filling the role of “bank” for the investor. Since the private lender doesn’t have the underwriting requirements, etc. of a bank and can generally provide cash quickly, enabling the investor to make “cash offers” (offers not contingent on obtaining bank financing), investors will pay higher interest rates. The Security and Exchange Commission regulates solicitations for investment so investors who wish to use private lending generally work with an attorney to ensure that they are in compliance with SEC and state requirements.

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