Private Money

What it is

Private money is capital borrowed from individuals rather than banks or hard money shops. Not friends and family necessarily — I’m talking about accredited investors, people who are seeking out investment opportunities and want a better return than what they’re getting elsewhere.

I want to be clear: raising money from friends and family is not a method I have used personally, and I won’t speak much to it. Those people give you money because of the relationship they have with you. If you don’t have a high level of skills, you’re not only putting yourself at risk, you’re really putting them at risk. Make sure you earn that trust by having real experience under your belt before you go down that road.

What I have done is raise money from accredited investors. But I didn’t do it until I’d been flipping and buying rentals for a decade. I felt I needed to put it on the list because it’s a real strategy — and truly, you can buy houses for no cash if you raise all the money. But your work ethic better be really high if you’re going to ask people to put their money on the line.

Why it matters

Private money is the most flexible capital on the menu. The lender can write whatever terms they want. Extend a loan without a refi fee? It’s their money, sure. Skip the appraisal? Fine if the relationship is real. Fund 100% of acquisition? Possible, with the right track record. Banks can’t do any of that. Hard money shops are contractually limited. Private lenders set their own rules.

The flip side is that private money runs entirely on relationship capital. You cannot raise private money from accredited investors if you have no track record. After clean deals, honest numbers, and on-time repayments, private lenders find you. You don’t really go find them — you build something worth investing in and they show up.

If you’re going to implement a strategy like this, you need legal counsel. You need somebody to write up those contracts correctly. And this is not a strategy for beginners. That’s not me being cautious, that’s me being honest: save it for later.

How it shows up

Private money fits into the funding stack alongside hard money, heloc, seller financing, and conventional refinance. You’re trying to keep your own cash out of deals as much as possible — not because you want zero reserves (you never want zero reserves), but because it lowers your risk and lets you do more deals at once.

The conversation to have with a potential investor: here’s the deal, here’s the ARV, here’s the rehab number, here’s what I’m asking, here’s when I pay you back, here’s the worst case. Show them the calculator. If they can see how you underwrote the deal, they trust the number. If they can’t see it, they shouldn’t lend on it, and honestly you shouldn’t want them to.

And one more thing — your risk level on this from a money standpoint is really low because you’re not risking your own capital. But don’t let that confuse you about what you’re actually risking, which is your reputation. And that is not a small thing in a small world.

Related

funding, hard money, heloc, seller financing, relationship capital, partnerships