The private money lending arena is fraught with dangers for the individual investor. Prudent individuals should always examine every deal with the keenest scrutiny.  However, utilizing the services of attorneys, investment advisors and real estate professionals to scrutinize these deals is costly and the process can be involved and very time consuming. 

Alternatively, private investment property lenders can avail themselves to the services of a reputable and experienced private money lending firm who will do the upfront legwork for them. In either case, there are certain fundamentals that the private investment property lender should understand.

The Basics
Private or “hard” money lending companies spend the majority of their time investigating and evaluating potential borrowers and the deals that they bring to the table. Their due diligence also involves vetting any potential lenders to see that they also meet all legal and regulatory guidelines. An investor interested in lending money on a secured real estate transaction must meet be an accredited investor with a minimum net worth of $500,000 exclusive of their home, home furnishings and automobiles. While it is helpful if the investor has some real estate experience, it is not absolutely necessary.

The Process
A private money deal involving a first trust deed is completed in a manner almost identical to a traditional real estate deal involving a bank or other heavily regulated financial institution. Appraisals and title searches are performed, escrow accounts are initiated and all the proper legal documentation is executed and filed. Both the lender and the borrower can then be sure that the terms of the deal will be followed. 

Yields and Payment
Potential investment property lenders are probably most interested in the yield and payment terms of a typical first trust investment deal.  Most deals require payment on a monthly basis and range in length from one to three years. Yields are significantly higher than CD or bank rates and range from just under 8% to almost 12%.

Security
A private money deal is a particularly safe investment as the loan is guaranteed by a first trust deed on a real estate property. In the event of a payment default, the lender can take possession of the property. The loan amount is always a fraction of the value of the property and thus the property can be sold at a reduced rate and still yield a significant profit to the investor.