Getting into private lending to facilitate the purchase of investment real estate is a very attractive opportunity indeed. Private loans are called for when investors look to finance a property that’s not quite yet ready for “prime time.” This primarily means the property has some structural or deferred maintenance issues that prevent a bank from making a loan. After all, the bank wants to make sure the property—their collateral—is in good shape should the bank be forced to foreclose and quickly sold to a ready buyer. Private loans fill in that gap and provide investors with funds needed to buy and rehabilitate a project.

The perceived risk involved when undertaking such a transaction is what provides private lenders with substantial returns. Such short term loans can command double-digit interest rates, which is the primary reason private lenders appreciate the opportunity. However, the risk involved can be mitigated with proper due diligence, something a private individual typically does not have when you factor in the legal issues, repairs needed, market rents, property valuation and the vast amount of real estate knowledge required to make sure the potential purchase will indeed perform as promised. The double digit returns are nice, but the experience involved keeps most from investing.

Yet by using an experienced company that takes care of all the necessary legal and rehabilitation work who properly vets such opportunities, the risk involved is much like any other real estate transaction that doesn’t require an overhaul. Especially in today’s environment where much of the foreclosure inventory on investment properties and apartment buildings has dwindled, those diamond-in-the-rough projects are much more difficult to uncover and takes the expertise of several individuals to find and evaluate a potential deal. That’s where private lending really works, by identifying accredited investors who have the desire to invest in short term notes to finance real estate investments as well as locating the right project.