Private money has been called the grease for the wheel of real estate. Without private lending, many properties would simply decay where they stand as traditional lending guidelines require properties to be in a proper physical condition before a mortgage can be issued.

There other government-backed programs from FHA and others but the very process of getting one of these loans approved is nearly impossible due to the required inspections and qualifications that must be met beforehand. Don’t get me wrong, such programs have their place it’s just too bad they’re saddled with sometimes needless regulations, keeping many borrowers out of the investment loop.

Private money can be used for any purpose, not just acquiring a single family home for a remodel although that’s a common objective. Private funds can be used to acquire an apartment building that needs repair or buy a condominium project that can’t meet existing condo approval requirements established by banks. Private money can be used to buy commercial space such as a medical/dental building, a service station or raw land.

The fact is that as long as the investor sees the value and understands how the borrower will use the funds and how much profit can be made, a private lender will consider just about any type of real estate investment.

When a private lender doesn’t lend is when the project doesn’t quite make sense or the story of the development has a weak or non-existent exit strategy. The private lender will evaluate a property’s current and future value after repairs but knowing how the borrower will replace the private loan at the end of the balloon period is just as important. Like banks, private lenders abhor foreclosing on real estate. And successful private lenders structure their evaluation process where a foreclosure will never occur.

Private lenders make money making loans. And they’ll make loans where no one else will step in and rewarded for their risk. But an experienced private lender will tell you there really is very little risk if the project makes sense, the numbers are verified and there’s a clear strategy in place for every deal.