Private Money Lending, Explained by the Person on the Other Side of the Table

Someone you respect does real estate. Maybe you’ve watched them renovate houses in your town for years. One day the conversation turns to how they pay for those projects, and you hear the phrase “private lender” for the first time.

Your next thought is probably some version of: Could I do that? And how would I know if it’s a good idea?

That’s what this site is for.

I’m Ben Lovro. I buy and renovate houses in the South Carolina Midlands, and I borrow money to do it. I’m not a lender, I’m not a fund, and nothing on this site proposes any loan or any terms. What I can do is explain, from the borrower’s chair, how private lending on real estate generally works and how a careful lender protects themselves.

I’d rather you walk away from this site deciding private lending isn’t for you than walk into a loan you don’t understand.

What private money lending is

Private money lending is simple at its core. An individual lends their own money to a real estate investor for a specific purpose — usually buying a property, renovating it, or both. The investor signs a promissory note promising to repay. A mortgage is recorded against the property so the lender has a lien. When the investor sells or refinances, the loan is paid off at closing.

That’s the whole skeleton. Everything else is about doing each piece carefully.

What makes it “private” is that there’s no bank in the middle. The lender and borrower agree on terms directly, and attorneys put those terms on paper. That flexibility is why investors value private lenders. It’s also why private lenders have to protect themselves — nobody else is going to do it for them.

How private lending on real estate is secured

When people say a loan is “secured,” they mean there’s collateral. In private lending on real estate, the collateral is the property. But collateral is only as good as the paperwork behind it.

Here’s what a well-documented private loan generally includes:

• A promissory note. The borrower’s written promise to repay, including what happens if they don’t.
• A recorded mortgage. In South Carolina, the security instrument is a mortgage, recorded with the county. Recording is what puts the world on notice that the lender has a claim on the property.
• Lender’s title insurance. Protects the lender if a title problem shows up that affects their lien.
• Hazard insurance naming the lender. The property’s insurance policy should name the lender as mortgagee, so an insurance payout after a fire or storm doesn’t skip the lender.
• A closing attorney. South Carolina closings are supervised by attorneys. The closing attorney handles the money, the title work and the recording.

I walk through each of these in detail on how private money lending works. If you only read one other page on this site, read that one.

What a careful private lender insists on

If I were lending to a real estate investor — any investor, including me — here’s what I’d want before money moved.

That last item matters more than all the others. I’ll come back to it.

The risks, honestly

Every loan carries risk. Real estate as collateral reduces some risks and creates others. Here are the ones I’d want any lender to think hard about.

Borrower risk. The investor might mismanage the project, overspend, get sick, get divorced, or simply be wrong about the numbers. The quality of the borrower is the first line of defense.

Property risk. The property might be worth less than everyone thought. The renovation might uncover problems. The market might shift. The collateral can change in value while the loan is outstanding.

Concentration risk. If a large share of your savings sits in one loan, on one property, with one borrower, a single bad outcome hits hard.

Liquidity risk. Your money is tied up until the loan is paid off. If you need it sooner, there may be no easy way to get it back.

Time risk in a default. South Carolina forecloses judicially, meaning through the courts. If a borrower defaults, recovering your money through foreclosure takes time and legal expense. Having a mortgage doesn’t mean having your money back quickly.

I go deeper on each of these on the risks of private money lending. Read it before you get excited.

Vetting the borrower

Since the borrower is the first line of defense, vetting matters. A careful lender asks pointed questions and expects straight answers. What have you completed? What went wrong, and how did you handle it? Who’s your contractor? Who’s your closing attorney? What’s your backup plan if the house doesn’t sell?

A good borrower welcomes those questions. A borrower who gets defensive, vague or pushy is telling you something important.

I wrote out the full checklist on questions to ask a real estate borrower. Use it on anyone — use it on me.

It also helps to understand the borrower’s side of the business. If you want to see how investors evaluate a property before they ask for money, my guide on how to analyze a real estate deal shows the sequence a disciplined borrower should be following. And my page on how to find private money lenders is written for borrowers — it tells them to slow down, use attorneys and avoid the securities pitfalls. If a borrower is doing the opposite of what that page says, take note.

Lending from retirement accounts

Some people lend through a self-directed IRA. It’s possible, but it comes with rules — including prohibited transactions that can create serious tax problems if you get them wrong. You’ll need a qualified custodian and a CPA or tax attorney involved from the start. I explain the concept, and only the concept, on self-directed IRA real estate lending.

A word about securities law

When one person lends to one borrower on one property, secured by a recorded mortgage, that’s a private loan. When money gets pooled from many people, or when someone advertises broadly for lenders, securities laws can come into play. Those laws exist to protect lenders. If anyone approaches you with a pooled arrangement, ask whether a securities attorney has been involved — and talk to your own.

Why I wrote this

I’ve been on the borrowing side for a long time. The best lending relationships I’ve seen were built on clear paperwork, honest conversations about what could go wrong, and lenders who knew exactly what they were agreeing to. The worst ones started with a handshake and a promise.

Faith and family shape how I do business. I’d want someone treating my parents’ savings with the same care I’m asking you to demand. You can read more about who I am and how I work on my about page, and see the rest of what I teach on the real estate investing hub.

If you want to talk

Some people read all of this and want a real conversation — about how I work with private lenders, what my process looks like, and what questions they should be asking. If that’s you, there’s a short inquiry list. It isn’t a sign-up for anything. It’s a request for a personal conversation, and I reach out individually.

Before that conversation, read the private money lending FAQ. Then talk to your attorney and your CPA. Then, if you still want to talk, request a private lending conversation and I’ll reach out personally.