When private money is the right call, and when it is not
Private money is expensive relative to a conventional loan, and that is not a flaw in the product. You are buying speed and flexibility, and those things have a price. The question is never whether private money costs more. It is whether the deal exists at all without it.
It is the right call when a conventional timeline would lose you the property, when the condition of the house disqualifies it from agency financing, or when you need renovation capital that a purchase loan will not cover.
It is the wrong call when you are using it to stretch into a deal you cannot actually afford, or when you have no concrete exit. A short loan with a real maturity date is unforgiving if the plan does not materialize.
The four situations I see most
- Competing against cash. In parts of LA a financed offer is at a structural disadvantage. A private money pre-approval that closes in ten days puts you much closer to a cash buyer's footing.
- The property will not pass appraisal. Deferred maintenance, permit issues, a missing kitchen. Agency underwriting treats these as disqualifying. A private lender treats them as inputs to the valuation.
- Bridge between a purchase and a sale. You found the next property before the current one closed. Private money covers the overlap rather than forcing you to sell first and rent in between.
- Renovation capital. Purchase plus rehab in one loan, drawn as the work progresses, which a conventional purchase loan simply does not accommodate.
The exit is the underwriting
This is the part that gets people hurt, so I want to be direct about it. Private money is short-term capital with a fixed maturity. When the term ends the balance is due in full, and the lender is not obligated to extend.
Before I take a private money file I want to know exactly how it ends. If the exit is a sale, we talk honestly about the timeline and what happens if the market slows. If the exit is a refinance into a DSCR loan, I price that DSCR loan now, against today's guidelines, and confirm the property would qualify at today's rents.
An exit you would not qualify for today is not an exit. It is a hope. I would rather tell you a deal does not work at the start than watch a maturity date arrive with no way out of it.
Where LA deals actually pencil
The Westside is difficult for value-add because entry prices leave little spread between the purchase and the finished value. Private money works there mainly as a speed play on a clean property rather than a renovation play.
The spread is better inland and south. The San Gabriel Valley, parts of the South Bay, Long Beach and the older housing stock through Inglewood and Hawthorne offer purchase prices that leave room for a renovation budget and a margin. Long Beach in particular has a deep supply of small multifamily built before 1950, which is exactly the profile where condition problems block agency financing and private money does not care.
What it costs, honestly
Private money prices well above agency financing, and there are points on the front end in addition to the rate. On a short hold the points often matter more to your total cost than the rate does, because you are only paying interest for a few months but you pay the points regardless.
That changes how you should compare offers. A lower rate with higher points can easily lose to a higher rate with lower points on a six-month flip. Ask for the all-in cost over your actual expected hold period rather than comparing rates side by side, and I will run that comparison for you before you commit.
Why bring a broker into a private deal
Private lenders vary enormously in what they will touch. Some will not do ground-up, some will not do occupied property, some will not lend in certain cities, and some quietly re-trade terms after you are committed and have no time to move.
Knowing which lender fits the deal before you apply saves the week you cannot afford to lose. It also means that when a lender re-trades, you have somewhere else to go rather than accepting worse terms under deadline pressure.
Los Angeles Private Money FAQ
How fast can a private money loan actually close?
Seven to fourteen days is realistic when the file is clean and the title work has no surprises. The pace is usually set by valuation and title rather than underwriting. The fastest closings are the ones where title was opened the day the offer was accepted rather than a week later, so if speed is the point of the loan, start title immediately.
Do I need good credit for private money?
Credit matters far less than it does for agency financing, but it is not ignored. Most private lenders look at it as a character signal and as a proxy for whether you will execute the exit, not as a qualifying threshold. Equity in the deal and the strength of the exit plan carry most of the weight. A recent foreclosure or bankruptcy will narrow your lender list without necessarily ending the conversation.
Can I use private money on a primary residence?
Generally no. Nearly all private money is business-purpose lending on investment or commercial property, which is what keeps it outside consumer mortgage regulations. There are consumer-purpose private lenders, but the compliance burden makes them rare and expensive. If you are buying a home to live in, we should be looking at bank statement, DSCR on a departure residence, or conventional financing instead.
What down payment will I need?
Typically 25% to 35% on a purchase, since most private lenders cap around 65% to 75% of value. On a renovation deal some lenders will lend against the after-repair value instead, which lowers the cash you bring in but raises the scrutiny on your renovation budget and your track record.
What happens if I cannot pay it off at maturity?
You ask for an extension, which usually costs points and is entirely at the lender's discretion, or you default. This is the real risk of the product and the reason I insist on a documented exit before the file starts. If your exit is a refinance, we confirm you would qualify for that refinance today rather than assuming conditions will cooperate later.
Can I refinance out of private money into a DSCR loan?
Yes, and it is the most common exit for a rental hold. The sequence is buy with private money, complete the work, get the property leased, then refinance into a DSCR loan once it has rental income supporting the ratio. Most DSCR lenders want to see a seasoning period and a signed lease, so build that timeline into the private loan term rather than cutting it close.
Is private money the same as hard money?
In practice the terms are used interchangeably. Hard money is the older label and carries some baggage from an era when the space was less institutional. Private money is the term most lenders prefer today. Either way you are describing asset-based, short-term, business-purpose lending.
Will you tell me if a private deal is a bad idea?
Yes, and I would rather do it before you are committed than after. The files that go badly are almost always the ones where the exit was assumed rather than verified. If your numbers only work under optimistic assumptions about the sale price or the renovation timeline, I will say so and show you where the margin disappears.