What Is Private Lending Secured by Real Estate?

The short version: Private lending means you lend money directly to a borrower, and a specific property is pledged as security through a recorded legal instrument. You earn interest rather than owning the property. It is not a bank deposit and it is not insured.

Turning the usual arrangement around

Most people have been on one side of a property loan. You wanted a house, a bank lent you money, and the bank recorded an interest against the property so that if you stopped paying it had a claim.

Private lending is that same structure with the roles reversed. Someone else needs capital for property, you provide it, and a specific property is pledged to you.

You are not buying a house. You are not a landlord. You do not fix roofs or find tenants. You have made a loan, and there is real property standing behind it.

Why anyone borrows this way

The obvious question is why a company would borrow from individuals rather than a bank.

Builders and property developers need capital at a pace and in a shape that bank lending does not always suit. Acquiring land, funding construction and holding completed property all require money at different times. Bank facilities come with their own constraints, covenants and timelines.

Raising part of the capital privately gives a builder more flexibility, and it lets the lender receive interest that would otherwise have gone to an institution. That is the whole trade, and it is neither exotic nor new.

How the security works

The word secured is doing important work, and it means something specific.

When the loan is made, a legal instrument is recorded against a named property. In most states this is a Deed of Trust or a Mortgage Note. It is a public record, and it establishes your claim against that property.

If the borrower fails to pay, that recorded instrument is what gives you standing. Without it you would simply be an unsecured creditor with a promise, which is a far weaker position.

We go through the mechanics in how a Deed of Trust protects a private lender.

Lien position matters

Recorded claims sit in an order, and the order determines who is repaid first if a property is sold or liquidated.

A first lien is repaid before a second. A second lien is repaid only after the first has been satisfied. The same property can carry several, and being aware of where you sit is not a technicality.

Lien position generally correlates with the size of a loan, and it is one of the first things worth asking about. We cover it in understanding lien position.

Where our Private Lending programme fits

Key Financial Group of Florida, Inc. is an authorized advisor for the Private Lending program in Florida, and it is the private lending arrangement we work with.

The borrower is an established residential real estate developer with more than twenty years of operating history.

Under the program, private individuals lend to the developer at a fixed rate for a term of two to five years. Each loan is secured by a certified Deed of Trust and/or Mortgage Note on a specific residential property owned by the developer. If that property sells, the note is transferred to another property. Funds move through third party escrow and title companies rather than directly to the developer. Interest is paid from all of the developer's income sources rather than only the collateral property, and is backed by a promissory note.

The minimum loan is twenty five thousand dollars, and existing IRAs and old employer 401(k) accounts can be used. The full structure is set out on our Private Lending page, and the programme specifics in how the Private Lending program works.

Current terms and rates are available on request.

The risks, stated plainly

This is a private loan to a company, not a bank deposit, and the differences matter:

• Your funds are not liquid during the term.
• This is not a bank product and is not FDIC insured.
• Real estate values can change.
• Interest rates can change at renewal.
• Past performance does not indicate future results.

Early withdrawal is discouraged. In a genuine hardship the note can typically be liquidated at a market discount, which means receiving less than you lent.

Who this is and is not for

It is not a replacement for insured savings. The households we work with hold the large majority of their money in certificates of deposit, savings accounts and fixed annuities, and consider private lending for a portion rather than the whole.

It tends to suit people who have already covered short term needs elsewhere, who genuinely will not need the money during the term, and who want to understand exactly what they are lending against.

It does not suit anyone whose plans are uncertain, anyone who would be uncomfortable with an uninsured position, or anyone being rushed.

Doing your own work

Ask who the borrower is and how long they have operated. Ask which property secures your note and what lien position you hold. Ask who holds the funds in transit. Ask what happens if you need to exit early. And ask for everything in writing.

We set out the full list in questions to ask before you become a private lender.

If you would like an unhurried explanation with the risks laid out alongside the structure, schedule a free consultation. We are equally comfortable telling you it is not a fit.

This article is for general education and is not financial, tax, or legal advice. Please speak with a licensed professional about your situation.