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This past summer, we continued our internship program from past years and had Jake Lane, a current student at Fordham University in New York City, participate in our program. While at PeerStreet, Jake performed duties for both our real estate team and our servicing team. At the end of his internship, Jake wanted to help write about private money lending, based on what he had learned over the summer at PeerStreet.

What is Private Money Lending?

Many investors on our platform know that PeerStreet sources loans from private lenders. However, the private lending market is a niche area of finance. Today, private money loans, sometimes called hard money loans or bridge loans, describe short-term high-interest rate loans from private funds. Private money lenders tend to be local organizations that lend against a hard asset, such as real estate. They are not as heavily regulated as traditional banks and therefore may have additional flexibility in terms of loan amount, interest rates, duration, etc. These private lenders offer a pool of resources and capital to potential borrowers and are sometimes funded by their networks of family and friends.

Private Money Lending in California

The private real estate lending industry emerged in the 1950s and has developed into a diverse and progressive financial alternative for real estate entrepreneurs. California is a dominant force in the private money industry, with over 180 lenders statewide. The size of the California private real estate lending industry, in particular, has been critical to borrowers in this market, as the median home price in California has increased 60% over the last five years, skyrocketing from an average of $312,000 in June 2012 to $503,000 in June 2017. This tremendous rise has fueled a vibrant private money lending community within California, which provides quick financing and access to large amounts of capital. PeerStreet is situated in the middle of this rapidly growing market and does a significant amount of volume in California, across many different lenders.

What Sets it Apart from Other Sources of Capital?

It is common for borrowers to use private money loans to rehab a property. Two popular strategies borrowers use are “fix-n-flip” or “fix to rent” for single-family residential properties. These lenders underwrite the property and credit score of the borrower and place emphasis on the LTV and ARV (after repair value) of the subject property. These are generally short-term loans where the lender typically charges higher interest rates than traditional banks. Even with higher rates, these loans are oftentimes still worthwhile for the borrower because, without it, they’d miss out on a business opportunity. In short, private lenders can help borrowers bypass the red tape of highly regulated banks and offer a viable and alternative source of capital.

How PeerStreet Works with Private Money Lenders

Private lenders typically focus on specific regions where they are experts on the local real estate market. This gives them an advantage when they need to underwrite a property quickly. What is also valuable about private lenders is that they have invaluable relationships with experienced and successful borrowers. In this way, lending on a local level is beneficial in the underwriting process, since most lenders understand their local real estate markets intimately. This ecosystem of lenders and borrowers has helped us quickly expand to over 30 states throughout the US, while still maintaining a network of lenders who know their local markets and borrowers. As part of PeerStreet’s diligence process, each loan goes through an additional underwriting review by our team of in-house experts. Our goal is to create a system that allows us to scale our business while continuing to offer high-quality assets to investors in a way never before possible.

What about Investors?

As shown above, private lenders offer a compelling alternative to traditional sources of financing. Their loans represent a unique opportunity to investors who now have the unprecedented ability to access and diversify across this asset class through PeerStreet. Whether you are looking to take out a loan from a private money lender to finance your next project or use PeerStreet to invest in this space, the private money market is a dynamic arena for investors looking to diversify and build wealth.

Learn More

If you’d like to learn more about investing on PeerStreet, please see our How It Works page or contact us at or 844-733-7787.

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