You can fund a short-term rental deal the bank turned down, and keep the friendship intact, if you find private money lenders the right way. Start with people who already know and trust you. Bring each one a short deal packet that shows the numbers and how they get paid back. Then close through a title company with a signed promissory note and a recorded lien. A private money lender is an individual lending their own savings, so the relationship and the paperwork carry the weight a credit score carries at a bank.
You may have found a property or an arbitrage unit that works on paper, and the bank says no or not yet. You know a few people with money sitting in savings. What stops you is the ask itself: how to raise it without making things awkward at the next family dinner, what to promise, and what to sign so a slow month doesn't turn into a broken friendship and a lawsuit. Below: who these lenders are, how to find them, what to show them, and the documents and tax rules that protect both of you. If you already run a few units, the same steps work for a furnishing or renovation bridge.
What a Private Money Lender Is, and How It Differs From Hard Money
A private money lender is a person, or a small group of people, lending their own money against your deal on terms the two of you negotiate. Hard money is also non-bank money, but the term refers to loans from a lending business with its own loan products, fees and underwriting. A private lender might be a former coworker, a relative, a retired neighbor or a local investor, and they set terms case by case.
That flexibility has a cost. With no rate sheet or underwriter, nobody stops you from agreeing to something you can't pay. The protections a bank builds in, such as an appraisal, title insurance and a recorded lien, only exist in a private deal if you put them there.
Source | Who lends | Watch for |
|---|
Private | One person's own money | Vague terms, no lien |
Hard money | A lending company | Short term, fees |
Bank/DSCR | A bank or loan company | Set underwriting |
Partner | Equity, not a loan | Shared control |
If you're weighing a lending company instead, the hard money loan guide for Airbnb refinancing covers how those loans work and how to exit them. For income-based bank loans, see the DSCR loan underwriting breakdown.
Decide Whether You Need a Lender or a Partner
Borrow when you can repay on a fixed schedule from the property's cash flow or a planned refinance; bring in a partner when the deal can't carry a fixed payment. A loan means the lender gets their money and interest back and owns nothing. A partner shares in the profit and the risk, and may share the decisions.
Asking for a loan when the deal really needs a partner sets up a hard conversation later. If the property only covers a payment in peak season, a fixed monthly payment will hurt in the slow months. A partner who shares profit takes less in a slow month and more in a strong one. In return you give up part of the upside and some control.
Ask yourself three questions before you call anyone:
Can the property pay this lender every month, including your slowest month, after every other cost?
If not, is there a specific event that repays them, such as a refinance or a sale, and what happens if it's late?
Would you rather pay a set cost of money or give up a share of profit?
If the third answer is a share of profit, read the partner route in how to start an Airbnb business without using your own money before you pitch a loan. If you want help pressure-testing whether your numbers support a lender or a partner, book a complimentary one-on-one diagnostic call.
How to Find Private Money Lenders: A Six-Step Process
The process runs from preparation to closing: build the packet, list who you know, widen through referrals, pitch one person at a time, write the terms down, and close through a title company. Skip to the pitch without the first two steps and you're asking someone to fund a guess.
1. Build the deal packet first
Put the property, the numbers, the payback plan and the risks on one or two pages before you talk to anyone. A lender who can see the homework has less to guess at. The next section lists what goes in it.
2. List the people who already trust you
Write down everyone who knows your work ethic and might have savings: relatives, friends, former colleagues, people from church or your kids' school, past landlords, your own customers. Focus on people who know you and have money earning little in a savings account. The AI method for finding investors in your network shows how to sort a long contact list into a short one.
3. Widen through referrals
Ask professionals who see money move every week: your CPA, a real estate attorney, a title or escrow officer, a local investor meetup organizer. Ask who they know that lends privately on rentals. Keep each conversation one to one. Investor.gov, the SEC's investor site, states that "typically, promissory notes are securities" that "must be registered with the SEC, a state securities regulator, or be exempt from registration" (Investor.gov). One loan from one person you know is a different conversation from advertising notes to strangers, and the moment you think about pooling money from several people, talk to a securities attorney first.
4. Pitch one person at a time
Meet in person or on a call. Walk them through the packet, tell them what could go wrong, and say what you'll do if it does. Make the ask specific: an amount, a rate, a term, and the address that secures it. Expect some people to say no. Thank them anyway; a no today can still turn into a referral.
5. Put every term in writing
Agree on the amount, interest rate, any points, the payment schedule, the maturity date, prepayment rules, late fees and what happens on default. Then have a real estate attorney in your state turn it into documents. Wex, Cornell Law School's legal dictionary, notes that a promissory note "must be in writing and signed by the maker of the promise" (Cornell LII).
6. Close through a title company
Have a title or escrow company handle the money, record the lien, and issue a lender's title policy. The lender gets the basic protections a bank would insist on, and you get a clean paper trail.
What to Put in the Deal Packet
A good deal packet answers the lender's three questions before they ask: what am I lending against, how do I get paid, and what happens if it goes wrong. Keep it to one or two pages and use conservative numbers. Every example below is hypothetical.
Item | Shows | Sample |
|---|
Property | Address, type, rules | 2-bed condo, STR permit |
Use | Where the money goes | $60k down payment |
Income | Net after all costs | $1.4k/mo net |
Payback | How and when | Interest-only, 24 mo. |
Exit | How principal returns | Refinance or sale |
Security | What backs the loan | Recorded lien |
Risks | What could go wrong | Permit change, vacancy |
The income line matters most. Show net cash flow after cleaning, platform fees, utilities, supplies, insurance and any first mortgage, and show your slowest month next to your average month. The short-term rental financial model guide lists what to track so these numbers come from a real model rather than a guess.
Paperwork That Protects Both Sides
At minimum, a private loan on a rental needs a signed promissory note, a recorded mortgage or deed of trust, a lender's title policy, and insurance that names the lender. Have a real estate attorney in your state draft or review all of it. Templates from the internet don't know your state.
The note and the security instrument
The promissory note is your promise to repay. The mortgage or deed of trust ties that promise to the property. Wex explains that "a deed of trust involves three parties: a lender, a borrower, and a trustee," that the borrower gives the lender one or more promissory notes, and that "usually, the trustee is a title company" (Cornell LII).
Title insurance and the insurance policy
A lender's title policy protects the lender if someone later claims an interest in the property. The Consumer Financial Protection Bureau describes lender's title insurance as protecting "your lender against problems with the title to your property" and notes that it "does not protect your investment in the home (your equity)" (CFPB). Ask your insurance agent about adding the lender to your property policy as well, so an insurance payout after a fire or major loss can reach them.
Interest limits and federal lending rules
Interest rate limits are set state by state. Wex notes that usury "is usually defined and enforced by state statutes" and that limits "may be different from one state to another" (Cornell LII). Your attorney should confirm the rate you agree on is legal where the property sits.
Personal use can matter too. Federal Truth in Lending rules exempt credit "primarily for a business, commercial or agricultural purpose" (12 CFR 1026.3). The CFPB's official interpretation treats credit to buy, improve or maintain rental property that isn't owner-occupied as business-purpose, but says that if the owner expects to stay more than 14 days in the coming year, the property can't be considered non-owner-occupied, and gives the example of "a beach house that the owner will occupy for a month in the coming summer" (CFPB interpretation of 1026.3). If you plan to use the rental yourself, tell your attorney before the documents are drawn up.
Family Money and IRA Money Come With Extra Rules
Borrowing from relatives or from someone's retirement account adds tax rules that a loan from an unrelated person doesn't, so get a CPA involved before the money moves.
Loans from family
A family member may offer a very low rate, or no interest at all. Section 7872 of the Internal Revenue Code covers below-market loans, and it applies to "any below-market loan which is a gift loan" (26 U.S.C. § 7872). There's a small-loan exception for gift loans between individuals of $10,000 or less, but the same section says that exception doesn't apply to loans "attributable to acquisition of income-producing assets," so don't assume a small family loan for a rental falls under it. The IRS publishes its applicable federal rates as revenue rulings (IRS). Ask your CPA what rate keeps a family loan clean, and write it into the note.
Loans from an IRA
Some people lend through a self-directed IRA. That can work with an unrelated lender, but the IRS lists the IRA owner's family as disqualified persons: "spouse, ancestor, lineal descendant, and any spouse of a lineal descendant." If a prohibited transaction happens, "the account stops being an IRA as of the first day of that year" (IRS). So your parent's IRA lending to you is a problem, and so is your own IRA. A friend's or a colleague's IRA is a different situation, but they still need their custodian and a tax adviser to sign off.
Your side of the taxes
For the borrower, IRS Publication 527 says "you can deduct mortgage interest you pay on your rental property," while costs such as mortgage commissions and recording fees are capital expenses added to your basis. If you also use the property personally, you "must divide your expenses between rental and personal use" (IRS Publication 527). Ask your CPA how the points and closing costs on your loan are treated.
Run the Numbers Before You Ask: A Hypothetical Example
Price the money before you pitch it: add up interest, points and closing costs, then check the payment against your slowest month. The example below is hypothetical. It isn't a market rate, a quote or a promise of returns.
Say you borrow $60,000 at 10% a year, interest-only, for 24 months, with 2 points paid at closing and a $1,500 budget for attorney, title and recording costs.
Line | Amount | Note |
|---|
Monthly interest | $500 | $60k x 10% / 12 |
Points | $1,200 | 2% at closing |
Interest, 24 mo. | $12,000 | $500 x 24 |
Docs and title | $1,500 | Assumed budget |
Total cost | $14,700 | Before principal |
Due at mo. 24 | $60,000 | Balloon |
Now test it. If the property nets $1,400 a month after every other cost, including any first mortgage, the $500 payment leaves $900. That's 2.8 times coverage. If gross revenue of $4,200 drops 30% to $2,940 while $2,800 of expenses stay put, the property nets $140 and the lender's payment puts you $360 short that month. You need reserves to cover that gap, and the lender should know you have them.
The balloon is the bigger risk. At month 24 you owe the full $60,000. Write down how you'll repay it, through a refinance, a sale or savings, and what happens if that slips. A built-in extension option, priced in advance, beats asking for one when you're already late. If you're comparing this against other routes, the guide to financing a short-term rental lays out the bank and DSCR paths, and the seller financing guide shows how a seller can carry part of the price.
Once the loan closes, pay on time every time, send the lender a short update each quarter, and tell them early if a month looks soft. A lender who's been paid on time and kept in the loop is the easiest person to ask for the next deal.
Frequently Asked Questions
Where do beginners find private money lenders?
Start with people who already know and trust you: relatives, friends, former coworkers and community contacts with savings. Then ask your CPA, a real estate attorney or a title officer who they know that lends on rentals. Pitch one person at a time with a written deal packet.
What interest rate do private money lenders charge?
There's no standard rate. Private lenders set terms deal by deal, and the legal maximum depends on your state's usury law. Price the loan against your slowest month, not your best, and have your attorney confirm the rate is legal where the property is.
Is private money the same as hard money?
No. Hard money refers to loans from a lending company with set products and fees. Private money comes from an individual whose terms are negotiated with you. Both should be secured by a recorded lien and documented by an attorney.
Can I borrow from my parents' IRA for a rental?
The IRS lists an IRA owner's ancestors and lineal descendants as disqualified persons, and a prohibited transaction can end the account's IRA status for that year. Lending from a parent's IRA to their child falls in that zone. Talk to a CPA before you consider it.
Do I need a lawyer for a private money loan?
It's the safer route for both sides. Have a real estate attorney in your state draft or review the promissory note and the mortgage or deed of trust, confirm the interest rate is legal, and flag any lending or securities rules that apply. Close through a title company so the lien is recorded.
Sources
Investor.gov (U.S. Securities and Exchange Commission), Promissory Notes (retrieved 2026-10-09)
Cornell Law School Legal Information Institute, Wex, Promissory note (retrieved 2026-10-09)
Cornell Law School Legal Information Institute, Wex, Deed of trust (retrieved 2026-10-09)
Cornell Law School Legal Information Institute, Wex, Usury (retrieved 2026-10-09)
Consumer Financial Protection Bureau, What is lender's title insurance? (retrieved 2026-10-09)
Cornell Law School Legal Information Institute, 12 CFR § 1026.3 Exempt transactions (retrieved 2026-10-09)
Consumer Financial Protection Bureau, Official interpretation of Regulation Z § 1026.3 (retrieved 2026-10-09)
Cornell Law School Legal Information Institute, 26 U.S. Code § 7872 (retrieved 2026-10-09)
Internal Revenue Service, Applicable Federal Rates (retrieved 2026-10-09)
Internal Revenue Service, Retirement topics: Prohibited transactions (retrieved 2026-10-09)
Internal Revenue Service, Publication 527, Residential Rental Property (retrieved 2026-10-09)
This article is for educational purposes only and is not legal, tax, securities or financial advice. All dollar figures, rates and terms in the tables and examples are hypothetical illustrations, not market rates, loan offers or promised returns. Lending, interest-rate, securities and tax rules vary by state and situation and change; confirm your plan with a real estate attorney and a CPA before you borrow or lend.
