How Private Lending Works for Real Estate Investors

Private lending is one of the fastest ways for real estate investors to fund deals without relying on traditional banks. Whether you're flipping houses, building rental portfolios, or developing new construction, understanding how private money lending works can give you a clear edge when speed, flexibility, and execution matter.

Ray Williamson, Director at Kiavi and a seasoned expert with over 30 years in mortgage and private lending, shares how private lenders evaluate deals, how investors can work more effectively with lenders, and what separates smooth projects from costly setbacks.

This blog distills that conversation into practical guidance for real estate operators looking to improve lender relationships, secure private loans faster, and scale with more confidence.

In this episode of the DealMachine REI Podcast, Ray Williamson of Kiavi Funding, breaks down private lending strategies, red flags to avoid, and how to build lasting lender relationships. Want to hear the full interview? Watch the episode below:

What Is Private Lending in Real Estate?

Private lending is a form of real estate financing provided by non-bank lenders that allows investors to fund purchases, renovations, and construction projects faster and with more flexibility than traditional loans. These loans are typically issued to business entities and are based on the property, the project plan, and the investor’s experience.

Ray Williamson began his career in conventional mortgage lending in 1989 before moving into subprime and eventually business-purpose lending. In private lending, the loan is made to an LLC or business entity, not to a consumer, and the property is often distressed, under renovation, or under construction.

Private lenders evaluate deals based on:

• The operator’s experience and execution ability
• The renovation scope and budget
• Property value, including after-repair value (ARV)
• Local market data and comparable sales

This asset-focused approach makes private lending ideal for fix and flip investors, rental operators, and builders, but it also requires realistic underwriting and clear communication.

How Do Private Lenders Evaluate Real Estate Deals?

Private lenders evaluate real estate deals by assessing both the investor and the property to determine overall risk. Strong operators can struggle with weak deals, and even great properties can fail without solid execution.

Lenders focus on two core areas:

1. The Operator:

• Experience level and track record
• Ability to communicate clearly and manage projects
• Willingness to underwrite conservatively

2. The Property:

• Purchase price and current condition
• Renovation scope and itemized budget
• After-repair value (ARV) supported by comps

Valuation combines data and expertise. Licensed appraisers review MLS data, third-party tools, and the planned scope of work to determine whether the proposed renovation can realistically support the projected exit price.

"We’re not trying to hit the operator’s number. We’re trying to hit the market’s number."

Experienced investors tend to underwrite conservatively, often beating their projections. Newer investors frequently overestimate ARV, which creates friction during underwriting and increases risk.

What Makes a Good Lending Partner?

Private lenders are not all the same. Some prioritize speed. Others offer high leverage or specialize in construction loans. Williamson advises real estate investors to ask specific questions:

• What documents are needed upfront?
• When does the funding timeline start?
• How are funds released during renovations?
• Who handles servicing and communication?

Avoid vague terms like "easy" or "fast" without context. Ask how the lender defines those terms. For example, if a lender says they close in two days, ask when the clock starts, after contract, after underwriting approval, or after all docs are submitted?

"Everyone must speak the same language for expectations to align."

How Can Investors Present Deals to a Private Lender?

A well-prepared deal package increases the odds of approval. Include:

• Purchase price and timeline
• Renovation scope and itemized budget
• Comparable sales to support ARV
• Timeline with milestones
• Exit plan (sell, refinance, or rent)

Keep it short, specific, and supported with data. A lender should be able to understand the deal in 1–2 minutes.

"Present data, not adjectives. Support every claim with a number or comp."

Why Do Loan Terms Matter for Real Estate Projects?

Many operators assume they’ll finish fast. In reality, projects often run into delays, permits, contractors, or unexpected repairs. Williamson recommends:

• 12-month terms for renovations (to avoid costly extensions)
• 18–24-month terms for new construction

At Kiavi, borrowers only pay for the time they use. This flexibility protects margins and reduces friction. Short-term loans may save interest upfront but often lead to extension fees or timeline stress.

"We removed 6- and 9-month loans because they caused more problems than they solved."

What Is the Draw Process in Private Lending?

Private lenders reimburse completed work through draws. They don’t fund upfront.

To request a draw:

• Complete a stage of renovation
• Submit invoices and receipts
• Pass an inspection

Tips for smoother draws:

• Group work into logical stages
• Align contractor payments with draw timing
• Request draws regularly (avoid long gaps)

"We reimburse for work done. We do not float money to start the project."

How Should New Investors Approach Their First Deal?

Newer real estate investors should focus on:

• Buying below market value
• Planning for surprises
• Underwriting based on conservative ARVs

Start by understanding what renovated homes sell for in your area. Then work backwards:

• Determine your renovation budget based on comps
• Build in a buffer for surprises (unpermitted spaces, wiring issues, etc.)
• Set your max purchase price to protect margin

Most of your profit is on the buy.

Why Communication and Clarity Matter More Than Ever

Assumptions kill deals. Williamson emphasizes defining terms upfront:

• When does the "2-day close" actually begin?
• What counts as "ready for funding"?
• What documents trigger underwriting?

Lenders and investors must speak the same language. Align early to avoid costly surprises. Ask layered questions to confirm timelines, expectations, and required steps.

Stop assuming. Start confirming.

What Happens If You Need a Loan Extension?

Don't wait until the last month. Communicate early. If you haven’t drawn funds by month six, your lender may check in. Extensions usually require:

• Documentation of progress
• Updated timelines
• An extension fee

Some lenders will inspect the property or verify listings if a project stalls. 

"Ask for the lender’s playbook on extensions before you need it."

Why Choose Lenders That Service In-House?

In-house servicing allows for faster, more informed conversations if issues arise. Third-party servicers often follow rigid scripts. Direct lenders can:

• Understand your project context
• Help troubleshoot delays
• Adjust draw or payment timelines (when appropriate)

"They’re our client. We’re in it with them."

How Do Experienced Investors Think Differently?

As investors grow, they:

• Budget with a buffer
• Choose longer loan terms
• Present clear, data-backed packages
• Communicate early and often
• Set realistic ARVs based on data

They also build trusted relationships with multiple lenders, one for flips, another for rentals, and a third for ground-up builds.

They avoid best-case math and plan conservatively. They reach out early when issues arise. They know extensions aren’t automatic, and they verify the lender’s policies in advance.

FAQs About Private Lending for Real Estate Investors

What is the difference between private lending and hard money loans?

Private lending is typically more relationship-based and flexible, while hard money loans are often more transactional, with higher rates and stricter terms.

How do I qualify for a private loan as a new real estate investor?

You’ll need a solid deal package that includes comps, a renovation budget, scope of work, timeline, and exit strategy. Some lenders work with new investors if the numbers make sense.

What’s a good ARV cushion in a fix and flip deal?

Most lenders prefer a 20–25% spread between purchase price and ARV to cover costs, holding time, and profit.

How fast can private lenders fund a real estate deal?

Some lenders can close in as little as 2–5 days, but timelines depend on when documents, title, and underwriting requirements are complete.

Do private lenders fund renovation costs upfront?

No. Most private lenders reimburse completed work through a draw process after inspections.

What documents do I need to get approved for a private loan?

Most lenders require a purchase contract, scope of work, itemized budget, comparable sales, and a clear project timeline.

Can I use private lending if I’ve never flipped a house before?

Yes. Some lenders will fund first-time investors if the deal is conservative, well-documented, and supported by strong market data.

Closing Thoughts

Private lending helps real estate investors move quickly and build scalable systems, but only when both sides align early. Williamson’s advice: define your terms, present solid data, build relationships, and stay realistic.

With the right lender and the right plan, private capital becomes a repeatable tool for real estate success.