What Is Private Lending in Commercial Real Estate?
Private lending is when an individual investor — rather than a bank — provides real estate financing directly to borrowers. Private lenders earn higher returns than CDs or bonds by funding deals that conventional lenders won’t touch: distressed properties, fast closings, credit-challenged borrowers, or unique deal structures. In Texas, private lending is one of the most consistent ways to generate passive income backed by real estate collateral.
How Private Lenders Make Money
Private lenders earn income two ways:
- Interest payments: Typically 9–14% annualized, paid monthly by the borrower
- Origination points: 1–4 points paid upfront at closing (1 point = 1% of loan amount)
On a $500,000 hard money loan at 11% interest, a private lender earns approximately $4,583/month plus origination fees — all secured by a first lien on Texas real estate. If the borrower defaults, the lender has the right to foreclose and take ownership of the collateral.
Is Private Lending Safe?
Private lending carries real risk, but that risk is manageable with proper underwriting. The key protections:
- First lien position: Your loan is secured by the property. If the borrower doesn’t pay, you can foreclose.
- Conservative LTV: Lending at 60–70% LTV means the property must drop significantly in value before you’re underwater.
- Title insurance: Protects against title defects on the collateral.
- Borrower vetting: Experienced borrowers with track records default far less often than novices.
Most private lenders who lose money skip one of these protections. Proper underwriting and conservative LTV are non-negotiable.
Minimum Investment and Deal Size
Private lending deals in Texas typically range from $100,000 to $5 million+. Some investors participate in fractionalized loans (multiple lenders funding one loan) for smaller minimums. If you have $150,000–$250,000 to deploy, you can fund smaller fix-and-flip or bridge deals directly. Larger capital ($500K+) opens up commercial real estate bridge financing on apartment buildings, retail centers, and office properties.
What Types of Deals Do Private Lenders Fund?
- Fix-and-flip loans — short term, high velocity, 6–12 month repayment
- Bridge loans — stabilization or repositioning of commercial properties
- Construction loans — ground-up development or major renovation
- Hard money loans — asset-based financing for credit-challenged borrowers
- Land acquisition — raw land or entitled lots for development
How to Get Started as a Private Lender in Texas
- Define your capital and risk tolerance. How much do you want to deploy? What LTV and rate are you targeting?
- Work with an established lending company. Many private lenders co-invest alongside experienced commercial lenders who handle underwriting, servicing, and legal documentation.
- Understand the legal structure. Texas hard money loans to business entities are largely unregulated compared to consumer lending. Use a licensed attorney for loan documents.
- Start with one deal and learn the process before scaling up your portfolio.
Partner with Commercial Loans of Texas
If you’re an investor interested in deploying capital as a private lender on Texas commercial real estate deals, we’d like to talk. We source, underwrite, and manage deals throughout Texas and work with private capital partners on select transactions. Contact us to learn more about current lending opportunities in the Texas market.