There are a number of ways to discover profitable real estate, but those who are truly successful in the industry are far less likely to go through the banks and mortgage companies. Most people who succeed in making money from buying and selling property either finance everything with their own money, or, more likely, do it with a network of private lenders and investors.

Who and what are private lenders?

Private lenders are not banks or mortgage companies, but they certainly are interested in making a profit by loaning you money. These lenders are officially registered to give you some money, but they’re separate from what we usually call the ‘lending business.’

Don’t let the word ‘lending’ mislead you. Private lenders are more like investors than banks.

Businesses that offer real estate loans generally do so by putting as much of the risk as possible on others. By spreading out and minimizing potential losses, they can promise you all sorts of attractive rates and terms. When this system fails, as it has over the past several years, everybody loses out, including many people who weren’t involved in the risky transactions.

Private lenders use their own money, not everybody else’s.

Private lenders have much more reason to care about the risks. That’s why hard-money loans are so useful; they make sure that the lenders will get their money back quickly if the worst happens. That’s also why they’re such a good lending source for flipping houses. They require as few of the extra costs, in both time and money, as possible.

Credit rating and history is not an issue. A hard-money loan from a private lender is based on the property’s ability to pay them back, not yours.

In the ‘lending business,’ you pay more interest (or simply can’t get a loan at all) when you have poor credit. Hard-money real estate loans from private investors depend on the assessed property’s value. Although private investors are taking a risk that the market itself can change, they’re not really taking a risk on you.

Once you’ve found them, private lenders can let you make money from flipping houses in a single day. There isn’t a legitimate ‘lending business’ on Earth that can say that.

Private lenders are nearly always informed, experienced, and interested in the types of loans that they’ll provide. They know what goes into flipping houses, and they’ll be much more likely to give you a loan when they see your solid proposal to make it happen. And the more you prove yourself by flipping houses successfully, the more mutual trust and private lenders you can expect. Everything becomes so much easier and more lucrative.

Don’t be afraid of the word ‘brokers’.

Many of the best private lenders depend on firms to bring them the loan proposals that will make them the most money for the least risk. While you can certainly find good private lenders on your own, there are experienced intermediaries that exist for the sole purpose of bringing together quality private lenders and borrowers.

Tim is a marketer for and part time real estate hobbyist. He is currently in the process of flipping a few homes. If you would like to learn more about Tim follow him on Twitter @TimLCooley