Private Money Lending for Land: How It Works, Rates, and Risks

Securing traditional bank financing for raw land can be difficult, as banks often deny these loans due to the lack of income-producing collateral. This is where private money lending for land becomes a powerful tool for investors, offering a faster and more flexible alternative. These loans can often close in just 7 to 14 days, providing quick access to capital for timely opportunities. Real estate investors Steve Daria and Joleigh, who specialize in cash land acquisitions, employ this strategy to circumvent bureaucratic obstacles. Private money loans typically come with interest rates between 9% and 14% and require a loan-to-value (LTV) of 50% to 65%, reflecting the higher risk associated with undeveloped parcels. Understanding the terms, rates, and inherent risks, such as value fluctuations and exit strategy timelines, is essential for success. This guide explains how private money lending for land works, enabling you to make informed decisions. To navigate your next land deal with confidence, book a free discussion with our experts today.

Key Points

• Understanding Private Money Lending: Private money lending is the practice of borrowing funds from an individual or private company rather than from a traditional financial institution like a bank. It’s often used by land buyers who need fast approval or don’t meet bank lending requirements.

• How It Works for Land Deals: The lender gives money based on the land’s value and the borrower’s plan for the property. In most cases, the land itself is used as collateral to secure the loan.

• Interest Rates and Terms: Private money loans typically have higher interest rates than bank loans, often ranging from 8% to 15%. Terms are generally short, ranging from 6 months to 3 years, with interest-only payments in some cases.

• Pros of Private Lending: These loans offer faster approvals, less paperwork, and flexibility in lending terms. This can be helpful for buyers dealing with unique land deals or time-sensitive opportunities.

• Risks to Consider: High interest rates and short repayment periods pose risks if the project doesn’t go as planned. Always have an exit strategy and understand the full terms before signing.

What is private money lending for land?

Private money lending for land is a type of short-term financing provided by private individuals or companies instead of traditional banks. 

Investors use it to purchase raw or vacant land parcels quickly, often because banks are reluctant to finance properties that do not generate income. 

These loans are asset-based, meaning the lender focuses more on the land’s value and your exit plan than your personal credit score. 

Typically structured as interest-only loans with terms of 6 to 24 months, they come with higher rates of 9-14% and lower loan-to-value ratios of 50-65%. 

One of the biggest advantages is speed—these deals can close in as little as 7 to 14 days, requiring only basic documents like a purchase contract and proof of funds. 

However, borrowers must manage key risks, including potential value swings, title issues, and the strict timeline for repaying the loan. 

This makes private money lending for land a powerful but specialized tool for strategic real estate investors. 

Success depends on having a clear and profitable exit strategy from the start.

---

---

How quickly can I get a private money loan to buy land?

The speed of getting a private money loan to buy land is one of its most significant advantages over traditional bank financing. 

For a straightforward deal with a clean title and a prepared borrower, you can often close in just 7 to 14 days. 

This timeline assumes you provide all necessary documents upfront and are ready with your down payment. 

The process can move even faster if the lender can quickly verify the property’s value and you maintain responsive communication. 

However, several factors can cause significant delays, such as discovering title defects like liens, boundary disputes, or unresolved probate issues. 

Arranging for a new survey or setting up a new business entity to purchase the property can also extend the timeline. 

While the initial term sheet may arrive in 24-48 hours, any curative work needed to clear the title can take 30 to 90 days or more. 

Ultimately, the speed of private money lending for land depends heavily on the property’s condition and the borrower’s preparedness.

What documents are needed for a private money land loan application?

1. Proof of Identity: Present a valid government-issued photo identification, like a driver’s license or passport. This is necessary for identity verification and helps the lender prevent fraud.
   
   
2. Property Information or Purchase Agreement: You’ll need to provide details about the land you’re buying, including the purchase agreement or a property summary. This lets the lender know what type of land it is, its value, and the location.
   
   
3. Proof of Income or Assets: While private lenders are more flexible than banks, they still want to see that you can repay the loan. This could include recent pay stubs, bank statements, or tax returns.
   
   
4. Repayment or Exit Strategy: Lenders want to know how you plan to pay back the loan, such as by selling the land, refinancing, or using future income. A solid plan increases your chances of loan approval.
   
   
5. Credit Report or Background Check: Some private lenders check your credit score or do a background review. This helps them understand the level of risk involved and may affect your loan terms.

How do private lenders determine the value of a raw land parcel?

Private lenders determine the value of a raw land parcel by analyzing several key factors to establish its “as-is” worth and potential. 

They primarily rely on recent comparable sales in the area, often adjusting the price per acre based on specific attributes like road frontage, utility access, and topography. 

Lenders use tools like Broker Price Opinions (BPOs), formal appraisals, and GIS mapping to assess the property’s highest and best use. 

Zoning regulations and allowable uses are critical, as they dictate what can be built, directly impacting the land’s future value. 

Issues such as restrictive easements, lack of legal access, or environmental concerns like wetlands can significantly reduce the valuation. 

Because private money lending for land carries inherent risks, lenders are conservative and will discount the value based on these potential problems. 

This final valuation directly influences the loan-to-value (LTV) ratio and the overall terms offered to the borrower. 

A thorough analysis ensures the property provides sufficient collateral to secure the loan against market fluctuations and development hurdles.

How do I choose the right private money lender for a land deal?

1. Check Their Experience: Choose a lender who has experience specifically with land deals, not just homes or commercial buildings. An experienced lender will understand the challenges that come with buying land and can provide you with better guidance.
   
   
2. Understand Their Process: Ask the lender to explain how their private money lending for land works from start to finish. A transparent and streamlined process will facilitate your approval and prevent unnecessary hold-ups.
   
   
3. Compare Rates and Terms: Look closely at the interest rate, repayment period, and any extra fees. Choose a lender whose loan terms match your budget and your plans for using or selling the land.
   
   
4. Ask About Their Track Record: Find out how long they’ve been doing private money lending for land and what other borrowers say about them. Reading reviews or asking for references can give you peace of mind.
   
   
5. Check Communication and Flexibility: A good lender should respond quickly and be open to questions or changes. Flexible lenders are especially helpful if your project timeline or needs shift along the way.

What happens if I cannot repay the loan when the term ends?

If you cannot repay your loan when the term ends, the first and most critical step is to contact your lender immediately before the maturity date arrives. 

Initiating communication proactively can unlock potential solutions, such as a loan extension or a forbearance agreement, though these options often entail an associated fee. 

Failing to do so will trigger default, resulting in significant financial consequences, including late fees and a higher default interest rate. 

If you can’t repay the full amount demanded by the lender, they can start the foreclosure process to take ownership of your property. 

Because private money lending for land often involves a personal guarantee, the lender may also pursue your personal assets to cover any shortfall if the property sale doesn’t satisfy the debt.

This process can damage your credit and result in substantial legal costs. 

These severe outcomes underscore the importance of having a realistic exit plan and a cash reserve for unexpected delays from the outset. 

To better understand your options and prepare for potential challenges, book a free discussion with a professional to review your deal structure and timelines.

**NOTICE: Please note that the content presented in this post is intended solely for informational and educational purposes. It should not be construed as legal or financial advice or relied upon as a replacement for consultation with a qualified attorney or CPA. For specific guidance on legal or financial matters, readers are encouraged to seek professional assistance from an attorney, CPA, or other appropriate professional regarding the subject matter.