Learn private real-estate lending — guides & glossary

What is private real-estate lending?

A private loan is a short-term loan made by individuals or a fund — rather than a bank — to a real-estate operator, secured by a recorded mortgage on the property. The operator uses it to buy and renovate a property quickly; the lender earns interest, and if the borrower fails to perform, the lender's mortgage lets it take the property. Because the loan is sized against the property's value (not the borrower's credit alone), a conservative loan-to-value ratio is the lender's primary protection.

Why operators pay more than bank rates

Speed and certainty. Distressed properties sell to whoever can close in days with no financing contingency. A private lender who can fund in a week is worth several points of interest to an operator who would otherwise lose the deal.

First lien, LTV and ARV — the three numbers that matter

First lien means your mortgage is recorded ahead of any other claim on the property; in a sale or foreclosure you're paid before anyone behind you. Loan-to-value (LTV) is the loan amount divided by the property's appraised value; at 65–75% there is a 25–35% cushion before principal is at risk. After-repair value (ARV) is what the property will be worth once the rehab is finished; lenders size rehab loans against a percentage of ARV (loan-to-ARV) and release rehab funds in inspected draws.

What to ask any private lender (including us)

Is my position a recorded first-lien mortgage, with a lender's title policy naming me or the fund?
What is the maximum LTV / loan-to-ARV, and who does the appraisal?
Who prepares the note and mortgage? (It should be a Massachusetts real-estate attorney.)
How are rehab draws released — against inspections or on request?
How often do I get statements, and what's in them?
What happens when a loan runs past term? What's the default and extension history?
How is the offering structured (Reg D 506(b) or 506(c)), and will I receive a PPM with risk factors?
Who is the operator, and what have they completed before?

Our answers are on the underwriting standards and disclosures pages — and on the phone.

Accredited investor, briefly

Private offerings under Regulation D are generally limited to accredited investors: individuals with $200,000 of income ($300,000 with a spouse or partner) in each of the last two years, or $1,000,000 of net worth excluding a primary residence, or certain professional licenses; and entities meeting asset tests. Self-certification is used at first contact; verification (documents or a CPA/attorney letter) happens before you invest. The SEC reviews these thresholds periodically — the definition on our investor page is kept current.

How finder's fees work

A finder's fee is a referral payment to someone who brings a property to an operator that the operator then closes on. It requires no capital and no license — you're not negotiating or representing anyone, just introducing a property. At OPTOPM, fees typically run $1,000–$10,000+ depending on deal size and are paid at closing.

Glossary

ARV (after-repair value): The expected market value of a property after renovation, based on comparable sales.
BPO (broker price opinion): A licensed broker's written estimate of value; often used alongside or in place of a full appraisal.
Bridge loan: A short-term loan that "bridges" the gap between purchase and a sale or long-term refinance.
Draw: A release of rehab funds tied to a completed, inspected construction milestone.
Fix & flip: Buying a distressed property, renovating it and reselling it, typically within 6–18 months.
First lien / senior position: The mortgage recorded ahead of all others; paid first from sale or foreclosure proceeds.
LTV / LTARV: Loan amount as a percentage of current value (LTV) or after-repair value (LTARV).
PPM (private placement memorandum): The disclosure document for a private offering — terms, risk factors, conflicts, fees.
Regulation D, Rules 506(b) and 506(c): SEC exemptions that let issuers raise capital from accredited investors without registering the offering; 506(c) permits public advertising but requires verified accreditation.
Self-directed IRA (SDIRA): A retirement account whose custodian allows alternative investments such as private loans.
Title insurance (lender's policy): Insurance protecting the lender against defects in title that could impair the mortgage.