How Private Money Deals Work: Step-by-Step Guide
When most people think about real estate lending, they picture big banks and long approval timelines. But there’s an entirely different side of real estate finance—one that’s faster, more flexible, and often more secure for investors. It’s called private money lending, and it’s the foundation of what we do at ZINC.
Let’s break down how private money deals work from start to finish and how investors in a mortgage income fund participate in this process.
Step 1: Borrower Need
A borrower, typically a real estate investor or small developer, needs short-term financing to purchase or rehab a property. Maybe they’re buying a home to flip. Maybe they need a bridge loan to complete a project before refinancing with a traditional bank.
Traditional lenders can take months to approve a loan, require perfect credit, and won’t finance properties that need work. That’s where private money comes in. Private lenders like ZINC can underwrite and fund a loan in a matter of days—not months—allowing the borrower to move quickly on time-sensitive opportunities.
Step 2: The Loan Is Secured by Real Property
Every loan we originate is secured by a first-position mortgage, meaning the lender or fund is first in line to be paid if something goes wrong. We base every loan on the value of the real estate, not just the borrower’s income or credit score.
This asset-backed structure is what makes private money lending so appealing to investors. If the borrower defaults, the lender can recover the property through California’s non-judicial foreclosure process, which is among the most efficient in the nation. That’s real collateral protection—not just a paper promise.
Step 3: Loan Underwriting and Terms
Before funding, our team performs a thorough underwriting process. We verify property value through appraisals and inspections, analyze the borrower’s credit, experience, and project plan, and maintain a conservative loan-to-value ratio, typically around 65 percent.
That 35 percent equity cushion provides a strong margin of safety for investors. The loans themselves are short-term, often between six and twelve months, and carry higher interest rates than conventional bank loans. Those rates, often in the 9 to 11 percent range, reflect the speed, flexibility, and access private money provides borrowers.
Step 4: What Happens in a Default
Even with conservative underwriting, a small percentage of loans will go into default, typically between 1 and 3 percent of the portfolio. When that happens, we move quickly and decisively to protect investor capital.
In most cases, we initiate a Notice of Default around 21 days past due. Occasionally, we may wait slightly longer if there is a Promise to Pay or another viable exit strategy. Once recorded, the Notice of Default gives the borrower constructive notice to cure the default within 60 to 90 days.
If no cure occurs, we file a Notice of Sale and publish it in a paper of general circulation for three consecutive weeks. The sale is then held at a designated location, often at the courthouse. At that point, either a bidder purchases the property or it reverts to ZINC as the beneficiary.
If the property reverts, we move swiftly to complete inspections, handle any necessary rehab, and liquidate the asset to recover principal and return funds to the portfolio. Because of our experience and local presence, this entire process is typically completed within about 90 days, a major advantage compared to judicial foreclosure states that can take a year or more. Most defaults resolve before reaching sale, and investor principal remains protected.
Step 5: How Investors Earn Through a Mortgage Income Fund
This is where the investor side comes in. Instead of funding a single loan yourself, which concentrates risk in one property and one borrower, investors can participate through a mortgage income fund like the ZINC Income Fund.
Investor capital is pooled and deployed across dozens of private money loans secured by real property. This diversification significantly reduces risk while keeping returns steady. As borrowers make monthly interest payments, those payments flow into the fund and are distributed to investors as monthly income.
At ZINC, we target 8 to 10 percent annualized returns, paid monthly, with no direct exposure to the stock market. Investor capital is backed by a diversified portfolio of real, income-producing, first-position mortgage loans.
Step 6: Reinvestment and Capital Protection
As loans pay off, often in under a year, that capital is immediately redeployed into new deals. This keeps investor money working consistently, reduces idle cash, and supports compounding returns.
Because every loan is short-term and asset-backed, the fund maintains liquidity and flexibility even during changing market conditions. If a loan defaults, our in-house team’s local expertise allows for fast resolution and principal recovery, which has supported our record of zero investor principal losses since inception.
The Bottom Line
Private money lending fills a critical gap in the real estate market by helping investors and builders move quickly while offering secured, income-producing opportunities to capital partners.
When structured through a disciplined and experienced mortgage fund like ZINC, private money combines the security of real estate with the convenience and diversification of professional management. This is how private money deals work—and how investors earn consistent income—without the headaches of owning or managing property.