Key takeaways
- Private credit yield is compensation for credit risk, illiquidity and complexity. It isn't free money.
- Net return = coupon + fees earned − servicing and management fees − credit losses − taxes.
- Direct notes give control; funds give diversification; platforms give low minimums. Each has trade-offs.
- Due diligence on the manager or originator matters more than the advertised rate.
What "private credit" means here
Broadly, private credit is lending by non-bank investors, from large corporate direct-lending funds to individuals funding a neighbor's flip. This guide focuses on the slice most accessible to individuals: short-term loans secured by U.S. real estate, such as fix-and-flip, bridge and construction loans, held directly or through platforms and funds.
Where the yield comes from
Borrowers pay private lenders roughly 9–13% plus points for speed and flexibility (see private money basics). Investors receive part of that after the originator's spread and fees. Publicly available platform and fund materials in 2025–2026 show target yields from roughly the mid-single digits on lower-risk notes to the high teens on higher-risk loans. Higher yields usually mean higher leverage, weaker borrowers, construction risk or subordinate positions.
Three ways to invest
1. Direct notes
You fund a whole loan to one borrower, secured by a first lien. Pros: full control over underwriting and terms, and no middleman fees. Cons: large minimums, concentration risk, and you handle (or pay for) servicing and any foreclosure. Read how to become a private lender.
2. Fractional note platforms
Online platforms originate loans and sell fractions to many investors, sometimes starting at very low minimums. Pros: easy diversification across loans and a hands-off experience. Cons: you rely on the platform's underwriting and servicing, notes are usually illiquid until repaid, and platform failure can delay or impair repayment.
3. Debt and mortgage funds
A manager pools capital and lends across dozens or hundreds of loans. Pros: professional management, diversification, and often monthly distributions. Cons: management fees, limited transparency into individual loans, redemption limits or "gates" in stress, and many funds are open only to accredited investors.
What eats your return
| Drag | Typical impact |
|---|---|
| Servicing / platform fees | Often around 0.5–2% a year |
| Fund management & performance fees | Varies widely; read the offering documents |
| Credit losses | Near zero in good years, meaningful in downturns |
| Cash drag | Money waiting between loans earns little |
| Taxes | Interest is usually taxed as ordinary income |
Use the net yield calculator to compare a headline 11% coupon with what you might actually keep, and with what a risk-free benchmark would pay.
Learn before you lend
Join our investor list for our private-credit education series and market updates.
Join free →How to evaluate a fund or platform
- Track record: years in business, loans originated, realized defaults and realized losses (not just "delinquencies").
- Underwriting: maximum LTV/LTARV, first-lien percentage, geographic and borrower concentration.
- Alignment: does the manager invest its own money alongside yours?
- Structure: leverage at the fund level, redemption terms, gates and lock-ups.
- Transparency: audited financials, loan-level reporting and a third-party administrator.
- Regulatory status: what exemption is used (e.g. Reg D or Reg A), and do disclosures match marketing?
- Workouts: how have they handled defaults and foreclosures in the past?
Red flags
- "Guaranteed" returns or "no risk" claims
- Unusually smooth returns that never vary, even in bad markets
- Pressure to invest quickly or recruit others
- Reluctance to share audited financials or loan-level data
- Payments to you funded by new investors rather than borrower interest
See our full scam-avoidance guide.