How Private Lending Funds Real Estate Development

Let me show you, in plain language, how we structure this as a private lender.

You participate in the project in increments of $250,000, structured as a loan for the development. That loan is secured directly against the asset. Your money isn’t simply floating in the deal without any protection.

While your capital is in place, it earns a 10 per cent annual return, compounded annually for the duration of the loan. Your money is working from day one, inside a structure designed to prioritise security first and performance second.

As the project moves forward and reaches its next stage – often the point where a larger developer, institutional partner, or long-term financing source steps in – the capital stack loans are repaid or the project is acquired. That’s the moment your payout occurs.

You receive:

100 per cent of your original principal
100 per cent of your compounded interest at 10 per cent annually
Your share of an additional performance dividend layered on top

Michael Ruge Building Hope in the Housing

We structure it this way very intentionally. First, your capital comes back. Second, your return is realised. That order matters.

The guiding principle is simple: focus first on the return of your money, and then on the return on your money. That philosophy sits underneath every deal we put together.

Here’s where the model becomes especially interesting. Once you have been fully repaid, your participation keeps going.

In many cases, you continue to hold a small ownership position in the building, typically somewhere in the 1 to 5 per cent range, depending on the project. What makes that powerful is that your original investment has already been returned. At that stage, you may still be participating in the asset’s future performance without your initial capital remaining exposed in the same way.

From there, you can receive ongoing distributions tied to the building’s performance, with projected annual growth of 2 to 3 per cent.

That’s the long-term upside: the opportunity to continue benefiting from the building even after your loan has been repaid.

There’s another layer to this structure that makes it even stronger in terms of financing. In Canada, there are federal housing-financing programmes through CMHC that can offer very high loan-to-cost financing for qualifying rental developments, along with long amortisation periods and more favourable borrowing terms than conventional lenders typically provide.

The exact terms depend on the programme, the strength of the application, and the project’s social and environmental features. Yet the advantage can be substantial for projects that are designed the right way. Public programme information currently describes construction financing of up to 100 per cent of eligible residential costs in some cases, and longer-term insured financing can also be available for qualifying multi-unit projects.

These programmes tend to reward the very things thoughtful development should already be aiming for: stronger energy performance, affordability commitments, accessibility, and long-term rental stability. That’s why we design our projects to meet or exceed those kinds of standards wherever possible. Not just because it supports financing, but because it supports better buildings and more durable outcomes overall.

Michael Ruge’s new book “Building Hope in the Housing – How to Solve the Rental Affordability Crisis” will be realeased this fall (2026).