He is paying a rate higher than a bank but lower than hard money and he can refinance after his equity has increased. 

I was looking at placing some money into a passive investment of sorts and was considering Fundrise or Arrived.

Alternatively, they can sign a new lease and save a lot of money.

Can anyone offer some advice on private money lending?

You could be on the hook for a lot of money.

Or why is it even a part of real estate if it is considered illegal, I would like to get into real estate to one day fix and flip but I know that takes a lot of money that is why I am interested in whole sale since it is a way to make a good amount of money 

Many people forget to include a CapEx fund, Property taxes, and even the amount of Income Tax you'll pay on your monthly income.

My realtor/PM says $0.95 to $1.05 per sq. ft. is a reasonable monthly rent for a 4 BR/2 BA property in that area, which (according to the BiggerPockets calculator estimate I did) is enough to cover the monthly payment plus the above costs I mentioned.I anticipate putting down my deposit and earnest money in the next few days. 

Those laws are there because we as tax payers are insuring the loan.

It takes money to make money.