3 Common Pitfalls to Avoid When Working with Private Lenders

3 Common Pitfalls to Avoid When Working with Private Lenders

1 min read
Matt Faircloth

Matt Faircloth, co-founder and president of the DeRosa Group, is a seasoned real estate investor. The DeRosa Group, based in historic Trenton, N.J., is a developer and owner of commercial and residential property with a mission to “transform lives through real estate.” DeRosa creates partnerships to finance select real estate investments and has a proven track record of providing safe, profitable investment opportunities to their clients.

Matt, along with his wife Liz, started investing in real estate in 2004 with the purchase of a duplex outside of Philadelphia with a $30,000 private loan. They founded DeRosa Group in 2005 and have since grown the company to hundreds of units in residential and commercial assets throughout the East Coast. Under Matt’s leadership, DeRosa has completed tens of millions in real estate transactions involving private capital, including fix and flips, single family home rentals, mixed-use buildings, apartment buildings, and office buildings.

Matt is an active contributor to the BiggerPockets Blog and has been featured on the BiggerPockets Podcast three times (show #88, #203, and #289). He also regularly contributes to BiggerPockets’ Facebook Live sessions and teaches free educational webinars for the BiggerPockets Community.

Matt authored the Amazon Best Seller Raising Private Capital: Building Your Real Estate Empire Using Other People’s Money. The book is a comprehensive roadmap for investors looking to inject more private capital into their real estate investing business and is a must-read for anyone looking to grow their business by using private lenders and equity investors. Kirkus, the No. 1 trade review publication for books, had this to say about Raising Private Capital: “In this impressively accessible introduction to a complex subject, Faircloth covers every aspect of private funding, presuming little knowledge on the part of the reader.”

Matt and his wife Liz live in New Hope, Penn., with their two children.

Matt earned a B.S. in Industrial and Systems Engineering with a minor in Business from Virginia Tech. (Go, Hokies!)

DeRosa Group’s YouTube channel

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As many of you would I’m sure agree, private loans can be an amazing vehicle for both the deal provider (you as the investor) and the cash providers (your private money partners). Private loans can help you finance flips and rentals and expand your real estate investments. Private loans are great for lenders as well. They can be a terrific way for them to receive a high ROI on the money. But private loans (like all tools in real estate investing) should be used with caution and intelligence. There are pitfalls, common mistakes, and things to avoid when it comes to using private loans.

Related: How to Build a Million-Dollar Network of Private Money Investors

In today’s video, I share three of the most common pitfalls to avoid with private loans. These include:

  1. Lack of documentation
  2. Miscalculations
  3. Holding the bag

The key is create win-win arrangements and do whatever it takes to protect your private lender’s money. I would love to hear from you as well.

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What pitfalls have you experienced—either as a cash provider (private lender) or deal provider (you the investor)?

Let’s get some discussion going!