4 Essential Steps to Take BEFORE Seeking Private Money


How many people remember the importance of “prerequisites” in college?

I can recall being super excited to register for a few classes, and when I was filling out the last page of registration, it denied my paperwork since I did not have the correct prerequisite class.  Of course, being young and naive, I thought this rule of needing prerequisites was stupid and unnecessary! However, as I’ve gotten older, I have come to appreciate the need for prerequisites. The purpose of prerequisites is to actually set people up for success.

So why am I talking about prerequisites on a real estate investing blog? Well, Matt is off this week, and I am excited to be writing about a very important and popular topic in real estate investing – private money. I am going to talk about the prerequisites that investors need BEFORE they can begin raising private money.

Too many real estate investors simply find a deal and then go on the hunt for a private money partner. I see various forums and posts about this topic all over BP. I don’t want to say this is a bad strategy; however, there are some critical “must have” prerequisites before you can begin looking for private money partners and discussing deals with them. Some people might disagree with me and say, “Just fake it until you make it” or “Act as if.”

Related: The Definitive Guide to Finding Private Money Lenders in Your Network

Well, I am all about positive thinking. However, if you are trying to build trust and rapport with private money lenders, you don’t want to “fake it ’til you make it.” Not with them. In order to increase your success rate with private money lenders, you must have some critical prerequisites.

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4 “Must Haves” BEFORE You Go On the Search for Private Money

1. Gain Real Estate Investing Experience

If you decided to invest in the stock market, I would assume you would not feel comfortable handing over your money to a financial planner who has no experience. Well, that being said, this is exactly what happens when potential real estate investors seek private money when they don’t have any education or experience under their belt.

Let me explain. You and I agree that you must be educated. I am not telling you anything you don’t already know. This point has been made time and time again all over the BiggerPockets site. And rightfully so. However, many people underestimate this step and take it for granted. They think learning a few real estate terms like “after repair value” and “debt coverage ratio” and taking a few courses equips them to look for deals and to begin raising private money.

I would recommend taking it a step further. In addition to getting yourself educated, I would highly recommend gaining real life real estate experience.  Get as much experience you can in an actual real estate deal (from the time an offer is made to the time the property is sold or rented). This is the best way to learn the business. This will help you learn the basics of real estate. Attend as many educational opportunities as you can. The key is to learn from people who you respect and want to eventually emulate.

When my husband Matt and I got started, we took an entire year to become educated. We attended countless local real estate meetings and took as many courses as we could on the subject of real estate investing. We also gained some real estate investing experience by spending time with a knowledgeable, handy realtor who, in addition to selling properties, also had some investment properties of his own.

We learned a lot from him. When we moved from Philadelphia, however, we should have found a mentor in our new home of NJ. We could have continued to gain experience that way. That was a mistake. That is why I am so adamant to newbies to figure out how to gain experience.

That way, when you are speaking with a potential private money lender, you can speak about real estate investing in an educated way. You are not trying to impress people with the “big” terms you know; instead, show them that you know what you are talking about — and have the team and experience to back it up.

2. Become an ACTIVE Part of Two Types of Networks

This one also might seem obvious since you are reading this blog on the BiggerPockets site! However, I don’t mean getting involved on the peripheral; I mean really getting involved and becoming an active member of the network. In order to become really “involved” in a community, you must become a resource and someone willing to help.

No one likes the person who attends networking (online or in person) and just “takes” information and never provides information or helps.

  • Become active in real estate communities – both online and in person. Clearly, I am a huge fan of the BP community. It is a phenomenal site and community. Honestly, there is nothing out there like it. I also encourage experienced and novice investors to get involved in local real estate investing clubs. Volunteer in these groups, take experienced investors out to coffee, offer to help where you can. There is always help that is needed. Bottom line – be a resource, soak as much as you can up, and surround yourself in the real estate conversation.
  • Become active in non-real estate communities. This is also important to expanding your network and business contacts. Both my husband and I have been involved with various networking groups, referrals groups and business groups (and continue to participate). There are many benefits to these groups, including the ability to expand your business contacts and network. Most recently, a member of my referral group recommended the bank we ended up refinancing our portfolio with! The worst thing you can do is just surround yourself with other real estate investors. Expand your network, and you will expand your experience.

The one caveat… I must say: please be aware of protecting your time.

Once you begin to “volunteer” and let these organizations know you are willing to help out, they may “suck you in” and never let you go!  I am part kidding and part serious. Be smart about your volunteering. Make sure you are helping the organization and that it is a role and position that will help you out. Just be careful. Time, as we all know, is the one limited resource.

3. Take a Personal Inventory (Time, Assets, Skills, Personality, Why)

I have mentioned this in various blog posts; however, this is an important one BEFORE developing partnerships and looking for private money. When I say “take a personal inventory,” I mean take a look at what you bring to the table first.

Time – Become clear on how much time you can put towards real estate investing. Many of our private money partners and investors like the fact that we are full time real estate investors. We are always there if they have a question or even want to walk a property.

I am not saying you have to be full time; however, you need to be clear with yourself and your potential money partners regarding the time you do have to put into your real estate investing business.

Money – If you are looking for private money, many potential partners will want to know if you are going to put in money (i.e. if you are going to have some “skin in the game”). Some real estate investors will tell you that they don’t put any of their own money into a deal, and other investors will tell you that they do put in money along with the money partner.

Regardless, the key is to be clear on your personal financial position. What personal resources do you have the potential to use? Don’t let the answer to this question stop you. You can be successful whether you have money to invest or not.

Once you have an answer for this, you then will need to establish how much private money you are looking for. One of the best things we have done with most of our private money deals is to use private money to purchase and rehab the building (either for buy-hold or buy-flip). In other words, this has allowed us to do cash deals and then refinance once the project is complete (sold or rented). The deal moves faster this way, which makes everyone happy.

Skills – What are your strengths? Every single person reading this blog, on the BP site and in this world has skills and personality strengths. Each of us is great – even excellent at something. The key is to identify your strengths and then figure out how to translate these skills and strengths to the real estate investing world.

Most, if not all, skills are transferable. Then determine your gaps (i.e. skills that you need that you don’t possess). You can deal with these gaps by developing a team, developing partnerships, or even learning the skill through mentoring and surrounding yourself in the real estate conversation.

Your “Why” – This one is fairly simple and straightforward. Become crystal clear (and honest) with the reasons and motivation you are investing in real estate. Make it deeper than simply “making money.” Every private money lender needs to trust their investor.

Related: 3 Important Things to Consider When Raising Private Money for Your Deals Today

You build trust by sharing your goals and reasons for getting into real estate investing with people. Bottom line – be authentic.

4. Develop Your Strategy (Market, Property, Financing, Team)

Before you can look for private money partners, I would suggest developing your investing strategy. Begin to gain clarity around the market you want to invest in and the type of deals you want to do (i.e. buy-hold, buy-rehab-hold, turn-key, wholesale, buy-fix-flip, etc).

You also want to gain some relationships with financing partners. Even if you partner with private money lenders, you will need to have relationships with conventional lending institutions, such as banks, credit unions, etc. Lastly, begin to develop your team. It helps to have key people on your team (contractors, title agent, realtor, attorney, and accountant). If you take action from Step #2 above, you should have no problem building a team.

Final Thoughts

The only reason we have been able to grow from 30 units to over 100 units in a 3-year timeframe is due to raising private money. This has been the key to our growth. Before you begin to raise private money, my hope for you is that you take action on these four steps.

Are there any steps you would add? Or do you disagree with me and suggest you “fake it ’til you make it?”

I would love to hear how you applied any of these suggestions!

About Author

Matt Faircloth

In 2005, Matt founded The DeRosa Group along with his wife, Elizabeth. At the time, the two person company owned and managed two assets – a single family home and a duplex. Over the last nine years, they have grown the company to a 12 person team owning and managing over five million dollars in residential and commercial assets throughout the central NJ and Philadelphia area. One of DeRosa’s mantras is “to make money while making a difference.”


  1. I think this article hits on so many good points. I’ve taken to using our local REI group to partner with “serious” beginners who have the drive and are actually finding deals but lack the knowledge. We partner up and they run some of the leg work and we provide the experience and resources. This frees up a lot of my time in the lead generation department as well as the running of the smaller errands that seem to just eat up valuable time. The extra time is now allowing me to network more and streamline our systems and find more ways to increase our revenue. It’s an exchange and I’m glad I’m getting away from doing it all myself. You can burnout quickly that way. One of the ways my time has been freed up is to find more funding for our projects. Really shows that “when one door closes another door opens” analogy.

    Thank you for showing your insights!

    • Roy,
      Thanks for your comment. I think what you have created with serious beginner investors is a great idea. How do you structure the deal? Do you create an entity together? Do you both put in money?
      Would love to learn how you structure the deal. If you would rather send me an email, no problem ([email protected])

  2. Gloria D. Wilson on

    This was soooo helpful – and it’s also helpful to know that you are originally form Philadelphia. I’m a newby to Philadelphia and am trying to find out where the Real Estate Investment Meet up are here. I am also looking to invest in small 1-4 family properties, with the first one being an owner occupant situation. You’ve given me some great info for accessing my strengths and “weaknesses” – in fact, I’m going to read it again and design a chart for the topics you’ve outlined.
    Thanks again

    • Hi Gloria,
      So glad to hear the post was helpful. We bought our first property in East Falls. We currently own a small apartment building in North Philly. I know of a few groups that meet in Philly and the person who runs them, so if you can message me on BP, I will send you the person’s name and real estate networking groups names.
      Glad the “personal inventory” recommendation was helpful. If you need any further feedback or support, I would be happy to help you!

  3. Thank you for another great article! I’ve been getting my own ball rolling by going to local REI gatherings (I’ve found meetup.com to be a good place to find a variety of groups near you), asking questions, and building a rapport with people.

    I’m also in the process of getting my realtor’s license and I’ve reached out to local agents to see if there’s any way I can help and/or shadow them. It’s put me out of my comfort zone, but that’s what it takes. You can’t expect to do the same thing you’ve always done and get different results. Get out there and talk and listen. I think this is the key to establishing those relationships.

    Thank you for pointing out that you and your husband took the time to self-educate. It’s extremely important to not only know what you’re talking about, but to also protect yourself. As the saying goes, knowledge is power and what better way to know a deal is solid than knowing your formulas and being able to convey that to an potential private lender.

  4. Brenda,
    Kudos to you for taking action (especially action that is taking you out of your comfort zone). Good for you! Educating yourself by shadowing a realtor is a great idea. You might even want to find a local RE investor in your community that you can shadow or mentor under as well. As you know, educating yourself is an ongoing process. We continue to educate ourselves and know that we don’t have all the answers!
    Keep being curious and getting out of your comfort zone! Many people are not willing to do that. Thst is why most people do not invest in RE.
    All the best,

    All the best to you. If I can of any further help, let me know!!

    • Yes, finding a local investor who is doing what I want to be doing is my next step. Thanks, Liz, I’ll be in touch if any questions come up. By the way, loved the interview you and your husband Matt did on BP Podcast 088. Your “why” is everything – I couldn’t agree more.

  5. Richard Guzman on

    This was an amazing article to read and really touched home for me – Thank you!
    It was amazing to hear that you waited a year before investing in the real estate market. In that year, if I understood correctly, was used for education and attending as much real estate/business meetings as you can. This really assured me that maybe this is not a race and the more knowledge and experience (with time) you have the better.
    There are so many “deals” around me and I notice them more now than ever especially since I am focused in this market. This makes me feel like I have to make a deal now – I feel your 4 “must haves” are important and words to live by — Thank you!

    • Richard,
      So glad this podcast hit home for you! It was right after my husband bought a single family home and rented out a couple of the rooms to friends that we took the year to educate ourselves before we bought our first true investment property. This was time well spent!! It is not a “sprint” type of race – it is more like a “marathon.” Like anything amazing in our lives – it takes time, focus and energy. We also adopted early on a “whatever it takes” attitude. This also has served as well as we have grown our business.
      Good luck to you!

  6. Another fantastic article. I really like how you give a lot of easy actionable ideas for new and seasoned investors to start incorporating into there business plan today. In addition; the concept of “Become active in non-real estate communities” is great. It is easy to get caught up in your day to day and forget the potential of an outside network can do for you. Thanks for sharing.

    • Thanks David for your comments. I appreciate your feedback about giving “actionable” items. I, just like you, find this to be incredibly helpful when I am reading articles. I am always thinking – this information is all well and good – but what can I do with this information! Taking action is great for building momentum! Thanks too for your comment about finding a network outside real estate. We are all so busy that we don’t always make the time for this, but it is so important to expand our network!!
      Would love to hear how you are progressing!

  7. William Barnard on

    I believe one of the best points in this article is on “when” to raise private money. As eluded to in the post, one should not go find a deal and then expect to find the money in time. The biggest argument to this is always, if you have a good deal, the money will follow. While that is partly true, it requires not just a good deal but a great deal to do that and you set yourself up for potential failures. It is so very important to line up the money which can only be done by creating relationships and that takes time. You don’t walk into a cocktail party and exclaim you have a good deal and expect people run to pull out their check books. I have posted numerous times about the importance of raising capital and then hunting for that deal to place that capital in.

    • Thanks William for your comment. I can’t agree more. People are so focused on finding the deals first. I think a much better strategy is to have the money first. We have experienced first hand deals that if we did not move quickly and pay with cash we would have lost. I appreciate your insight and comments! Good luck to you!

  8. Philip LaRoche

    Thank you for writing this article! I have a friend that I am already involved in other business types with and he has been after me to use his money to invest in RE for several years. I have slowed him down until recently. I have found a few potentially profitable properties in South Jersey that will fit into my business plan of buy, hold, and rent. I currently have one rental property and in the midst of purchasing another property using my own credit worthiness. I am interested in making this deal work with my friend, but I never used other people’s money. I of course would utilize an attorney to draft up a contract, however, this article has been very helpful. I already have a strong network of influential people. I do exactly what you suggest of volunteering with organizations that have bettered my position. I once had a marine based business where I delivered yachts, managed boats and conducted every aspect of maintenance. I joined a yacht club and served on the Board of Directors for a five year period. That time was valuable to me, and it was time well spent. You mentioned RE investment groups are these social groups similar to BP? Where do I find these type of groups?

    Thanks again for the insight.


  9. NormaJean Cupp

    A great article. I have had the mindset of lining up some funding before lining up a deal for quite some time. Becoming more involved in real estate groups and networking opportunities are just as important as the cash! Thank you for articulating these details.

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