Ever heard of someone losing $50,000 on a ‘secured’ real estate deal? It happens more often than you think—and it’s almost always preventable. Before you lend your first dollar, there are 10 things you need to know.
Learn How to Underwrite Private Loans and Protect Your Hard Earned Assets
About 10 years ago, I attended a real estate investor mastermind and was introduced to the concept of “financial friends.”
It was a group of people who kept almost all their money in real estate or self-directed retirement accounts—and instead of parking their cash in Wall Street, they lent it to one another for deals. We spent the weekend diving deep into deal structures and learning how to put our IRAs and 401(k)s to work to build wealth together.
Back then, just like now, most people looked at the stock market and figured that with a little luck and a lot of time, they might make 6%—or lose it all when things tanked. And when the market starts acting up, it seems like a whole wave of people show up at the local REIA, suddenly flush with cash and looking to become “financial friends.”
Turns Out I Had a Lot of Financial Friends
Now don’t get me wrong—I already knew all about private lenders.
Our very first one was Grandpa. He saw the deals we were doing and asked what interest rate we were paying the bank. When we told him, he said, “I’ll lend it to you for less,” and just like that, we had a private lender for the next 20 years.
Then came our insurance agent. Again, he saw what we were doing (a reminder: tell people what you do if you want private lenders). He asked if lending us money for one more deal a month could earn him $5,000. The answer was yes—and he funded several deals with us.
Then there was the investor who walked into our office one day. He wanted to flip houses but didn’t want to do the work. So instead, he offered to become our private lender. That relationship worked beautifully for both of us.
Over the years, we’ve found other lenders through MAREI—our local REIA group. Some came to invest in real estate, bought a few rentals, and still had extra funds. Others realized they’d rather lend than swing hammers or screen tenants.
But Not all Financial Friends are Good Ones
But remember that mastermind I mentioned earlier? The leader—the guy teaching us all the strategy and preaching about financial friends—ended up in a bad spot. Whether he got in over his head or wasn’t playing straight, many of his financial friends didn’t get their money back.
It happens. Even at the REIA, you’ll occasionally hear the same kind of story: good investors with good track records who fall on hard times and stop repaying their lenders.
We’ve seen:
A guy who scammed people into “50/50 partnerships” on a single house—with ten different people. One house. Ten people. All supposedly getting 50%. He made out like a bandit. The others? Not so much. If they’d known how to underwrite a loan and record a lien, they wouldn’t have lost a dime.
A guru group telling people that 2nd, 3rd—even 17th position loans—were “just fine.” When those deals went south, the first-position lender was protected. The rest were left with worthless paper. Again, basic underwriting knowledge would’ve saved a lot of people a lot of money.
A guy running a ponzi scheme. And another who really was doing everything right—until a family illness and then COVID caused his deals to spiral. His lenders lost money too.
Education & Applying that Education Would have Saved Everyone
So yes—you absolutely should lend money and do deals. Private lending can be powerful and profitable. But you have to know how to protect yourself. In all the examples above, having a basic education in how to underwrite a private loan and USING THAT KNOWLEDGE would have saved everyone tens of thousands.
10 Must-Know Steps Before Lending Your Hard-Earned Cash
If you’re thinking about becoming a private lender or partnering on deals, here’s a quick crash course in how to underwrite and secure your investments:
✅ 1. Vet the Borrower and the Deal
• Screen the borrower like a bank: experience, track record, creditworthiness.
• Analyze the deal: purchase price, rehab budget, ARV, comps, and exit strategy.
• Ensure there’s enough equity in case things go sideways.
✅ 2. Use a Formal Loan Application
• Get borrower’s ID, LLC docs, purchase contract, scope of work, proof of insurance.
• Package everything up. Experienced lenders treat this like a standard process.
That 50/50 deal, they guy was using a fake name, so proving he was who he said he was would have helped greatly.
✅ 3. Secure the Loan with Real Estate (Hard Asset)
• Always record a lien (mortgage or deed of trust depending on your state).
• This makes you a secured creditor—able to foreclose if needed.
This one step would have been highly beneficial in preventing almost all of my bad examples above.
✅ 4. Title Insurance & Lien Position
• Order lender’s title insurance to confirm clear title and protect your lien.
• Always confirm you’re in first position, unless you agree otherwise.
In some cases second position can work if there is enough equity, but anything further and you are in a high risk situation.
✅ 5. Close Through a Professional
• Use a licensed attorney or title company.
• Have the promissory note, mortgage, and guarantees drafted and recorded.
• Consider personal/corporate guarantees or UCC filings if needed.
Again going through a title company would have saved many in the scenarios above.
✅ 6. Insurance, Insurance, Insurance
• Require hazard insurance listing you as mortgagee/loss payee.
• Get builder’s risk, liability, or flood insurance if applicable.
✅ 7. Control the Rehab Funds
• Fund the purchase at closing.
• Hold rehab funds in escrow and release them via draws after inspection.
✅ 8. Plan for Default
• Know your state’s foreclosure process (judicial or non-judicial).
• Have an attorney ready, just in case.
• Be prepared to take back or sell the property if needed.
Kansas is judicial and takes a while and costs more. Missouri is non -judicial and can take a very short period of time, unless COVID closes the courts or some other situation has the courts backed up.
Note that a true Mortgage or Deed of Trust is fairly easy to foreclose. If you do your lending via Contract for Deed it will be judicial and up to the judge as to how you get your money or the property back.
✅ 9. Stay Legal
• Don’t act like a bank unless you’re licensed. Know your state’s lending laws.
• If using SDIRAs (like Chris McCarty does), follow IRS rules around disqualified persons and prohibited transactions.
This becomes even more important if you are funding owner occuped property.
✅ 10. Keep Good Records
• Store your loan docs, draw requests, inspection reports, insurance, and communication logs.
📅 Want to Learn from a Pro?
If you’re serious about lending—and doing it the right way—join us at MAREI on Saturday, April 26th for a special Master Class with Chris McCarty.
Chris has completed hundreds of private lending deals using his self-directed Roth IRA and built a family lending business that spans generations. He’s seen the good, the bad, and the ugly—and he’s teaching what you really need to know before becoming a private partner.
Kim Tucker
Kim & her husband Don started investing in real estate in 1999, they formed MAREI in 2003 and have been been at it ever since. If you have a house or a note to sell, tell them about it at kcmoHomeBuyer.com
Ever heard of someone losing $50,000 on a ‘secured’ real estate deal? It happens more often than you think—and it’s almost always preventable. Before you lend your first dollar, there are 10 things you need to know.
Learn How to Underwrite Private Loans and Protect Your Hard Earned Assets
About 10 years ago, I attended a real estate investor mastermind and was introduced to the concept of “financial friends.”
It was a group of people who kept almost all their money in real estate or self-directed retirement accounts—and instead of parking their cash in Wall Street, they lent it to one another for deals. We spent the weekend diving deep into deal structures and learning how to put our IRAs and 401(k)s to work to build wealth together.
Back then, just like now, most people looked at the stock market and figured that with a little luck and a lot of time, they might make 6%—or lose it all when things tanked. And when the market starts acting up, it seems like a whole wave of people show up at the local REIA, suddenly flush with cash and looking to become “financial friends.”
Turns Out I Had a Lot of Financial Friends
Now don’t get me wrong—I already knew all about private lenders.
Our very first one was Grandpa. He saw the deals we were doing and asked what interest rate we were paying the bank. When we told him, he said, “I’ll lend it to you for less,” and just like that, we had a private lender for the next 20 years.
Then came our insurance agent. Again, he saw what we were doing (a reminder: tell people what you do if you want private lenders). He asked if lending us money for one more deal a month could earn him $5,000. The answer was yes—and he funded several deals with us.
Then there was the investor who walked into our office one day. He wanted to flip houses but didn’t want to do the work. So instead, he offered to become our private lender. That relationship worked beautifully for both of us.
Over the years, we’ve found other lenders through MAREI—our local REIA group. Some came to invest in real estate, bought a few rentals, and still had extra funds. Others realized they’d rather lend than swing hammers or screen tenants.
But Not all Financial Friends are Good Ones
But remember that mastermind I mentioned earlier? The leader—the guy teaching us all the strategy and preaching about financial friends—ended up in a bad spot. Whether he got in over his head or wasn’t playing straight, many of his financial friends didn’t get their money back.
It happens. Even at the REIA, you’ll occasionally hear the same kind of story: good investors with good track records who fall on hard times and stop repaying their lenders.
We’ve seen:
A guy who scammed people into “50/50 partnerships” on a single house—with ten different people. One house. Ten people. All supposedly getting 50%. He made out like a bandit. The others? Not so much. If they’d known how to underwrite a loan and record a lien, they wouldn’t have lost a dime.
A guru group telling people that 2nd, 3rd—even 17th position loans—were “just fine.” When those deals went south, the first-position lender was protected. The rest were left with worthless paper. Again, basic underwriting knowledge would’ve saved a lot of people a lot of money.
A guy running a ponzi scheme. And another who really was doing everything right—until a family illness and then COVID caused his deals to spiral. His lenders lost money too.
Education & Applying that Education Would have Saved Everyone
So yes—you absolutely should lend money and do deals. Private lending can be powerful and profitable. But you have to know how to protect yourself. In all the examples above, having a basic education in how to underwrite a private loan and USING THAT KNOWLEDGE would have saved everyone tens of thousands.
10 Must-Know Steps Before Lending Your Hard-Earned Cash
If you’re thinking about becoming a private lender or partnering on deals, here’s a quick crash course in how to underwrite and secure your investments:
✅ 1. Vet the Borrower and the Deal
• Screen the borrower like a bank: experience, track record, creditworthiness.
• Analyze the deal: purchase price, rehab budget, ARV, comps, and exit strategy.
• Ensure there’s enough equity in case things go sideways.
✅ 2. Use a Formal Loan Application
• Get borrower’s ID, LLC docs, purchase contract, scope of work, proof of insurance.
• Package everything up. Experienced lenders treat this like a standard process.
That 50/50 deal, they guy was using a fake name, so proving he was who he said he was would have helped greatly.
John Doe
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