Private Lending Basics — Protecting Your Capital

Lending money against real estate is a fantastic way to earn passive returns but it comes with a lot of risks.

I’ve laid out guidelines you should follow and not stray from until you are experienced enough to understand the risks you’re taking.

As always, this isn’t legal advice. I highly recommend consulting with your attorney.

Lending Framework

12 Non-Negotiable Rules for Private Lending

Protect your capital by knowing exactly what must happen before a single dollar moves.

Secured by Real Estate First

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Secured by Real Estate First

Every loan must be secured against property with a recorded Deed of Trust. No exceptions, no handshake deals.

30% Equity Minimum

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30% Equity Minimum

Never lend more than 70% of property value. This gives you a cushion if the deal goes south and you have to foreclose.

Attorney-Backed at Every Step

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Attorney-Backed at Every Step

Your own attorney reviews docs before you fund. Borrower’s attorney just protects the borrower. Get your own.

Entity + Personal Guarantee

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Entity + Personal Guarantee

Lend to a business, not a person. Require unlimited personal guarantee from the principal. Both layers matter.

Bottom line: One bad rule costs more than a hundred good loans earn. Protect your downside first.

First Position Deed of Trust: Recorded before funds are released from escrow
Lender’s Title Insurance: Protects your position if someone contests ownership
Loss/Mortgagee on Policies: Insurance and builders risk — you named as loss payee
30 Percent Equity Floor: Never exceed 70 percent LTV. Always.

The Core Rules — Don’t Skip Any

Do not lend unsecured. Period. No exceptions for friends, family, or your mother.
Have YOUR attorney review documents before signing or sending money — not the borrower’s attorney, not a template.
All funds move through a licensed real estate attorney’s escrow account. Wire directly to the borrower equals money is gone.
Get the borrower’s full transaction history, personal financial statement, and personal guarantee (unlimited).
Secure in first position with a Deed of Trust recorded BEFORE funds release. Not after.
Get Lender’s Title Insurance and ensure you’re named Loss/Mortgagee on all insurance and builders risk policies.
Only lend to an entity (LLC, corporation). Avoid primary residences and lending directly to individuals.
Maintain 30 percent equity minimum at all times. Never exceed 70 percent LTV. This is your safety net.

The Hard Truth

Passive returns feel free until they’re not. One ‘sure thing’ that goes bad wipes out years of gains. These rules exist because lenders who ignored them lost everything.

Beyond the Core 12

There are more steps you can and should take during due diligence. These add layers of protection:

Check references from past borrowers and other lenders
Confirm there are existing Deeds of Trust on the borrower’s other properties
Request recent bank statements (12+ months) to verify cash position
Get a professional property appraisal to verify the equity position
Run a title search to identify existing liens or claims

The Two-Path Decision

These guidelines are to protect you the lender. The borrower may have other options that don’t require some of these. That’s great for them. It is safer to pass on riskier opportunities until you understand the risks fully and the borrower profile is solid.

Bottom line: One great loan at safe terms beats ten risky loans that keep you up at night.

Need guidance on a lending opportunity?

Roth Capital can review deals and connect you with trusted resources. Fill out the form to discuss further.

704-600-3839

Private Lending Basics – Protecting Your Capital