Book summary “Raising Private Capital”: summary

Introduction

You hit a financial ceiling in real estate investing when traditional banks stop lending to you based on your personal debt-to-income ratio. This limitation halts your growth just as you find profitable properties to buy. Matt Faircloth offers a practical framework in Raising Private Capital to solve this problem by sourcing funds directly from individuals.

You can scale a real estate investing business without relying on traditional banks by cultivating private lender and equity partner relationships using clear systems and ethical safeguards.

The book outlines how to build investment vehicles, find cash providers, and structure both debt and equity agreements. You learn how to communicate with investors and protect their capital through legal documentation. The text answers several core questions about this funding model:

• How do you find people with money who want to invest in real estate?
• What makes a deal attractive and safe for a private lender?
• How do you choose between debt and equity structures?
• What legal steps protect both you and your investors?

1. Introduction to Private Capital

Private capital is money originating from an individual rather than a financial institution, structured either as debt or equity. It excludes traditional bank loans, credit cards, business lines of credit, hard money lenders who pool institutional money, and professional lenders whose terms mirror hard money without negotiation.

Private capital is distinguished from institutional lending by negotiability, true win-win alignment, and direct individual funding sources.

Unlike bank employees constrained by lending standards, private capital partners use their own money and can negotiate terms like deferred interest payments or waived fees while sharing directly in project upside.

Unique Factors of Private Capital

A successful private capital arrangement divides responsibilities between a Deal Provider who manages operations and a passive Cash Provider who supplies funding. The Deal Provider executes 99.999 percent of the active work, including finding deals, managing renovations, and handling contractors, while the Cash Provider remains passive to avoid slowing down operations.

Real estate debt is the most common use of private capital, functioning as a loan secured by a mortgage or lien on a property. The agreement is defined by a promissory note and a mortgage or deed of trust, generating fixed interest payments for the Cash Provider and backed by property collateral. Real estate equity involves sharing ownership and profits or losses, appealing to sophisticated investors and requiring rigorous written agreements. Equity arrangements can range from giving a small profit share on fix-and-flips to forming LLCs or syndications, which may trigger Securities and Exchange Commission regulations. Unsecured lines of credit are loans without real estate collateral that rely heavily on personal trust between close friends or family members. While risky for the Cash Provider due to the lack of asset backing and potential recovery hurdles, these loans provide crucial start-up capital or down payments for the Deal Provider.

Private capital can be sourced from liquid cash reserves, untapped real estate equity, or parked market funds like retirement accounts. Many homeowners sit on significant equity in properties owned free and clear, while disciplined savers hold liquid cash in savings accounts or retirement vehicles. 29 percent of the homes in America are owned free and clear, with no mortgage debt on them (approximately one out of three).

Matt Faircloth and his wife Liz started in 2004 with a $30,000 loan from a family member in Philadelphia, eventually growing to complete over $30 million in transactions.

Deal and Cash Provider Roles

Building a real estate investing business requires years of groundwork, conservative living, and strategic bootstrapping before scaling with private capital. The author started by house hacking a three-bedroom home, borrowing from a relative, and executing 1031 exchanges before securing key passive investors during portfolio expansion. A $150,000 purchase price for a house with 3 percent down and a $940 monthly payment enabled low-cost living. $500 monthly rent collected from each of two roommates left $60 monthly cash flow while living free. A $30,000 unsecured line of credit borrowed from a family member funded an initial $140,000 purchase price for a duplex in Philadelphia. Later expansion included 8 units in a small apartment complex purchased via a 1031 exchange on the way to $30 million in real estate transactions completed using private capital.

Prerequisites Before Starting

Aspiring Deal Providers must commit to continuous education covering transactions, negotiations, and financial accounting before raising outside funds. Gaining foundational knowledge ensures you can communicate competently with professionals, secure good deals, and manage investor expectations responsibly. Developing a tangible track record through hands-on experience or alternative roles is essential to prove credibility to potential Cash Providers. Operators can build experience by becoming real estate agents, wholesalers, project or property managers, or by partnering with experienced mentors.

Take these steps to build your track record:

• Keep a running document of every real estate investment deal you have interacted with.
• Record what you did on the transaction, the results, and whether the project achieved its ROI or profit targets.
• Document why targets were or were not met and what you learned from the experience.

Taking a personal inventory requires assessing available time, personal financial positioning, core skills, and deep personal motivation. Potential Cash Providers vet you as much as the deal itself, making clarity on strengths, skill gaps, and long-term goals crucial for building trust.

Complete this personal inventory before you approach lenders:

• Assess how much time you can put toward real estate investing and communicate it clearly to potential Cash Providers.
• Establish your personal financial position and determine how much private money you are looking to raise.
• Identify your strengths and skills, and determine your skill gaps to address them through learning, teams, or partnerships.
• Define your deeper 'Why' beyond simply making money to build authenticity and transparency.
• Set short- and long-term goals in one-year, three-year, and five-year increments.

2. Systems and Investment Vehicles

Deal providers must build a solid business plan and master fix-and-flips, BRRRR properties, or syndications while maintaining conservative projections.

You need a clear plan to guide operations and impress cash providers. You can use Jim Horan's one-page business plan template to define vision, mission, and strategy. The author used this exact model to found the DeRosa Group.

Business Plans and Personal Growth

Your plan requires three specific operational elements:

• Strategy: Define goals, project types, target profits, and specific action plans.
• Market Analysis: Assess target locations, market rents, demographics, and major economic factors.
• Team: Build a network including wholesalers, agents, bankers, CPAs, attorneys, contractors, and property managers.

You must also sharpen the saw through ongoing personal development. You can join a mastermind group for peer accountability and brainstorming. You can perform continue, start, and stop exercises after every project to assess performance.

Core Investment Vehicles

Fix-and-flip projects serve as short-term investment vehicles that provide cash providers with secure returns. You can distribute profits using a disciplined personal formula:

• Peel off 30 percent of profit for income tax.
• Give another 30 percent to the business for growth and reserves.
• Live on the remaining 40 percent of the profit.

In Bucks County, Pennsylvania, the author purchased a fixer-upper for $230,000 with an $80,000 renovation budget. Additional expenses included $22,000 in closing costs and $14,000 in carrying costs. The property sold for $430,000, yielding an $84,000 profit while paying lenders a 9 percent interest rate.

Small rental properties and the BRRRR method build long-term streams of passive income. BRRRR stands for Buy, Renovate, Rent, Refinance, and Repeat. You can execute this model through specific operational steps:

• Buy a dilapidated or underperforming property in an area with solid rental potential.
• Renovate the property up to market expectations and code requirements.
• Rent the property to properly screened tenants with written leases.
• Refinance the property based on new market value and rental income.
• Repeat the process.

In Trenton, New Jersey, the author purchased a mixed-use building for $75,000 with $20,000 in renovations. The two-bedroom apartment rented for $950 per month, and the storefront rented for $900 per month. The completed property appraised at $150,000 and generated $650 in monthly cash flow.

Syndications and Keys to Success

Syndications and joint ventures apply structured equity models to larger commercial properties. In Lancaster County, Pennsylvania, the author acquired a 71-unit converted factory apartment complex for $3,350,000. The purchase required $1,050,000 in equity from 17 investors with an average investment of $61,000. The largest investment reached $180,000, while the smallest was $25,000. The project utilized a $2,512,500 mortgage at a 75 percent loan to value, a 7.2 percent cap rate at purchase, and a 70/30 equity split to Limited Partners and General Partners, achieving a 13.5 percent investor IRR.

You must follow three operational rules to maintain long-term success:

• Key No. 1: Under-Promise and Over-Deliver by setting realistic goals and exceeding them.
• Key No. 2: Maintain proactive and regular communication through email, video, apps, and phone calls.
• Key No. 3: Fall in Love with This Business to maintain infectious passion through difficult days.

3. Finding Cash Providers

Prospective cash providers are often located right in your immediate network rather than requiring elite connections. Russell Conwell told a parable about Ali Hafed, a Persian farmer who sold his land to search the world for diamonds and died penniless. The new owner discovered the massive Golconda diamond mine right in the farm stream.

Prospective cash providers exist in your immediate network, utilizing tax-advantaged accounts like SDIRAs and home equity lines to fund deals.

Good cash providers trust your expertise and remain passive, whereas bad fit providers attempt to control deals and devalue your role. The author once met a prospective private lender who toured a flip property, challenged the scope of work by claiming the roof did not need replacement, complained about the author's potential profit, and wished he could do the project himself.

Cash Sources and SDIRAs

A Self-Directed IRA or SDIRA allows the account holder to directly control investments in real estate or private loans while a third party custodian holds the funds. Two main rules make them powerful: the account holder cannot personally touch or benefit from interim payments, and profit is not taxed annually. Investor Sue invested $100,000 at a 10 percent interest rate on the example SDIRA loan, rolling proceeds into a new deal each year. She grew her account to $3,200,000 at age sixty-five based on the Rule of 72, which takes 7.2 years for money to double at 10 percent.

The IRS strictly forbids account holders and their direct linear relatives from benefiting from SDIRA transactions. Disqualified persons cannot own a piece of the investment alongside the SDIRA, act as the borrower, take a fee, or benefit in any way. Violations result in a 10 percent penalty charged by the IRS for SDIRA disqualification violations.

Real estate equity represents a massive pool of untapped investment capital because 30 percent of homeowners in the United States own their houses free and clear. Homeowners can access funds using a new mortgage, a Home Equity Line of Credit or HELOC, or Business Equity Lines or BELOCs. Uncle Harry utilized a 15-year amortization and $200,000 cash out at 4 percent interest resulting in $1,479 monthly payments. The author and his wife accessed $500,000 in cash accessed through two BELOC loans in 2006 on their parents' properties.

Cash investors face annual capital gains taxes, but rental property investments unlock powerful depreciation write-offs. A property cash flow of $10,000 offset by $6,000 depreciation results in $4,000 taxable income. Long-term capital gains face a 15 to 20 percent tax rate range.

The Cash Provider Pyramid

Building private money resources follows a structured pyramid starting at Tier 1 with your Core Group of people who already like, trust, and respect you. The author combined an SDIRA lender, an equity partner from college found via LinkedIn, and the BRRRR Strategy to acquire two townhomes in Trenton, New Jersey for $22,000 each with $25,000 estimated renovation costs per property. The deal utilized a $950 monthly lease target per townhome, a $50,000 total first-position mortgage from the SDIRA lender, and $50,000 put up by the equity partner through a 50-50 LLC.

You can organize your outreach using a master list and specific prospecting steps:

• Write down the following headers for your master list: Friends, Family, Neighbors/neighborhood, Coworkers, College/graduate school alumni, Groups and organizations you are a member of.
• Think about people in each group who fit the profile of a Cash Provider, including IRA investment capital sources, free-and-clear homeowners, and big savers.
• For each column, write down the person's name, the suspected source of capital, and notes on why they would be a good source.

4. Enrollment and Communication

Securing capital requires overcoming fear of asking, matching communication styles, and guiding meetings through active listening.

You must view yourself as a wealth builder rather than a beggar. Take multiple personality assessments such as the Predictive Index Behavioral Assessment, Kolbe A Index, and CliftonStrengths Assessment to identify your blind spots. Tone down your style if you are extroverted meeting an introvert. Slow down if you are fast-paced meeting a methodical person.

Network Expansion and Systems

Deal providers can expand their network into Tier 2 by cultivating relationships with core group members and hosting educational presentations for investor circles. Moving past simple spreadsheets allows deal providers to track contacts efficiently.

• Build relationships with savvy investors and ask if they know passive investors in their circles.
• Discuss serving as a permanent adviser with a small equity slice for loans or introductions, keeping SEC limits in mind.
• Approach attorneys, CPAs, and financial planners once a track record is established.
• Partner with core group members or cash providers to host educational presentations at venues like country clubs or rotary clubs.

Publishing regular content on social media and sending monthly updates builds long-term credibility. The author used Podio as a CRM connected to MailChimp for newsletters and built a Landlord's Chronicles YouTube channel featuring Mentorship Monday videos. Taking the business public involves broadcasting investment activities to strangers through public records, online forums, networking, thought leadership, speaking, crowdfunding, and private equity funds.

• Search county public records to find lenders using mortgages or deeds in trust.
• Post deals on BiggerPockets marketplace and utilize online lending websites after thorough due diligence.
• Join networking groups with income or experience barriers to entry.
• Commit to consistent content creation via podcasts, blogs, and forum comments.
• Identify and speak at membership organizations catering to ideal investor professions.
• Explore crowdfunding portals and private equity funds or equity brokers for larger deals.

Personality Adaptation

Before scheduling face-to-face meetings with potential cash providers, you must prepare goals, marketing brochures, track record documents, deal analyses, and clear answers regarding the investor's personal benefit.

• Prepare business goals for the next one to three years.
• Create a one-page marketing brochure outlining experience, past returns, benefits, and testimonials.
• Compile track record handouts detailing project types, locations, purchase prices, rehab costs, sale prices, profits, and timelines.
• Analyze sample active or inactive deals using tools like BiggerPockets calculators.
• Anticipate the investor's WIIFM perspective by preparing benefits, objections, and suitable investment vehicles.

The author shares a track record example from a Philadelphia fix-and-flip project involving a joint venture with local partners that yielded a purchase price of $114,000, rehab and carrying costs of $119,000, a six-months project timeline, one day under contract, a sold price of $339,900, commission and closing costs of $25,000, and a profit of $81,900.

The Enrollment Meeting

Effective enrollment meetings require active listening, asking about the investor's personal and financial goals before discussing deals, and avoiding the trap of talking exclusively about oneself.

• Thank cash providers for their time at the beginning of the meeting.
• Listen actively and ask questions about their real estate and financial goals and underlying motivations.
• Weave in recent real estate activity and successes only after understanding the investor.
• Avoid throwing up information about yourself or your deals prematurely.
• Look for private lender signals or private equity signals.

When meeting a New York City referral who lived in the same building as his early cash provider, the author spent the first meeting discussing parenting and pregnancy because his wife was expecting, allowing the relationship to build naturally over multiple visits until she committed $100,000.

Deal providers must be ready to transparently answer common investor questions regarding capital return, risks, personal coinvestment, liquidity, taxes, and transaction logistics.

• Outline sales processes or exit strategies for capital return.
• Explain market risks clearly along with specific mitigation plans.
• Frame coinvestment or sweat equity transparently if personal cash is not being contributed.
• Educate investors on real estate illiquidity and the lack of quick cash access.
• Explain tax implications including 1099 interest forms and K-1 partnership forms.
• Walk investors through logistical mechanics like IRA custodians, mortgages, liens, and operating agreements.

Post-meeting follow-up is where most deal providers fail, and successful investor interactions should lead to structured short-term private loans as a starting vehicle.

• Follow up consistently using a CRM system to stay in touch with not now prospects.
• Ask disinterested contacts for introductions to other potential private lenders or equity partners.
• Utilize short-term private loans as the initial investment vehicle for new investor relationships.
• Consult a local attorney to draft reusable loan documents rather than using free internet templates.

5. Structuring Private Loans

Private loans require careful evaluation of terms, draw programs, and binding legal documentation like promissory notes and mortgages.

Structuring a private loan requires answering four foundational questions regarding the lender's source, deal type, closing speed, and construction involvement.

• Determine who is lending you the money and where it is coming from.
• Analyze the deal type and investment vehicle to ensure both parties win.
• Assess how quickly you need to close and whether a higher rate is justified for speed.
• Evaluate the amount of construction involved and negotiate terms accordingly.

The author agreed to pay 15 percent annual interest plus three origination points on a four-month $100,000 loan for a six-unit building purchase because speed was essential to secure the deal. The purchase price was $90,000, renovation and closing costs totaled $10,000, and the resale price reached $150,000 with a monthly loan cost of $1,250.

Loan Structuring and Draw Programs

Construction draw programs protect lenders and reduce interest costs for borrowers by releasing funds incrementally upon reaching project milestones.

• The Cash Provider commits to a purchase amount and a separate construction amount.
• The Deal Provider produces a timeline with construction milestones.
• The Deal Provider borrows a small amount upfront to start construction.
• The Cash Provider holds the remaining money accessible on short notice.
• The Cash Provider releases the next capital draw when a milestone is reached and verified.

A friend of the author lent on a fix-and-flip using a construction draw and discovered during a milestone walk-through that the contractor was doing sloppy work and was fully paid without permits, allowing the lender to step in and save the project.

Private Loan Pitfalls

Investors must avoid high loan origination points, risky monthly payments on flips, prepayment penalties, and closing without sufficient capital.

• Assume the absolute worst-case scenario when estimating construction.
• Line up potential backup money that you do not borrow unless needed.
• Have at least two or three exit or profit options for distressed deals.
• Bring some of your own cash to keep distressed deals moving.

The author purchased a dilapidated mixed-use building based on low price per square foot but ran out of money during a six-month permit and demolition phase, forcing multiple rounds of additional fundraising.

Loan Documentation

Setting up a secure private loan requires a binding promissory note, a recorded mortgage security document, and optionally personal guarantees or deeds in lieu.

• Use a title company or attorney as a third party for initial loans.
• Give lenders at least two weeks' notice before closing.
• Have the Cash Provider send funds to the attorney or title company in advance.
• Provide copies of closing statements, promissory notes, and mortgage documents to the lender.
• Request a payoff letter stating the original amount, interest, and per diem rate before selling or refinancing.

6. Structuring Equity Deals

Scaling past private loans involves private equity structures, turnkey models, operating agreements, and strict SEC compliance.

Turnkey rentals allow a deal provider to buy, renovate, and lease a property before selling it to a cash provider as a 100 percent owned, hands-off asset. This model is a hybrid of fix-and-flip and BRRRR strategies. You secure a buyer upfront, complete the renovation, place a tenant, and time the sale immediately after leasing to compress selling time down to three months.

The author used this model in Trenton, leveraging local wholesale and REIA relationships to supply properties to eager first-time investors.

• Find cash providers looking for a turnkey and verify bank loan capability.
• Agree on a target price per door and desired return on investment.
• Calculate estimated renovation costs to bring a dilapidated property to a rentable standard.
• Target a 20 percent profit margin plus 5 percent closing and 5 percent carrying costs.
• Lock up the deal under agreement and get upfront cash provider commitment.
• Use a private loan or SDIRA lender for closing and construction funding.
• Lease the property during construction and close the sale immediately after leasing.

LLCs and Operating Agreements

Limited Liability Companies protect real estate investors through pass-through taxation, depreciation benefits, and public anonymity. You can structure them as member-managed for active partnerships or manager-managed for passive investors.

• Create the LLC at the state level by filing the name, address, and registered agent on the state website.
• Obtain an employer identification number (EIN) from the IRS website for tax tracking and bank accounts.
• Draft an operating agreement with an attorney to govern partner relations and terms.

An operating agreement is a foundational legal document that governs company operations, distributions, cash calls, and dispute resolutions. Working with an attorney is mandatory to ensure all facets of the business are covered, protecting both the manager and passive investors.

• Define the basics including name, address, and state of incorporation.
• Specify the purpose of the business.
• Outline managing members, their roles, compensation, and removal conditions.
• Detail member roles and ownership percentages using subscription agreements.
• Establish member exit mechanisms through internal or third-party share sales.
• Define manager discretion regarding profit distributions.
• Outline the procedure for cash calls when unexpected capital needs arise.
• Include clauses for dispute resolution and company dissolution.

SEC Compliance

Bringing passive equity investors into a business involves selling securities governed by the SEC based on a strict four-prong test. An investment is a security if it involves an investment of money, in a common enterprise, with the expectation of profits, solely through the efforts of the promoter.

• Establish substantive preexisting relationships with all cash providers.
• Avoid public solicitations on social media or general advertising unless utilizing approved crowdfunding portals.
• Require investors to complete investor qualification forms disclosing their goals, timeline, and accredited or sophisticated status.

7. Investor Relations and Exits

Long-term success depends on a structured investor relations schedule, careful exit strategies, and absolute protection of investor capital.

To maintain strong relationships and prevent reactive chaos, investors should implement a structured investor relations schedule broken down by daily, weekly, monthly, quarterly, and annual tasks.

Matt Faircloth divides investor management into specific intervals to ensure important relationship tasks get completed. You can use software like Calendly for scheduling prospect calls, Podio for database tracking, and Google forms for investor qualification.

• Daily: Respond to new prospective investor inquiries and communications within twenty-four hours to ensure strong customer service.
• Weekly: Conduct intro calls with new prospects, update social media or digital marketing channels, and schedule funding calls for active deals.
• Monthly: Send out project status updates for short-term and unstabilized long-term deals, and distribute an informational and educational newsletter.
• Quarterly: Provide financial reports, profit-and-loss statements, and balance sheets for stabilized long-term holds, followed by owner profit draws.
• Annual: Host an annual conference call or face-to-face meeting for large projects, and prepare investor tax documents such as K-1s or 1099s.

Exit Strategies and 1031 Exchanges

Exiting long-term equity holdings can trigger heavy depreciation recapture taxes, making tools like 1031 exchanges, tenant-in-common structures, or member buyouts essential for capital preservation.

When a project fails to net enough at sale or refinance to fully pay off a private lender, you must use alternative exit structures established in loan documents. Matt Faircloth sold an 18-unit apartment building in Philadelphia for 1500000 dollars after three years, netting 700000 dollars in proceeds, and utilized a TIC arrangement to roll those funds into a 198-unit property in North Carolina.

• Use personal cash on the sidelines to pay off the lender if it does not compromise another project.
• Convert the overage to unsecured debt with the deal provider as personal guarantor, offering monthly payments and an interest rate.
• Roll the remaining loan capital and profit into the next fix-and-flip deal as a priority payout.
• Convert the remaining debt into an equity percentage of the rental property if it is a BRRRR deal.
• Negotiate property sales or owner buyouts through clear operating agreement terms.
• Obtain unanimous agreement from all cash providers before executing a 1031 exchange into a replacement property.
• Utilize a tenant in common arrangement to combine 1031 exchange funds with a larger project equity raise.

Protecting Investors

Operating agreements must contain a clear member exit clause to govern how a cash provider can liquidate their equity shares when they need out early. Real estate sponsors must act as ultimate custodians of investor capital, taking full ethical responsibility to protect cash providers even when encountering fraud or severe business losses.

Matt Faircloth raised bridge loans and surrendered two-thirds of his own general partner equity in a new deal to protect his investors when a 1031 intermediary stole 700000 dollars through a Ponzi scheme.

• Receive written notification from the cash provider wishing to sell their shares.
• Notify all other company members anonymously about the available shares.
• Allow interested members to make offers that the seller can accept, decline, or counter.
• Allow the deal provider to make an offer if no member agreement is reached.
• Permit the seller to find a third-party buyer if company offers are declined, subject to matching rights by existing owners.
• Perform thorough research when selecting third-party custodians or intermediaries.
• Join class action lawsuits alongside other victims to recover stolen escrow capital.
• Sacrifice personal profit, income, and general partner ownership percentage to guarantee investor equity protection when crises occur.

10 Key Ideas

1. You can scale a real estate investing business without relying on traditional banks by cultivating private lender and equity partner relationships using clear systems and ethical safeguards.
2. Aspiring deal providers must build foundational knowledge, assess personal positioning, and document a tangible track record to prove credibility to potential cash providers.
3. Deal providers must build a solid business plan and master fix-and-flips, BRRRR properties, or syndications while maintaining conservative projections.
4. Prospective cash providers exist in your immediate network, utilizing tax-advantaged accounts like SDIRAs and home equity lines to fund deals.
5. Securing capital requires overcoming fear of asking, matching communication styles, and guiding meetings through active listening.
6. Private loans require careful evaluation of terms, draw programs, and binding legal documentation like promissory notes and mortgages.
7. Scaling past private loans involves private equity structures, turnkey models, operating agreements, and strict SEC compliance.
8. To maintain strong relationships and prevent reactive chaos, investors should implement a structured investor relations schedule broken down by daily, weekly, monthly, quarterly, and annual tasks.
9. Exiting long-term equity holdings can trigger heavy depreciation recapture taxes, making tools like 1031 exchanges, tenant-in-common structures, or member buyouts essential for capital preservation.
10. Real estate sponsors must act as ultimate custodians of investor capital by taking full ethical responsibility to protect cash providers even when encountering severe business losses.