The Passive Real Estate Investor’s Guide to Due Diligence

The Passive Real Estate Investor’s Guide to Due Diligence

Investing in real estate passively—especially through private lending—can be a lucrative way to build wealth without the headaches of property management. However, ensuring your investment is safe requires proper due diligence. As a private lender, your goal is to evaluate deals wisely and minimize risk while maximizing returns.

1. Vet the Borrower

Before lending money, assess the borrower's experience and track record. Ask questions like:

• Have they successfully completed similar deals before?

• What’s their reputation in the real estate community?

• Do they have a clear exit strategy to repay the loan?

A trustworthy borrower with a strong history of profitable deals is a good sign.

2. Analyze the Deal Itself

Not all real estate deals are created equal. Ensure the numbers make sense:

• Loan-to-Value (LTV) Ratio: Lower LTV ratios (under 70%) reduce your risk by ensuring the borrower has enough equity in the property.

• After-Repair Value (ARV): If lending for a fix-and-flip, confirm the ARV supports a profitable resale.

• Market Conditions: Is the area growing? Are properties selling quickly? A strong local market increases your chances of a successful investment.

3. Secure the Investment

Your loan should always be backed by a recorded lien on the property. This protects your interest and ensures you can recover funds if the borrower defaults. Work with an attorney to structure the loan correctly and include clear terms in writing.

4. Monitor the Investment

Even as a passive investor, stay updated on project progress. Regular check-ins with the borrower and reviewing financials help ensure things are on track.

By conducting thorough due diligence, private lenders can enjoy the benefits of real estate investing while minimizing risk. Smart lending leads to secure, consistent returns—making it one of the best passive investing strategies available.

Would you like to know more about investing passively in Real Estate?   Contact Alex at [email protected] or call 501-580-2598

What we’re up to…

Sometimes it’s messy…

Distressed properties are sometimes very dirty and full of junk. We clean them, fix them up, and put them on the market so that a deserving family may have a place they can call home.

The above picture is from a property that we’re working on in Cabot, AR.

Would you like to know more about how you can be part of this and make a difference? Contact Alex at [email protected] or call 501-580-2598