Straight answers about private real estate investing
Every answer starts with the short version, then the details. The first ten are the guide. If your question isn't here, ask Dan.
The Top 10 Questions
- 1 What does it mean to be a private real estate investor?
A private real estate investor puts capital into a real-estate-related opportunity that is not bought and sold on a public exchange. Depending on the structure, you might participate through a promissory note, an LLC or partnership interest, a fund, or another private security. The specific legal documents, not the marketing language, determine what you actually own and what rights you have.
- 2 How is private real estate investing different from buying a rental property myself?
When you buy a rental yourself, you select the property, arrange financing, manage the asset and make every operating decision. In a passive private investment, another person or team sources and manages the opportunity while you provide capital. That reduces your day-to-day involvement, but it also means you are relying heavily on the operator's judgment, experience, controls and execution.
- 3 Do I need to be an accredited investor to invest in private real estate?
It depends on the offering. Many private real estate offerings are limited to accredited investors, while some exemptions permit participation by certain non-accredited investors. Under current SEC rules an individual can qualify several ways, including income and net-worth tests and certain professional credentials. Always determine which exemption applies to the specific offering and how eligibility will be verified.
- 4 How do private real estate investors potentially make money?
Returns depend entirely on the structure. A private real estate investment might pay interest on a loan, distributions from property cash flow, a share of appreciation or sale proceeds, or some combination. There is no universal return for private real estate, and projected returns are never guaranteed. Ask exactly where the money is expected to come from and what has to go right for the investment to perform as projected.
- 5 What is my private real estate investment actually secured by?
Never assume that "real estate investment" means your money is directly secured by a particular property. Ask whether you are making a loan, buying an ownership interest, investing in a fund, or using another structure. If a loan is described as secured, ask about the collateral, your lien position, the loan-to-value methodology, title, insurance, guarantees, and exactly what happens if the borrower defaults.
- 6 What should I know about the operator before investing in their real estate deal?
Treat the people behind the opportunity as seriously as the property itself. Ask about their experience, prior projects, underwriting process, track record, business partners, conflicts of interest, use of investor funds, reporting practices, and what happened when previous deals did not go according to plan. Good due diligence includes understanding both the successes and the setbacks.
- 7 What are the biggest risks of private real estate investing?
Private real estate can lose money, including potentially all of the capital invested. Risks include declining property values, inaccurate renovation or construction budgets, borrower default, vacancies, interest-rate changes, legal and title problems, unexpected repairs, weak execution, leverage, and the inability to sell or refinance when expected. Private placements also provide less information than registered public securities, so your own due diligence carries more weight.
- 8 How liquid is a private real estate investment?
Usually much less liquid than a publicly traded stock or fund. There is typically no secondary market, transfer restrictions often apply, and you may need to hold the investment for an extended or uncertain period. Before investing, ask about the expected term, extension rights, early redemption provisions, transfer restrictions, and what happens if you unexpectedly need your capital back.
- 9 What documents should I review before investing in a private real estate deal?
It varies by structure, but expect some of: a private placement or offering memorandum, subscription agreement, operating agreement, promissory note, deed of trust or mortgage, financial statements, property information, risk disclosures and any securities filings. Read them carefully and consider having your attorney, CPA or financial professional review them. A Form D filing, where applicable, is a notice filing; it is not SEC approval of the investment.
- 10 What questions should I ask before I write a check for a private real estate investment?
Start with five: What exactly am I investing in? How is my money being used? How is the potential return generated? What could cause me to lose money? When and how do I get my capital back? Then ask yourself one more: if this investment takes longer than expected or loses money, can I financially and emotionally handle that outcome?
The basics
- What does "off-market" real estate mean, and why does it matter to investors?
An off-market property is one that is bought and sold without ever being listed on the MLS or a public site like Zillow. Sellers who need speed, privacy or certainty, and properties in rough condition, often trade this way through referrals, wholesalers, auctions, attorneys and direct relationships. For investors, off-market sourcing can mean buying below what a competitive public listing would bring, which is where the margin of safety in a project usually comes from.
- What is private lending in real estate?
Private lending means an individual or private fund, rather than a bank, lends money to a real estate project, usually short-term, secured by a recorded deed of trust or mortgage on the property. The lender earns a stated interest rate for a stated term rather than a share of profit, and the collateral, lien position and loan-to-value ratio are the lender's main protection if the borrower cannot repay.
- What is a fix-and-flip, and how does a private investor participate in one?
A fix-and-flip is the purchase of a property below market value, usually off-market and in poor condition, followed by renovation and resale. Its profit is roughly the after-repair value minus purchase price, rehab, holding, financing and selling costs. A private investor can participate as a lender to the project, as an equity partner in a specific property, or through a fund that does many flips, and each carries a different position in line and a different risk.
Risk and protection
- What does loan-to-value (LTV) mean, and why do private lenders cap it?
Loan-to-value is the loan amount divided by the property's value, expressed as a percentage. A $210,000 loan on a $300,000 property is 70% LTV. Private lenders cap LTV, often around 65 to 70%, so that if the borrower defaults and the property must be sold, there is room to recover the loan even after a price drop and foreclosure costs. Always ask whether the "value" is today's as-is value or a projected after-repair value.
The DanCan Private Investor Network
- What is the DanCan Private Investor Network?
The DanCan Private Investor Network is a Spokane, Washington based community of investors, founded by entrepreneur Dan Cantillana, that learns how off-market Pacific Northwest real estate opportunities are found, underwritten and structured before deciding whether to participate. Education comes first: the free Top 10 Questions guide, The Invested Life podcast and property stories, then a conversation with Dan for those who want to explore further.
- Who is Dan Cantillana (DanCan)?
Dan Cantillana, known as DanCan, is a Spokane, Washington entrepreneur who began his career as a fourth-grade teacher and went on to build businesses in insurance, real estate, general contracting and bookkeeping over more than twenty years. He buys and restores off-market properties in Spokane and Kitsap County, leads a private investor network, hosts The Invested Life podcast, and teaches small business owners referral marketing through Build a Lead Machine.
- What happens after I download the guide or reach out to DanCan?
You get the guide immediately and a copy by email. If you ask for a conversation, Dan or a team member replies personally, usually within one business day, to set up a 15-minute call. The call is about understanding where you are and answering your questions; it is not a pitch, and no opportunity is presented unless it is appropriate for you and you are eligible, in which case it comes with its own offering documents.
Questions before promises.
Understand it before you invest in it.
Start with the ten questions every prospective private investor should be able to answer. Then, if it makes sense, let's have a conversation.
No pressure. No sales pitch. Education first.