5 Red Flags When Choosing a Private Lender

Avoiding Scams, Stress & Rookie Mistakes in Real Estate Investing

Private lending can be a powerful tool in your real estate investing journey but not all lenders are created equal. While there are many reputable, experienced private lenders out there, there are also sharks in the water.

So how do you separate the pros from the scammers?

Whether you’re borrowing for your 1st or 50th flip, knowing how to spot red flags will protect you from costly delays, shady deals, and fraud. If something feels off or too good to be true… it probably is.

Here are five warning signs to keep your eyes on before you sign anything:

1. “No Questions Asked” Lending Offers

If a lender promises fast funding with zero due diligence, beware.
Reputable private lenders always want to understand the deal; its numbers, exit strategy, borrower experience, and collateral.

Why it’s a red flag:
No-questions lending may sound convenient, but it often signals a lack of experience or a lender fishing for desperate borrowers. In the worst cases, it’s bait for a high-fee scam.

Tip: Ask how the lender underwrites deals. Their process should show they care about protecting both parties.

2. Vague Terms and Verbal Promises

Getting answers like “Don’t worry about that, we’ll figure it out later” or “I’ll send the term sheet after we close”? Red flag.

Why it’s a red flag:
Professional private lenders are clear, transparent, and detailed. If someone can’t or won’t put terms in writing, that’s a sign something shady is going on.

Tip: Before moving forward, request a full term sheet and fee schedule. If it’s confusing or keeps changing, it’s time to walk away.

3. Upfront “Application” Fees That Don’t Add Up

There’s a difference between a legitimate processing fee and a mysterious “consulting” charge or wire demand before any paperwork is in place.

Why it’s a red flag:
Scam lenders often ask for high upfront fees with the promise of funding that never arrives. Inexperienced lenders might charge for their time without having real capital to lend.

Tip: A small due diligence fee may be reasonable if clearly explained and backed by a real underwriting process. Still, never wire money without a signed agreement and proof of lending history.

4. Too-Good-To-Be-True Rates or Terms

If a lender offers incredibly low rates, 100% financing, or no documentation required, pause and re-evaluate.

Why it’s a red flag:
While private lending is flexible, there are still realistic limits. Below-market rates or “money for nothing” offers often come with hidden costs, or they’re simply a front to get you hooked.

Tip: Compare rates with other lenders in your market. Unrealistically low numbers might mean you’re dealing with someone who doesn’t plan to fund or is planning to trap you later.

5. Inability to Prove Past Deals or References

Every good private lender should be able to point to funded deals, borrower testimonials, or a basic track record.

Why it’s a red flag:
If someone avoids questions about past lending experience or dodges your request for references, they might be new, unlicensed, or shady.

Tip: Ask for examples of past deals or talk to previous borrowers. Even newer lenders should be transparent about their process and honest about their experience level.

Trust Your Gut and Do Your Homework

The best deals happen when both the borrower and lender bring transparency, experience, and respect to the table. But in a fast-moving industry like real estate, it’s easy to get caught up in the rush.

If a lender sounds too good to be true, slow down and ask more questions. Protect your capital, your time, and your reputation by partnering with professionals who value clarity over convenience.

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