How to Raise Private Money for Real Estate: Private Loans vs Equity Investors
On this page
To raise private money for real estate, first decide what you are selling: a loan or a share of the deal. A private lender lends against the property for fixed interest and gets paid back first; an equity investor buys a piece of the deal and shares profit and loss. A single loan from someone you know, secured by a mortgage, is often outside the securities laws; promissory notes sold to many people, and equity in a syndication, are securities and need an exemption such as Rule 506(b) or 506(c). For apartment buildings bought with a bank or agency loan, private money almost always means equity raised from many investors.
What is the difference between private loans and equity?
| Topic | Private loan | Equity investment |
|---|---|---|
| What the investor gets | Fixed interest, principal back on a date | A share of cash flow and sale profit |
| Security | Usually a mortgage or deed of trust on the property | Ownership interest in the deal company |
| Paid first or last? | Before equity | After the loan and expenses |
| Upside | Capped at the interest | Shares in growth |
| Typical use | Flips, small rentals, bridge financing | Apartment syndications, larger purchases |
A useful picture is the real estate capital stack: senior loan at the bottom, then any second loan or preferred equity, then common equity at the top.
When is a private loan a security?
In Reves v. Ernst & Young (1990), the Supreme Court held that a note is presumed to be a security, and that presumption can be rebutted only if the note strongly resembles a "family" of notes that are not securities, judged by four factors: why the parties entered the deal, how the note is distributed, what the public reasonably expects, and whether another regime (such as banking law) already reduces the risk (Reves v. Ernst & Young, 494 U.S. 56). The Court's list of non-securities notes includes a note secured by a mortgage on a home and a short-term note secured by a lien on a small business's assets.
What that means in practice:
- One loan, one lender you know, secured by the property: often treated like an ordinary mortgage loan rather than a security. State lending and usury laws still apply.
- Notes sold to several people to fund a business or a pool of properties: looks like an investment, so likely a security. You need an exemption, offering documents and a Form D for a Reg D raise.
- Notes promoted publicly: almost certainly a security offering, and public promotion requires Rule 506(c).
Why do apartment deals use equity?
Agency and bank loans on apartment buildings usually cover part of the price, and the lender limits what else can be borrowed against the property. The rest of the price, closing costs and reserves come from equity. See sources and uses for how the total is built, and buying an apartment complex with no money down for why someone always puts up the equity.
Equity from many investors is a securities offering. Most sponsors use Regulation D:
- Rule 506(b): no public marketing; investors are people you already know.
- Rule 506(c): public marketing allowed; every investor must be accredited and verified (17 CFR 230.506).
Where do you find private money?
The same places for loans and equity, warmest first:
- People who already know and trust you: colleagues, clients, family friends. See raising from friends and family.
- Friends and followers of your content: a newsletter, podcast or channel where people have watched how you work.
- Your professional circle and local real estate community.
- Public channels (ads, lists), which need 506(c). See how to find accredited investors.
Whatever you raise, put the terms in writing, keep investor money out of your personal account, and never pay anyone a cut of what they raise for you unless they are a registered broker-dealer (SEC, guide to broker-dealer registration).
Our take
For a single small rental, one secured private loan from someone you know can be the simplest tool. For an apartment building, raise equity properly: an LLC for the deal, offering documents, escrow, and a Reg D filing. Mixing a dozen informal loans into an apartment purchase is how sponsors end up with an accidental securities offering and no exemption.
Trade-offs and who this is not for
- Loans cap the investor's upside and require payments whether the property performs or not.
- Equity dilutes the sponsor but shares the risk.
- Common mistake: calling an equity raise a loan. If the lender's return depends on the deal's profit, it is equity in substance.
How DoorRaise fits in
DoorRaise helps sponsors raise equity for apartment buildings with 5+ units from friends and followers who already trust them, under Rule 506(b) or 506(c). We are software, legal document preparation, escrow coordination and verification services. We are not a law firm, broker-dealer, investment adviser, funding portal, bank or escrow agent, and we do not hold investor money: investors wire their money to escrow at Enterprise Bank & Trust, in the deal's name.
DoorRaise is built for the equity side: the deal's LLC, investor documents, a deal page, escrow and the Form D. It does not arrange private loans. Flat fees, never a percentage of the raise (see pricing). Create your free sponsor page.
FAQ
What is private money in real estate?
Money from individuals rather than banks, either as a loan (fixed interest, secured by the property) or as equity (a share of the deal's profit and risk).
Is a private money loan a security?
It can be. Under Reves, notes are presumed to be securities unless they resemble an accepted exception, such as a note secured by a mortgage on a home. Notes sold to several investors are usually securities.
How do I raise private money for my first apartment deal?
Usually as equity: form an LLC for the deal, prepare offering documents, choose Rule 506(b) or 506(c), hold investor money in escrow, and file Form D.
Can I advertise for private lenders?
Only through an offering that allows public marketing, such as Rule 506(c), if the notes are securities. Ask a securities attorney before you advertise.
Sources
- Reves v. Ernst & Young, 494 U.S. 56 (1990)
- 17 CFR 230.506
- SEC, Rule 506(b)
- SEC, Rule 506(c)
- SEC, guide to broker-dealer registration
This article is general information, not legal, tax or investment advice. Talk to a securities attorney about your offering. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.