Investing in house flipping can look like a smart way to grow your money—but it carries more risk than many realize. Before you lend to a flipper, here are five key things you should know.
On television, flipping houses seems simple: purchase a fixer-upper, renovate it quickly, and walk away with a big payday. For investors, it can indeed be profitable. And for private lenders, providing funds in exchange for interest or a share of the profits may appear to be an effortless path to passive income.
However, at Anderson Legal, we’ve seen how these arrangements can go wrong. Lenders often find themselves chasing late payments, facing foreclosure proceedings, or discovering too late that their loan wasn’t properly secured.
If you’re considering lending money to house flippers or real estate investors in North Carolina, it’s essential to know the risks up front—and to take the right steps to protect both your money and your legal rights.
1. Have a Clear Written Contract
When it comes to lending money for a real estate project, a handshake or a fill-in-the-blank promissory note simply won’t cut it. Your loan documents should be thorough, legally enforceable, and tailored to protect your interests. At a minimum, they should outline:
- The loan amount, interest rate, and repayment schedule
- What qualifies as a default (such as missed payments or failure to finish the project)
- Your rights if default occurs, including foreclosure or legal action
- Your ability to recover attorneys’ fees if you need to take the matter to court
Many off-the-shelf templates fail to include crucial protections required under North Carolina law. By working with an attorney, you can be sure your agreement covers all the necessary details and gives you the strongest safeguards if problems arise.
2. Secure Your Loan
A common mistake private lenders make is failing to properly secure their loan. If your loan isn’t tied to the property, you’re just another unsecured creditor—meaning if the borrower defaults, you’ll be at the end of the line for repayment (and you may not recover anything at all).
To safeguard your investment, you should require:
- A recorded deed of trust or mortgage filed with the Register of Deeds in the county where the property is located
- Terms in the deed of trust that match your loan agreement or promissory note
- Assurance that your deed of trust or mortgage has priority over other liens on the property
When done correctly, this gives you a legal claim to the property and the right to foreclose if needed. Without it, your only option may be suing the borrower personally—which often isn’t effective if they don’t have sufficient assets.
3. Research Thoroughly Before You Lend
Not every real estate investor brings the same level of skill or reliability to the table. Some have a proven history of successful flips, while others may be inexperienced (or overly optimistic) about profits. Before you hand over your money, take the time to evaluate both the investor and the property. Ask yourself:
- Does the investor have a solid track record? Ask for references and review past projects.
- What is the property truly worth? Order an appraisal or at least a comparative market analysis.
- Are there existing liens or debts? Prior mortgages, tax liens, or judgments could outrank your claim.
Thorough due diligence isn’t just about the property itself—it’s equally about the person or company you’re trusting with your investment.
4. Comply With North Carolina Lending and Usury Laws
Private lending in North Carolina is heavily regulated, with strict rules on interest rates (usury laws), disclosure obligations, and licensing requirements for certain lenders. Overlooking these laws can have serious consequences, including:
- Making your loan agreement unenforceable
- Exposing you to civil penalties or liability
- Preventing you from collecting repayment through the courts
Working with an attorney who understands North Carolina’s lending statutes ensures your agreement is structured legally, protects your investment, and keeps your returns enforceable.
5. Plan for the Worst-Case Scenario
Even with airtight contracts and properly recorded documents, real estate deals don’t always go as planned. Markets can cool, renovations can drag on, and investors can run out of money. If the borrower defaults, you may need to:
- Send a demand letter detailing the default and requesting payment
- Start foreclosure proceedings to recover your investment through the property itself
- File a lawsuit to enforce the agreement or seek damages
These remedies can work, but they often require significant time, expense, and legal know-how. That’s why setting up your loan correctly from the beginning is the best way to protect yourself if things take a turn.
The Bottom Line: Ensure You’re Protected Before Lending to House Flippers
Financing a house flip can offer attractive returns, but it comes with real risks. Without the right safeguards, you could find yourself in court, pursuing a borrower with no resources, or losing your investment altogether.
At Anderson Legal, we work with private lenders, investors, and business owners throughout North Carolina to address issues with defaulting borrowers and protect their financial interests. Whether you’re thinking about funding a flip or already struggling to collect on a loan, our team is here to help you secure your investment and your future.
Nothing on this website or this blog should be considered legal advice. Anderson Legal does not represent you and no client-attorney relationship is formed until you have completed our client intake process.