Every successful real estate investor needs a source of private lenders. When you can find great properties at low prices, you need money fast. Waiting is just not an option.
Why You Need Private Lenders
Going to a bank and getting a loan is a slow process full of red tape, endless paperwork, and worst yet–the unknown of whether the loan will even be approved. Often, banks will loan on the purchase price of the house, not on the value of the house. In addition, banks only allow you so many loans before they cut you off, no matter what you financial situation.
Private money can be used for repairs, down payments, re-instating a loan, cash for a short sale, moving money for the seller, and much more. You have the ability to purchase multiple properties with little or no money down. Private money loans do not appear on your credit report, so your FICO score is not affected. And closings can be done within 7 to 10 days–sometimes sooner.
How to Find Private Lenders
There is an endless number of people who want to make a good return on their cash. Most people put their money in a savings or CD account with a very low interest rate that barely covers inflation. Others have money in a 401k or other employer plan and realize the returns are small and the risk is large. The question is…how do you find these people?
There are countless ways to market and find private lenders, but the best way is to look in your inner circle first. By inner circle, I mean people you know like your parents, siblings, grandparents, friends, neighbors, business contacts, fellow real estate investors from your local real estate club, your lawyer, accountant, doctor, etc. These are people that already know and trust you.
There are other ways to find private lenders through direct mailing to CD holders, inviting people to an information luncheon, advertising in the newspaper (Be careful of what you state in our ad – Read the SEC rules). But you’ll get more than enough money using your “warm” inner circle list and probably won’t need other venues.
Get Your Private Lending Program Up and Running
You need to create a “private lending plan” with the details of your program spelled out. Your prospects need to feel secure and assured that you have a solid plan. You need to be able to explain it in clear and concise language with no detail left out. Create a presentation to show them these details and possibly some in-depth examples of how the program works.
It’s important to show that you’re going to give them a note, mortgage or deed, add them to the insurance, get them title insurance, etc. You’ll need to consider the interest rate (simple or compound), the minimum investment, when does interest begin, do they get a minimum interest (i.e. at least 2 months), do you pay higher for second liens, whether you will pay them monthly or accrue the interest, etc.
Have a plan for objections like, what if I want to get my money out earlier or do you pay partial months in full, etc. Leave no stone unturned and have the answers BEFORE they have the objection. Then you start talking it up to everyone you meet. Simply tell them what you do and how you can give them a good return on their money secured by real estate.
Create a Credibility Kit
Start with an overview page with information about you and your history in real estate: number of deals, education, training programs, certificates, memberships, etc. Give the impression that you are a real estate professional and you are serious. Have a page that explains why you use private funds and borrow at such high rates.
Then discuss how the program works and the key benefits to the private lender, such as high return rates, secure investment, and show them the paperwork. Explain the sources of capital they have available for making the investment such as HELOC, IRAs, 401K, CD, savings accounts, etc. Give deal examples and walk them through the process with past deals, so they get a flavor of what happens in each step. Finally, have a page for frequently asked questions.
But I Don’t Know Any Wealthy People
Your private lenders don’t necessarily need to be wealthy. Someone with $20,000 to $50,000 in their retirement plan could help you do a lot of deals!
I hope you get a sense of the importance and relative ease of getting private lenders lined up for your business and how it can take you to the next level. It will open up a whole new realm of possibilities for your business!