Create Your Own Private Money Source

This article is prompted by a question posed to me by a contact through eRealEstate Social Network.

The contact wrote, “Where can I find Private Lenders who are willing to work with Real Estate Investors? I have found a hard money lender, but it is very expensive. I could use some private Private Funds to help my purchases move faster. I am feverishly looking for houses to buy, fix up, and resell; however, often times I am beat out by someone who has Private Money readily on hand. I appreciate any help, direction, or referrals you may bring.” Jim Well Jim, you can develop your own Private Money source(s). However, it will take a little time, but if you treat them right (in fact, a little more than right) after a while you will have them calling you asking if you need to borrow some money.

Have I been on both ends of this Scenario? Yes, I have.

1. I have been the rehabber who borrowed funds from investors or partnered with investors. I haven’t done this
for a while; however, as mentioned above, I still get calls from some of those Investor-Lenders wanting to know
if I want to borrow some money.

2. Conversely, I have been the Lender-Investor who made loans or partnered with the rehabbers.
The key to success with these programs or any other partnered, is it has to be good for both parties. I could also write a book on failed partnerships.

Anyway, back to creating your own Private Money Source. I will list a couple of methods I have used to find Private Money Sources. First you should prepare a simple business plan to present to prospective Private Lenders. They will want to know how you plan to acquire, rehab and most importantly, sell the homes you wish to borrow funds on. If you have references or previous successful projects, put those as appendices to your plan. In any case, the Lender is going to want to feel comfortable that you know what you are doing.

1. Simply place an ad in the Classifieds, “Money wanted to finance a Purchase & Remodel of Real Estate
properties”, or “Experienced (if you are) Home Buyer, Rehabber needs funds for future projects”.

2. Talk to Title Companies, Escrow Companies, and Real Estate Attorneys for leads to Investors who loan to
rehabbers, like you.

3. If you know of other rehabbers who are closing deals, go to County Clerks and review the Deed of Trust or
Mortgages that were recorded on the property. These are Public Records that will reveal who the Lenders were.
Ads in the newspaper is the method that has worked best for me. With this Ad you should get a good response. Don’t try to make the loan over the phone. Set up a Face-to-Face meeting with your prospects. They will want to meet you before they get serious about lending you money. Set up the meeting in your office, a restaurant for coffee, lunch or whatever.
Have a copy of your plan to give to the Investor plus samples of some of your previous projects, if you have them. Be sure you can explain to your prospects how they will be protected by such as:
1. First Lien on the property
2. Title Policy
3. Hazard Insurance

If you have a specific property in mind, bring a presentation on that. Information like:
1. Purchase Price.
2. Rehab Costs – Include all costs, closing, Title work, and contingency amount; like 10%.
It seems like all projects overrun.
3. Details on the house – Bedrooms, baths, size, construction, etc. -
Pictures; inside and out.
4. Information on comparable Sales to reinforce your expected Sales Price after rehab.
The more prepared you are and the more detailed,
the more the prospects will be impressed.

You will have to offer a good return to your Investor Lender, say 10% to 12% interest, perhaps with a bonus after resale; either points or percentage of the profit. You may think this is expensive; however, consider this from the Investor Lender perspective. Most of these loans are short term so even though the interest rate may be high to you, the investor sees it as some type of administrative expense; taking their funds out of where they are invested in now, and getting interest for only 3 to 6 months on your deal. Also, once you have done a few successful projects with a Private Lender you can better negotiate on rates. Also, the word will get around that you are doing deals and other Private Lenders will be more inclined to want to do business with you.

This is getting a little long, so I will stop for now. However, I want to show you how you can use and lock-in these Private Lenders to longer range Investments for them. This will also help you sell your finished projects faster, which means greater profits.

NEXT EPISODE WILL BE COMING SOON.

These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.