Packaging Your Project For Your Private Lender

You have found a private Investor who has agreed to consider funding your first Real Estate project. The investor has informed you that he has to be very comfortable with the deal and is utmost concerned that his interest is well secured at all times.
So, let’s say that you have located and negotiated a purchase price on a vacant Single Family Residence (SFR) that needs considerable fixing-up. Let’s take a look at some of the details.
1. The house has 3 bedrooms, 2 baths and has approximately 1400 square feet of living area plus a 2 car garage.
2. You have done your homework and based on comparable sales the house, after it is put back in good shape, should sell for approximately $75.00 per square foot of living area which computes to $105,000.
3. You have negotiated a purchase price of $35,000. You have also received bids from three different contractors to complete all necessary repairs in order to make the house totally ready for the resale market. The average bid comes to $21,000 or $15.00 per square foot. The estimated time to complete the repairs is one month.
4. Because of current resale market conditions being slow, you are considering offering Owner
Financing. Having met several Note Buyers at The Real Estate Investors Association Meetings, you determine that if you financed the sale yourself, you could expect 80% to 85% on the dollar of the face amount of the Note if you sold it for cash.
5. Financing details and costs- Your investor has agreed that if he/she finances the deal for you,
he/she will give you a 6 month loan at 10% interest which can be paid along with the principle due in six months. If for any reason the investor extends the loan he/she will charge an additional 2% of the loan balance.
6. Let’s summarize your anticipated costs to determine if this project would appear to be profitable:
Purchase Price……………… ………………..$35,000
Fix Up (Rehab) Costs………………………….$21,000
Hazard (Fire) Insurance………………………..$600
Title Insurance For Investor…………………..$625
Appraisal Fee…………………… ………………..$300
Other Purchase Closing Costs…………………$300
Interest Expense……………………………….$3,000
Miscellaneous Expenses………………………$2,000
TOTAL………………………………………. …..$62,825

The investor will also require a minimum of 4 months interest, even if you sell the property earlier than that. This will reimburse him/her with cost & inconvenience of transferring funds from other sources.
7. Now, let’s look at your anticipated proceeds from your resale. You may be able to sell the house to a buyer who can qualify for a bank loan: however, let’s look at a worse case scenario and anticipate that you will finance for the buyer and sell the Note:
Sales Price………………………………………..$105,000
Down Payment…………………………………..$10,000
Note back from Buyer payable at………..$95,000
$697.08 per month including 8% interest amortized over 30 years

SUMMARY
Cash Down Payment…………………………..$10,000
Sale of Note (80%)……………………………….$76,000
TOTAL CASH PROCEEDS………………………$86,000
Less
*Closing cost to sell………………………………$9,000
Pay-off loan……………………………………….$60,000
6 months interest………………………………..$3,000
TOTAL……………………………………………….$72,000
*Closing costs include Real Estate Commission of 6% of Sales Price which you won’t
have if you sell the property yourself, which you should do.
NET PROFIT……………………………………….$14,000

Also other things to consider -
If you sell in less than 6 months, which you should be able to do with Owner Financing, you
will save interest costs. Also if your buyer has bank financing, you will save $9,000 in Note
discount. From the information provided, I would say this is a “Go” deal. The better you perform, the more it will enhance your relationship with your investor.

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.

Finding And Developing Trust With Your Private Lender

So, you want to do Real Estate projects; however, you don’t want to finance your deals through Conventional Lenders, banks, or other Institutional Lenders. Even though you may be financially able to borrow from banks, you prefer Private Lenders for many reasons; such as:

1. They will make loans on properties and projects that banks will not.
2. They are more aggressive and will fund deals much quicker than banks.
3. They will do small loans.
4. you will have more control with your project.

Now, how do we find these Private Lenders? They are everywhere, if you look around. Let’s consider some of the sources.

1. Friends and relatives. You would probably be surprised at the number of people you know who would invest in IRAs, CDs, Money Markets, etc., and who have the funds in which to do it. Most of these people would like to have better returns on their money. So, if you can convince them that you can provide them with better and SAFER yields; some will be interested.
2. Professional people you know who may have funds available. Doctors, lawyers, dentists, CPAs, etc., usually earn very good incomes; however, most don’t have time to personally pursue investing and therefore depend on other people, stockbrokers, etc. Again, if you can get their attention long enough to explain your program, some will be interested.
3. Newspaper ads – Look for ads such as: “Money To Loan”. Also, you can place your own ads ; for example: “Investor needed for local Real Estate Loans” or “Real Estate note For Sale – Excellent Return” NOTE: You may not have a note For Sale now, but your intention is to create one.
4. Talk to Title companies, attorneys who do Real Estate closings, and CPAs who have investor clients for leads to Private Investors.
5. Join local Real Estate Investment Clubs and meet other people who are doing what you want to do. Investors also belong to these clubs.
6. Consider offering classes to Private Investors or “Would Be” Private Investors to explain your program.

NOTE: Be careful with any advertisement you may place in the newspaper. Do Not propose any specific yield in your ads. Do Not ever Guarantee anything in your ads.
Once you have found an investor who expresses an interest in funding your Real Estate projects, you need to develop rapport and an element of trust with that investor. In other words, you have to prove to the investor that you know what you are doing. This is where your written business plan with referrals (if you have them) comes in. If you are new at this and don’t have business referrals connected with Real Estate, get referrals from friends, attorneys, CPAs, bankers, and anyone you know who has some stature.

The main thing to the investor is, as stated before, is your plan and attitude. Don’t be a beggar and don’t be a “Know It All” either. Just lay things out as they are. The investor, who most likely has financed Real Estate deals before, will sense that you are for real. Then you must demonstrate that he is in fact correct; You are for real.

If you need help preparing for this, get help from other Real Estate Club members or seek out someone who is doing these kinds of projects. You can also talk to Realtors, Title Companies, etc.

I would appreciate any comments you may have to this and any other Blog Posts we may write.

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.

Grow Your Own Investment Money Tree

OK, so now you have made the decision to become more active in investing in Real Estate; however, your funds are limited, plus your credit may not be too good. You don’t want to have to depend on the fickle banking industry to provide you with funds to do your investing. You know the old story of who a banker is, right? “A banker is a person who will lend you an umbrella; however, he wants it back if it starts raining.”

So, where are you going to get the money to do your investing? Ask yourself a question. Where do the banks get their money to lend to you or other investors? Mostly from private parties; deposits, CD buyers, etc. Well, why don’t you go to the same parties to find the money you need to do your investing? How much do you think the banks are paying people to put money in the bank? Regular depositions? – Nil. CD Buyers? (by the way, that’s Certificate of Deposit, NOT Compact Disc) – maybe 2% to 3%. Hard to get rich on a 2% or 3% Return.

Speaking of 2%, I’d like to break for a humorous story. Back when I was selling Real Estate as a broker, I met a crusty, older investor who eventually became my partner & dear friend. When I first met him I asked him what kind of Return he wanted on his money. His reply was “Two percent”. I repeated to him, “Two percent?” “Yeah”, he said, “If I invest one dollar, I want two dollars back; 2 for 1. Two percent!”

OK, back to more serious stuff. You then, are going to go to these folks who are putting their money in the bank and show them how they can work with you and get a much better Return on their money and do it safely. First though, you must develop a business plan and put it in writing. You are going to have to show these parties (potential investors) what you will do and how you will do it to earn them better yields on their money.

Your plan must be realistic and it must be specific. For example, let’s say that you are going to buy houses that need some fixing-up. After you fix them up and resell them at a profit, your plan should include the following:
1) A Mission Statement as outlined above, of all that you are going to do and how.
2) How the investor will always be protected in that he/she can always have more than
enough security for their investment – i.e.
a. They will hold a First Lien on the property they are lending on.
b. They will always have Title Insurance and Hazard Insurance.
c. They will never be more at risk than a safe percentage of the property value,
say 60% to 75% max.
3) You need to be able to answer questions, such as, “What happens if you can’t pay
me back when the loan is due to be paid off?” Your answer might be, for example:
a. I will pay you a bonus to extend the loan.
b. I will make a new loan with another investor and pay you off. And then,
the ULTIMATE answer,
c. If I can’t pay you off, then you will own the property at 65% – 75% of it’s resell
value, and it will be fixed up and ready to sell.

If you have a specific property picked out which you want to borrow on, bring complete details on that property to present to the investor. Give him/her an inspection tour of the property. If you have details on other properties which you have bought, fixed-up and sold, be sure to present these case histories to the investor. Also, if you have positive references as to your past work, achievements, etc., present those as well – Even if they do not relate to this specific kind of project. What you are doing in these initial meetings is building confidence and trust with the investor.

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.

Private Financing For Your Real Estate Investments

Flipping houses for fun and profit?
THE BAD NEWS (For Some): The inventory of houses that are available for purchase is at an all time high. These houses range from older homes that may need remodeling to new or almost new homes. This situation has been created by: 1) The previous several years of selling and financing homes for buyers who could not afford them, resulting in record foreclosures at an all time high. And in addition, 2) The present unemployment situation has forced many people to give up their homes to move to lesser expensive lodging, and in extreme cases, resulting in homelessness.

THE GOOD NEWS(For Others): Anytime there is a situation as described above, it is bad news for many people. Conversely, at the same time, it is good news for others because of the opportunities created by the particular situation – In this case, INVESTING IN HOUSING.

Because of the glut inventory of product (houses) available, prices are down from the previous market period; the old “Supply and Demand” syndrome. Therefore, it is a great opportunity for investors, entrepreneurs, etc. to make profits by taking advantage of these favorable circumstances.

So, let’s assume you are or would like to be one of those who takes advantage of the situation. You have some experience in residential housing or you have a mentor to help you make good decisions whenever you may be buying, selling, and/or rehabbing houses.

There are basically two types of investors who would be interested in the housing market:
1. Those who buy for resale later at a profit (hopefully) or,
2. Those who buy to hold for rental income.
Of course an investor could, and many do, fill both roles.

Now, let’s assume you have the knowledge, experience or mentorship to become involved in the housing market that we are discussing. One more thing we need is the funds necessary to buy, fix-up if necessary, and sell the houses. Also, if you intend to hold houses for rental income, you will need long term financing. So, if you have funds of your own, good credit with banks and other commercial lenders, you are all set – AS LONG AS THEY ARE LENDING. BUT,

What if you don’t have your own funds, and you don’t have good credit, or for whatever reason you are unable to obtain institutional funding? What to do then? AND,
Even if you do have good credit with the banks, that could change tomorrow with the whim of the banks and/or government.

Therefore, let’s consider your options: What if you could create a scenario where in you could conduct unlimited business in this and other markets, and not have to contend with banks and other institutional lenders? What if you could depend on always having financing available, short term and long term, even if your credit was not that great?

Well, you know what? You can do that! How can you do that? With Private Financing. This Private Financing will be from Private Investors and individuals who are looking for better and safer investments than they now have access to.

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.