A huge question that almost all new real estate investors have is "How do I ifnd money for my real estate investing deals? ".
And… ineveitbly the second question that new investors ask is "How do I find private money lenders and why would they want to lend money to me? ".
Well… both of those questions are huge questions… and the answer is really much easier than most people make it out to be.
Private Money… Why You Need It
Have you ever heard of and IPO (Initial Public Offering)? That’s where companies choose to "go public"… which means they create stock, sell that stock to investors, and automatically have a bunch of cash that they can use to grow their business.
Sounds like a deal huh?
Well… that’s pretty much what private money is for real estate investors (with a pretty distinctive differences).
- You are both businesses
- You both need money to grow your business
- You don’t have the cash necessary to grow your business in your back pocket
- Other people have extra money they are looking to get a better return on
- You both need to find other people who have money to agree to help infuse money into your business
- IPO’s (what the big companies do) essentially gather investors who will actually take a portion of ownership in the company… they gain equity in exchange for their money
- Real estate investing businesses (like yours) tends to get "lenders" rather than investors. Lenders loan money and don’t tend to take ownership in the company. They expect to loan money at a certain rate of return for a fixed time period. Investments (like the public companies do) tend to be somewhat open ended and the "investor" takes equity in the business
But… while there is a distinctive difference in how the "investor" and/or "lender" plays a role in your real estate business versus a public company…
… there is one thing for sure.
Virtually every company NEEDS money to grow… without capital your business will likely be dead in the water. Big businesses can’t compete if they don’t have a bunch of cash to pour into growing and innovating.
Real estate investing businesses can’t compete:
- If you can’t close deals quickly
- If you can’t make offers quickly and confidently
- If you don’t have cash to work with other than your own
So, How Do You Find Private Money Lenders?
This is where most new real estate investors go wrong. Most people look at something simple… and for some reason turn it into something that seems complicated and hard. It’s just human nature to look for reasons why you can’t do something (it’s the mind trying to protect you from loss)… rather than to look at ways to get something done.
Getting private money for real estate is no different.
Here’s how to break it down a little simpler…
You need money for your real estate deals.
Other people have money that they want to get a decent return on with relative safety.
All you have to do is find the people who have money and want to earn a better return on that money… then educate them on your real estate business, how you analyze your deals, and what the person can expect when working with you.
- Find people who have money
- See if they want to earn a better return on their money (a lot of people are taking a huge hit in the stock market, and CD’s/money markets are only earning around 2-4% right now)
- Educate them on the process and give them confidence that they are safe with you
- Create loans with terms that work well for both of you
- Treat these private lenders like they are your grandparent… give them great results and they’ll keep coming back for more
Seriously… that’s it.
How Do You Market To Private Money Lenders?
As I’ve said before, every business on the planet is in the business of MARKETING.
Yes, that includes you.
First and foremost you are a marketer… second you are an investor. You must know how to get leads in order to even have a chance to put your investment knowledge into action.
So, to get private money lenders for your real estate investing business you must find the people who have money.
Who Has Money?
- Your Family and Friends -
Do you have family members who have money that they are earning between 0-5% on? I’m sure you do. Do you think they would want to double the rate of return on their money? I bet they would.
So, why not bring the opportunity of becoming a private lender for your real estate business to your family members first… so you can help your family become more wealthy in the process? Many people hate to ask family members for money… this is a common thing; however, why would you feel uncomfortable helping your family members make more money? You shouldn’t.
The true reason people hate to ask family for money is because they are afraid of losing their money and harming their relationship with them. To me, if you wouldn’t feel comfortable presenting a real estate deal to a family member… I don’t think it’s ethical to present it to anyone. You must be confident that it’s a good deal … that you’re buying it right … and that you’ll be able to take care of your private money lender first and foremos t… and worry about yourself second.
The first property I bought (and still own) was bought with 100% private money. A 95% first mortgage (seller carried)… and a 5% second which was borrowed from my father. My father is earning 6% on his money rather than 3%… the property cashflows and has gone up in value… if for some reason I screw up and don’t pay my dad (not going to happen)… he is in 2nd position on a property with over $100k in equity. It’s a no lose for him… and great upside for me.
- Other Real Estate Investors and Businessmen -
Other successful real estate investors have money… and often like to lend out their money to other investors. These are often great private money investors to have on your side because as you’re starting out… they can help you analyze deals… and teach you a ton as you grow as an investor. Also, successful businessmen are great because they know the security that real estate can hold… and know that when the loan is structured correctly they are protected with very little downside.
Talk to other investors and business people that you know and let them know what you do… and that you can provide them real estate secured returns of 9-12% (or whatever you are willing to pay) when they become a private money lender for your company. If there’s holes in your presentation or your business model… they’ll likely point them out… which will help you to make your business stronger over time.
- People Nearing or in Retirement -
Think about it… who has a bunch of money just sitting around? Well… people either in or nearing retirement (people 10-15 years away from retirement… up to people who are already retired). Even better, the stock market today sucks and I’ve personally seen many people move their money from the volatile stock market and place the funds in "more secure" investments like CD’s, gold, etc.
It’s your job to find these people and present them another option… to lend money to your company for a much better annual return (usually private money lenders are paid between 8-12%). Show them that you know what the heck you are doing, that the risk is relatively low with the strict buying guidelines your company employs, and that you are looking for long term relationships with lenders who want the same.
These people can move their under performing investments (401k, IRA, etc. ) into your short term private money loans. It’s a win-win. Again, you as the investor need to be honest with the private money lender… and you need to make responsible decisions on the properties that you invest in.
That’s just a short list of people who you should be going after to recruit as private money lenders for your real estate investing business.
Marketing to these people can be everything from simply handing them your business card that has a blurb saying you’re looking for private money lenders who want to earn 10% secured by real estate… and to call XXX-XXX-XXXX or visit www.yoursite.com for more information…
… to sending out mailers to a list of retirees… to teaming up with a financial planner… to putting on free seminars about the opportunity… etc.
***FYI, I’m not an attorney… and don’t claim to be. I’m just throwing out ways you may be able to market to potential private money lenders… to my knowledge they are legal… but advise your attorney before you use any of them… please.***
Here are a few ways you can get in touch with potential private money lenders:
- Ask sellers of the properties you buy if they’d be interested in becoming a lender for your company
- Talk to family about the opportunity … and ensure to structure the deal so they virtually can’t lose… and that the risk is on you (unless you want to lose a family member if a deal goes south)
- Ask other investors at real estate investing clubs in your area
- Put up a website and get it optimized in the search engines (we’re creating a training session on this)
- Network at events (chamber of commerce, etc.) and let people know what you do… and how they can be involved
- Send out postcards to a list of people with over $500,000 net worth (you can buy lists from companies who can break it down by net worth and other factors)
Really, there are endless ways to recruit potential private money lenders ; however, in my experience… the best ways are to network , let people in your area know what you do, create a website which educates potential lenders, and get referrals from happy investors .
Go Out And Provide Value To Private Money Lenders…
All in all… the best way to get a ton of private money lenders literally fighting to lend you money is to provide them huge value (i.e. – be honest, do what you say you will do, provide the returns you promise, keep your lenders funds safe)… and ask them for referrals to people they know who would also like to get the same results.
Register For A 100% Free and 100% Pitch Free Private Money Webinar
I guess it’s your lucky day.
As you know, The REI Brain is the leader in honest , unbiased , actionable , complete , and extremely value laden real estate investing education… and we’re starting a series of instructional webinars that are:
- 100% Free
- 100% Pure Content
- 100% Pitch Free (meaning we don’t pitch products… you just get pure content with no pressure to buy a product at the end of the webinar)
The first webinar in this series is:
How To Get Private Money Lenders For Your
Real Estate Business To Fight To Lend You Money
To learn more about the webinar and to register follow the link below.