The Power of Private Money !
One of the most common problems with new and even novice investors is that they don’t have any money to invest, and or they have shaky credit. The bank wants more documentation and the deal needs done fast! The great thing about being a creative investor is that you can do things that the average person wouldn’t think of doing.
There are a host of topics on this forum that explain how to buy and or make money with real estate ‘unconventionally’. However, I want to remind my fellow investors that Cash is still King! And if you use your creative methods, in addition to private money, the results can be staggering!
Many investors that I know have no idea on how to fund a deal quickly. Most can go out and find a profitable deal, and then they realize that they have no way to fund it! There are a lot of people yelling for financing help on this board! The Power of Private Money can be the answer to your financing problems and help take you to the next level!
“Are You Talking About Hard Money Lenders?
I’ve heard all this before!”
NO I am not! Although Hard Money Lenders may be a good alternative, and they work for a lot of investors, they are not right for everyone. Hard Money Lenders still have tough requirements that can’t always be met. You wont find houses to buy all the time at 65% Loan to Value. This is a requirement for many HML’s. Don’t count these guys out though, you may need to lean on them someday if all else falls through!
“If you are not talking about Hard Money Lenders, where else would I get quick cash from”?
Great Question! Don’t let the simplicity of this answer draw you away! Your money people are Private Individuals! You wouldn’t believe how much liquid cash that private individuals have. Some regularly keep their money in CD’s, Mutual Funds, IRA’s, etc. They do this because they want a return on their money! Do you think you can offer them a higher return than they are getting in the items listed above? I know I can, and I do!
“How Do I locate Someone with Private Money!”
The bad news is that they probably wont come seeking you out, so you will have to go and seek them out. This is a numbers game, just like real estate is. So in order to make this successful, you will have to put some effort in it. If you are not interested in putting effort into finding funding partners, it may be better for you to stay at your J.O.B. !
These people are relatively easy to find. You will find them simply by talking with people, telling them what you do, and what you are looking for. Word gets around quick! These people are everywhere; your next door neighbor, your church friends, your country club buddies, etc.
One of the easiest ways to get in front of these people is to meet with local professionals that you know.
1) Your Attorney
You would fall off your chair if you knew how much money your attorney handled. I sat down with my attorney and asked him if he represented anyone that had extra dollars at their disposal. Do you know what he did?........ He laughed at me! He can put in me in touch with more people that have money than I could ever possibly use!
2) Your Accountant or CPA - Same advice!
“Why Would These People Give Me An Unsecured Loan?”
They wouldn’t! You would offer them x amount return on their money Secured by Real Estate. Via a 2nd mortgage! Someone once said that “Money Follows Opportunity”. Private individuals will still want to know the details of a transaction. That’s no problem! Show them that you have done your homework, by providing them with the details, and also show them the projected profit, for added security of their investment and for their peace of mind. If you show them the profit, someday, they may ask for a larger piece of the action. When that comes, throw them a bone or two, or simply start using another Private Money Individual!
“How Much Do I Offer Them?”
Some individuals will lend you the money at 8-10% per annum, and others may want a flat amount of 40% of the profit. The more of these guys that you put in your back pocket, the more choosy you can be on percentages. You could generally expect to pay between 10-14% per annum. The difference with using a private individual vs. a Private Money Lender (company) is that after a few deals, and you have built up a trust level, you will be able to use this money for many things. You could borrow only a small amount from them to bring a mortgage current and buy Subject-To, you could Short Sale a large 2nd mortgage, and borrow the cash to pay it, etc. This is where being a Creative Investor will take you to the next level!
“What If I Can’t Find People With Liquid Cash?”
My first response would be that you are not looking hard enough! If indeed you fall into a pickle, there is still hope. Some individuals may not have large amounts of cash on hand, but rather a tremendous amount of assets! These are the people who can have access to LARGE Lines of Credit! These people are just as great to work with!
#1 They feel more secure that they are not putting up their personal money (even though they are responsible for it)
#2 They can make money with none of their money invested!
You may have to pay a little more for this situation, because you will be paying the interest on the loan, plus give them a flat fee of the profit in the transaction. Anywhere from 10% - 40% of the profit! If it is a worse case scenario and you have to use someone like this to fund the deal, just remember that you wouldn’t be able to do the transaction without them. Besides your 60%+ of the profit may be all that you need to take you to the next level of investing!
If you want to go to the next level in Real Estate Investing, you may want to take the next 4 weeks and do nothing but seek out private individuals with cash or access to large lines of credit! Put several of these private money people on your call list and stay in contact regularly! And when your next transaction comes to fruition, you will see that there is Power in Private Money!
“BAMZ”
Dear Bam,zz
You are right on the money. This is really the key to constant ability, capable of performance in any circumstance.
You have a chance to buy a second at a big discount. You pick up the phone and the money is there.
The house on the double lot, two legal lots with one house. Comes on the market, your friendly builder needs an in fill lot, like now. You pick up the phone and the money is there.
You now own a house maybe F and K, thats an East coast term never used out here on the Pacific Rim. It means Free and Clear. A situation that almost never occurs in LaLa land.
The Divorce couple, beat each other up and in the process destroy all the China and some of the lamps and fittings. Now want to sell the house. You buy the quit claim from the husband, shove it into escrow, you go see the wife and after three hours of the worst shouting and yelling you ever heard, she gives you the Quit Claim Deed with instructions to really sock it to the ex hubby. Bam into Escrow. Every body signed. One on the way to Bali the other to Vegas to meet the new replacement. You pick up the phone the money is there.
Really great. But alas as time goes on Greed raises its ugly head. Why this is I do not know. Private Hard Money Lenders have to be utilized in strings of at least five. This is known as the Rule of Fives. I know Harvard teaches it in another application, Yes it is used in the Armed Forces. No Staff shall be larger then five divisions as no man can handle more then five underlings at a time. Especialy at the skill and intelligence levels present in the modern military. Well it certainly applies here.
You use the lender until he becomes too greedy, then what you do is you turn him over to the worst mortgage/real estate Broker/Investor and let him experience a really bad deal. He now goes to the end of your string and you bring the next one up and on line. Within a few deals he becomes greedy and if you can you recommend him to the same broker. I believe this is what is called "String theory" God knows the Lender will experience another dimension much reduced in capacity as to what he experienced with you.
This way you always have a lender available and the string of lenders gets a little damaged in dealing with the other broker so they drift back and they are cured, for a while.
Of course what I am describing is one of the activities that are on going in a "Deal Shop"
I guess the time has come to write an article about the "Deal Shop"
The "Deal Shop" is the next level that almost all practitioners of the Gentle Art of Real Estate arrive at after playing Real Estate Broker, or running Creative Intrusions or setting up Syndications. I'll have it ready in a few hours.
Ku-Itchi San Lucius
Luciius, you've done it again...I'm gonna have to quit reading your posts, my head's getting so fulla smarts!
Particularly appreciated your comment about the greedy investor whom you finally refer to the next guy...and who'll then find out how great your/my deal really was!
True to the 9th power!
Good post & right as rain.
There's infinite money at the other end of the phone just waiting to be used.
bamz, you're on the ball man! good stuff.
Thanks for your postive feedback. There is truly power in this type of financing. I live it and breathe it!
Best of Success!
BAMZ
BAMZ,
Well said!
I know EXACTLY what you talking about. In fact, my first 3 deals were financed exactly the same way. You truly don’t know how many people with money you have around until you stop and look.
Keep up the good stuff!
Cheers,
Dmitry.