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Funding Real Estate Deals: Working With Private Money Investors

Published on Tuesday - November 25, 2014

Now is arguably the best time to be a real estate investor. While many investors may complain about the lack of inventory or the difficulty in obtain financing, there are plenty of opportunities available. You just need to know where to find them. While institutional lender financing may be difficult to navigate at times, the number of private money lenders has increased tenfold. You no longer need your own money to invest. With just a couple of phone calls, you can quickly meet with private money investors that can change the way you do business. Finding these people is not the hard part, however, proving that you are worthy of their money is. Working with private money lenders is a game changer. Done correctly; your business will be elevated beyond where you ever imagined.

Private money lenders may have a different set of guidelines for lending money, but they aren’t just going to give you a blank check. You need to have a firm plan for how you are going to find properties, what your strategies with them may be and how you are going to get their money back. Simply saying that you are looking to make money is not enough to entice someone to work with you. When you think your plan is detailed enough, you need to go over it again and continue to fill in any holes. The more prepared you are in your initial meeting, the easier it will be to get to get the money you need.

As a general rule of thumb; the longer you hold their money, the higher the return they are looking for. There is nothing wrong with whatever term strategy you think is best, but you need to be clear in your vision. If you are looking to assemble a rehab team and flip properties in 45 days, commit to it. If you are looking to buy a commercial building and hold it for 12 months, be willing to run with it. There is nothing that will turn an investor off more than not following through on what you say. You can’t sugarcoat your expectations or exaggerate your returns. Let the numbers do the talking. If your investor likes what you say, be prepared to deliver.

Good investors and private money lenders will often know the numbers better than you. It is important to keep all of your figures realistic and in line with the market. They are not just going to glance at the bottom line and lend on whether they like that number or not. You need to have a solid basis as to why you are using any number or estimate. If you come into a meeting unprepared or just use numbers you find online, you will greatly hurt your chances of getting money.

As much as you want to build a relationship, you can’t forget that you are in business to make money as well. There are plenty of private money lenders. If the terms and fees are not to your liking, you should shop around. There is nothing wrong with making less on the first deal to gain a contact, but you also don’t want to give away the farm. Any good investor will walk away from a deal if the numbers aren’t to their liking. You need to do the same. Any numbers you propose and deals you entertain should have enough coming back to you to make it worth your time. If you constantly short change yourself, you will need to work twice as hard to make the same return. A good investor will value your business as much as you may need them.

It is important to note that your personality is almost as important as your numbers. It might even be more important. Your numbers can be off the charts, but if you are not able to work with a private money lender, you have no chance at gaining their money. If you don’t know something, there is nothing wrong with saying you will find out. Be upfront and honest. The worst thing you can do is try to “BS” your way to their pocketbook. You are there to discuss business and working together, but you also need to let your personality shine through. There is nothing wrong with making a joke or talking about your favorite sports team. This alone will not give you the capital you are looking for, but if everything else makes sense it could be a deciding factor.

If things don’t work out, for whatever reason, it is important not to burn any bridges. You never know when your paths will cross again or you may have a deal down the road that is a good fit. Sometimes the timing may not be right, but it is important to maintain a line of communication for the future. The investing community is too small to bad mouth someone and not expect it to come back to you. If you put your best foot forward and the investor passes on your offer, all you can ask for is that they keep you in mind at some point in the future.

Working with a quality private money investor can open doors for you in the business and give you options you may have not previously imagined. Have a goal, know your numbers and let your personality shine through. If you can do this, you will most likely have your choice of investors to work with.

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