Raising Capital For Real Estate In 6 Steps

 

Raising capital for real estate can be a challenge for many new investors, but it is a necessity for anyone looking to succeed in the industry.

The key to learning how to raise capital for real estate is to focus on identifying what today’s lenders covet the most (and give it to them). If you succeed, there is no reason you should not be able to raise the real estate investment capital you need for your next deal. 

Other People’s Money (OPM) is what makes real estate investing possible for a huge percentage of aspiring investors.  Even the most successful real estate professionals and legendary investors almost exclusively use OPM to reduce liability and maximize returns. As you can see, raising capital is critical for investors of every level.

However, both novice and seasoned real estate investors continue to struggle with making the connection between potential private investors and closing the deal. (Or even understanding how capital works with an alternative strategy such as tax lien investing.)

This is a shame, considering there is more real estate investment capital out there than ever before. Remember, private money lenders want to work with you, just as much as you want to work with them.  Private lending has never been so attractive or widely accepted, and the benefits for you and your lender are endless.

Raising real estate investment capital is about more than a simple message or conducting a presentation that resonates. It must be more than a pretty website, thousands of inorganic Facebook friends, glossy folders, and a nice suit.

What Is Investment Capital?

Investment capital is the money used to fund a given investment deal. This can include the costs of acquiring a property, initial renovations, and upfront costs. There are generally two types of investment capital: debt and equity. Debt refers to investment capital that comes from hard money lenders, such as banks, and often requires interest payments. An advantage of using debt investment capital is that hard money lenders will not have a say in the company. However, many investors may find it difficult to secure capital with hard money lender. This is where equity (and OPM come in).

Equity refers to money secured by selling ownership in a property or business. Private money lenders may invest in a company if they see the investment as potentially profitable. Using equity as a form of investment capital has different pros and cons to utilizing debts, which is why it is crucial investors consider both options. For entrepreneurs ready to put the work in, raising private money can offer the chance to pursue a variety of investment opportunities and expand their portfolios.

What Are Money Partners?

Money partners are anyone you decide to work with to fund a given deal. When it comes to raising capital for real estate, money partners can be especially helpful because they can enable investors without significant amounts of capital to get started. Depending on the arrangement at hand, money partners can finance a deal, provide advice, and even share the risk of a given investment. Because of this, money partners are often highly sought after in the investment world. It is important to note, however, that partnering with other investors is mutually beneficial. Business partners stand to benefit from the success of a good deal just as much as you do, something that is important to keep in mind as you get ready to approach potential lenders.

Money partners exist throughout the real estate industry, though it is important to approach each potential investment with careful research and planning. It is not uncommon for even the most seasoned real estate investors to fail to close a deal with private money lenders or money partners. To ensure this does not happen to you, research potential investors you are trying to work with and put in the time and effort to ensure you are prepared every step of the way. If you are interested in learning more about how to find private money lenders or money partners, read this guide.

How To Raise Private Capital For Real Estate

Private money lenders will often have their own set of rules and guidelines. While many will exercise similar practices, the criteria each requires of their borrowers are different. I maintain, however, that there are several universal things private money lenders look for.

If borrowers can identify what it is their money partners want, it is more likely that they will receive the loan. You see, lenders are in the business of making money, too. When it comes to private money lenders, there are 6 P’s that you can remember. If you can give them the things I outline below, you could find yourself with the money needed to buy your next deal:

• Protect their capital
• Promise realistic returns
• Prove your potential
• Procure a great deal
• Provide your track record
• Promote relationship building

1. Protect Their Capital

The primary concern investors have is protecting what they have loaned out. If they lose that, they will not be able to make a profit – which is the whole point. That is why so many money partners have recently invested in low yielding real estate related products and ventures. When contemplating this factor, most look for collateral and how easy it will be to get their money back in the worst-case scenario. So be ready to answer these questions and have a plan B in your back pocket. It should go without saying, but the best way to work with a private money lender in Arizona and raise the real estate investment capital you need for your next deal is to convince them that it’s worth their time.

2. Promise Realistic Returns

Where most real estate investors go wrong when trying to raise capital is promising huge returns. If you sound overconfident, your presentation will automatically appear to be a “high-risk investment” or “scam”, which is certainly not the message you want to send.  You will have to be above average market rates – of course – but do not project too high.  The last thing you want to do is over promise and under deliver.  Even if you think your goals are possible to achieve, start by underestimating and then deliver more later, which will create a sense of loyalty and reliability between you and your first line of money partners. If you tell them they will receive an ROI of 8 percent and they actually make 14 percent after all is said and done, you can bet they’ll put you at the front of the line in their contact database and beg you to take their money for your next deal.

3. Prove Your Potential

On the other hand, you need to make your investment sound appealing.  Savvy investors with bigger pockets and heavyweight venture capital firms are of course turned on by the promise of big wins. So, while keeping projections conservative, do not be afraid to hint at the full upside potential – those big numbers you are hoping you’ll really hit.

4. Procure A Great Deal

Everyone wants a “deal”.  There are two reasons for this. The first is that it is simply human nature. If someone thinks they are getting a good deal on a product, it automatically gives the impression of value.  The second is that these individuals and money managers want to look smart and feel as though they are making a sound investment. They all have someone they need to impress. It could be their boss, their coworker, their spouse, a competitor, or even themselves.  Regardless of who, your potential money partner will want to be able to boast about how intelligent they were to discover this high yielding or trendy investment before everyone else. Help them out. 

5. Provide Your Track Record

Of course, most investors expect to see a proven track record. They want to know that you can deliver on your plans. If you do not have direct experience in real estate investing, then what other relevant experiences do you have or who else can you find to partner with?  Have your portfolio ready to go with your successes on top.  You have got to have the numbers to prove yourself.

6. Promote Relationship Building

Surprisingly – or perhaps not so surprising – having a personal relationship between both investing parties trumps the rest of the qualifications.  So how can you build more authentic relationships or find like-minded individuals – whom you might already know – that might want to work with you? This is one of the most important habits to acquire as a real estate investor. Try attending a local networking event to get your face out there.  If you want to discover a potential money partner and achieve success, building and maintaining relationships is a must.

5 Tips For Raising Private Real Estate Capital

The best advice for raising private capital in real estate will vary depending on who you ask. The reason for this is that over time investors find the way of doing things that work best for their real estate businesses. However, this is not helpful to newbies. What I can say, is that it takes time to develop a surefire system for raising private capital. In the meantime—here are some tips to help you get started:

Use Your Own Money First: Before you start fundraising a new project, assess how much capital of your own you can rely on. Not only will this help you frame the budget for the project, but it will also lower the amount of cash you are paying interest on should you find a private lender. To increase your personal capital, consider redoing your monthly budget and reducing expenses for a while; you may even be eligible for a home equity loan.

Attention To Detail: The details included in your portfolio are going to make or break your pitch to Arizona private money lenders. Make sure you have an accurate purchase price, property value, rehab cost, rental value, wherever it applies to you. If this is your first investment deal, make sure the figures and estimates in your deal analyzer are as accurate as possible. Strong attention to detail could mean the difference in choosing a potential investment and securing enough financing.

Showcase Your Success: When you complete a successful real estate deal, do not be modest! Share the good news with your network, website, and social media following. Investors can and should showcase their successes (or wins) as they come along. When done right, this can help establish your credibility over time in the real estate industry.

Build Relationships: Networking is not as simple as exchanging business cards, and you should not want it to be. If you want to have a successful career in real estate, it is critical to building relationships across the industry. Keep up with your connections, celebrate their successes, and check-in from time to time. Building genuine relationships will help your career more than you can imagine.

Educate Others: Sometimes you may encounter potential lenders who are mostly unaware of the intricacies of a real estate deal, or the dynamics of private lending. That is okay, it could be the perfect opportunity to educate someone else on what you do. As you build relationships with other real estate professionals have conversations about lending and acquiring deals, share the resources you find helpful, and put people in contact with one another when fitting. This will help you build relationships (as I mentioned above) and potentially introduce investors to a mutually beneficial aspect of real estate.

Best Books For Learning How To Raise Capital For Real Estate

Raising capital for real estate has become one of the most discussed topics associated with real estate investing. If for nothing else, it’s the one concept anyone could stand to improve on: there’s never too much funding. As a result, there are volumes written on the subject of raising capital for real estate, and perhaps even more knowledgeable people talking about their own strategies just about anywhere someone is willing to listen. Truth be told, it’s not hard to find someone willing to offer their own opinion on how to raise capital for real estate investments; the hard part comes in distinguishing between those who are truly knowledgeable and those who are, for lack of a better word, ignorant.

It should go without saying, but incorrect information can be damaging to one’s career. Therefore, it’s important to gather information from trusted sources, not the least of which include:

Books: To this day, books represent one of the greatest ways to filter through the volumes of information made available to investors. However, the number of books one can find on raising capital for real estate can be staggering. Instead of sifting through everything, and risking learning from someone that may not know what they are talking about, save yourself some time and consult “The Real Estate Wholesaling Bible,” by my friend and business partner Than Merrill. As the name suggests, aspiring investors will learn how to wholesale real estate, but a large portion of the book deals with raising capital and funding. As a compliment, my own book, “The Real Estate Rehab Investing Bible,” will teach the reader the importance of raising capital for real estate and the best ways of going about doing so.

Podcasts: Relatively new to their written counterparts, podcasts are not to be underestimated. Oftentimes free, these downloadable audio files are filled with information from today’s top minds in the real estate industry. Get Wealthfit, for example, is a compilation of podcasts by investors who have been exactly where many aspiring investors hope to be one day. Get Wealthfit covers everything from money management to marketing strategies, and everything in between.

Blogs: Not unlike books, blogs offer knowledgeable individuals the ability to share their knowledge with the masses. Only, instead of releasing once every year or so, writers can publish blog content daily. Level 4 Funding blog, for example, publishes real estate content on a weekly basis. Once there, you will find plenty of content on raising capital for real estate, and just about everything else you may be interested in that has to do with the housing sector.

Summary

Raising capital for real estate does not need to be nearly as hard as many make it out to be. For those in the process of learning how to raise capital for real estate to remember, working with money partners is as simple as doing two things: learning what it is they want the most and giving it to them. It is the investors who can identify what today’s lenders are looking for that stand the best chance at getting the money they need for their next deal. That said, pay special considerations to the steps above, as they offer insight into what most today’s lenders look for in a borrower. Only when you can give a lender what they want will your chances of receiving real estate investment capital increase dramatically.

Is a lack of funds keeping you from investing in real estate? Do not let it!

Give us a call.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701

About:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
© 2020 Level 4 Funding LLC. All Rights Reserved.

 

Tips & Advice For Financing Your Investment Property

Financing your first investment property does not need to be as complicated as far too many inexperienced investors make it out to be. There are not only more ways to finance your first real estate investment than many people realize, but there are also several tips and tricks that can endeavor a lot less arduous. That said, it is those that know the options made available to them that stand to realize the most success in finding and securing financing for their first deal.

How To Finance Your First Investment Property

 

There are several ways of financing your first investment property with other people’s money, not the least of which include:

 

• Traditional Loans
• Private Money Lenders
• Hard Money Lenders
• Seller Financing

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Whether you are brand-new to the real estate investing landscape or a seasoned veteran, there is at least one fundamental thing every deal must have in place: money. At the risk of sounding obvious, no deal will be completed in the absence of capital; it is as simple as that. It is worth noting, however, that the money for a respective deal does not have to come from your own pockets. I maintain that financing your first investment property should be done with other people’s money.

Even if you have the cash reserves to buy a house, it’s usually better to use someone else’s money for a deal. That way, you remain liquid and retain a “safety net” in your coffers.

Real Estate Financing Methods

There are several creative real estate financing methods investors can use for acquiring properties, but there are six main strategies that have withstood the test of time:

 

Conventional Or Traditional Loans: As their names would lead you to believe, traditional loans originate from the most familiar of places: banks and institutionalized lenders. These loans can have some of the lowest interest rates, but the application process can be lengthy. Those applying for traditional loans often need to have a minimum credit score in the 600’s and have a down payment between 5 and 20 percent of the purchase price.

 

Private Money Lenders: Private money lenders are essentially anyone in your inner circle, or close to it, that isn’t institutionalized and have some extra cash they are willing to invest. That said, just about anyone you know can be a private money lender if they have the funds available.

 

Cash-out Refinance and Home Equity Loans: If you are purchasing your second property, you may be able to use existing equity to do so. This involves borrowing against the value of your home through a home equity line of credit (HELOC), home equity loan, or cash-out refinance. The biggest benefit to this method is the potential for low-interest rates, though there are some risks.

 

Hard Money Lenders: Hard money lenders are organized semi-institutional lenders who should be licensed to lend money to investors. They specialize in providing short-term, high-rate loans with fees that allow residential redevelopers to purchase properties fast and painless.

 

Seller Financing: Seller financing strategies will witness the homeowner you intend to buy from act as the bank, offering to lend you the money on their terms. So instead of making payments to another lender, you would make payments to the seller in the amount you predetermined.

 

Financing Tips For Buying An Investment Property

 

1. Lower Rates Are Not Always Better

I want to make it abundantly clear: lower rates are not always better when financing your first investment property. That is not to say you do not want to secure a loan with the lowest interest rate, but rather that there are a lot more things to consider. Take private and hard money lenders, for example; they often have rates that are often four and five times higher than that of a traditional lending institution, but I would argue that they are better sources of capital for investors. Namely, because of their ability to act fast. While the interest rate on a private money loan may be higher than your bank, the speed of implementation they offer investors is invaluable. Whereas a bank can take upwards of several months to process a loan, private and hard money lenders can have the money in your hands in a matter of days. That said, those with access to funds right away stand a better chance at landing a deal. In a market as competitive as today’s, only those that can act fast will be able to realize success. So again: interest rates aren’t everything. I would rather pay more in interest (especially when loans are short-term) to have access to money immediately, as to be able to acquire the deals that are brought before me.

 

2. Have The Financing Lined Up Before You Look For A Deal

Far too many new investors make the mistake of trying to find a deal before they have the capital to purchase it; for several reasons, that’s a bad idea. For starters, you will not know which homes fit within your budget if you do not have access to capital. How can you possibly know which homes are in your price range if you do not have access to any money yet? There is a good chance you will waste time looking at properties if you aren’t yet approved for a certain amount. It is worth noting, however, that those with the proper funding on hand will know exactly how much they can afford to spend. What is more, you will be able to act a lot faster once a viable candidate reveals itself to you. Again, the speed of implementation is everything as a real estate investor. If you find a deal and have to wait around to get your money, there’s a good chance the competition will beat you to it and close on the property before you can even make an offer. If, however, you already have the money lined up, you will find it a lot easier to make the first offer, which is a huge advantage in this industry.

 

What Is The Average Interest Rate On An Investment Property?

 

Interest rates are the price we pay to borrow money — no more, no less. However, interest rates do not share a universal constant and are even sometimes left open to interpretation. That said, it is common for interest rates to fluctuate in conjunction with the state of the economy and marketplace. Subsequently, interest rates will differ between individual loan originators. You see, each source of money has come up with what they believe to be a fair charge for borrowing their money, and investors must either choose to accept it, or look for an alternative.

 

If you are wondering what the average interest rate on an investment property is, the first thing you need to do is identify the source of where the capital is coming from. For a better idea of the interest rate you would expect to pay for a loan, refer to the following lenders:

 

Traditional Loans: The average rate on a traditional 30-year fixed loan is now 4.18%, according to Bankrate.

Private Money Lenders: Typically, private money lenders will ask for a high-interest rate: oftentimes between six and 12 percent. That said, I would not let the high rate scare you away. While it’s true, private money lenders’ services come at a higher cost, their ability to fund a deal in a relatively quick period is well worth the cost of admission. What is more, their term durations are not nearly as long as the 30 years bank loans typically coincide with. So, while interest rates are certainly higher, you will not be paying them for nearly as long — oftentimes just a few short months.

 

Hard Money Lenders: Not unlike their private money counterparts, hard money lenders will require borrowers to pay high-interest rates. It is not uncommon for hard money lenders to ask for 11 to 15 percent. On top of that, they might ask for points (an additional upfront percentage fee based on the actual loan amount). Again, do not let their high rates scare you away, because I can assure you their services are well worth it.

 

Seller Financing: Sellers financing their sale can ask for their terms, and oftentimes end up on the higher end of the spectrum for the inconvenience. However, it’s entirely possible to find a seller looking for incredibly low-interest rates. Just know this: sellers are often the easiest to negotiate terms with, so give it a shot.

 

Summary

 

Financing your first investment property can represent an intimidating step at the beginning of your career, but it does not have to be as scary as many make it out to be. If for nothing else, your first real estate investment should be exciting, and something you look forward to.

The best way to get started is to educate yourself on real estate financing. Only once you are familiar with the different real estate financing methods, can you move forward with one. Therein lies the reason we have compiled this information for you; hopefully, it’ll shed some light on an otherwise intimidating topic for new investors. Look into traditional loans, private or hard money lenders, HELOCs, and seller financing. Allow these options to guide your research as you make the best decision on upcoming deals.

Have you been wanting to invest in your first property, but are otherwise unsure of the best way to finance it? Perhaps you have had better luck with a different financing method we left out? Whatever the case may be, please feel free to share your thoughts in the comments below.

How To Find Private Money Lenders Near Me

 Many real estate investors know that buying an investment property is different than purchasing a primary residence. Among the differences is that many homeowners will turn to a conventional mortgage, while real estate investors often look for alternative forms of financing. That’s why as a real estate investor it is crucial to understand how to fund deals using resources like private money lenders.

In the real estate industry, a private lender will be a much-valued asset to your investor toolbox. But what exactly can they do for you as an investor, and how exactly do they work? Further, how do you approach private lenders about a given deal? Read the following to learn how to work with and find private lenders, so you can help ensure you secure financing for your next deal with ease.

What Is A Private Money Lender?

A private lender is someone who uses their capital to finance investments, such as real estate, and profits from interest paid on the loan. Private lenders are not affiliated with a bank or other financial institution, and instead interact directly with the borrower. There are private lending companies that investors can seek out.

Private lenders are an asset to investors because they often have different approval requirements and a faster pace than traditional financing processes. While the qualifications and interest rates will vary based on the situation, the process of working with private lenders will be like other loans.  

2 Ways You Can Use Private Lender Loans

Private money lenders can provide a number of benefits for real estate investors, and the best part is: they can help with almost any aspect of a real estate investing business. The right financing will vary on a deal by deal basis, but it is still important to understand each of the options available (and how to use them). Here are two ways investors can make use of private money today:

·         Refinancing A Property

·         Buying A New Property

·         Refinancing A Property

Let’s say you purchase a rental property with a traditional mortgage but want to negotiate a better interest rate or shorter repayment timeline. Private money lenders represent the opportunity to refinance, and therefore potentially reduce the costs associated with funding a deal. Private money is particularly attractive because in some cases investors can even incentivize potential lenders with profit shares (rather than loan repayments). For example, when refinancing a passive income property investors could leverage their monthly cash flow to make a deal more attractive. As a whole, private money lenders can represent a much more flexible refinancing agreement when compared to traditional financing.

Buying A New Property

Private money loans can be used to help real estate investors purchase new properties, including residential, commercial, and multifamily real estate. The key to securing these loans is to run the numbers and craft the right pitch. Experienced investors may find it helpful to highlight past deals, while first time investors should instead focus on the potential profitability. Most investors will agree that it is great to build a relationship with as many potential private lenders as possible, that way they are ready to meet when a deal comes along. After all, one of the biggest perks of using private money to fund a new deal is the quick timeline. Private money can enable investors to acquire new deals at much faster rates than other lenders.

·         How To Find Private Lenders For Real Estate

·         Learn the ins and outs of private real estate loans.

·         Build a network of potential private lenders.

·         Prepare a strong portfolio to present.

·         Identify the right lender for the project.

·         Wow lenders with your pitch.

When you are first getting started in real estate, you may look at your colleagues and wonder how to find private investors for real estate deals. More often than not, investors are using private real estate lenders to fund properties. There are many private lenders out there, but the most challenging aspect can be to find one that is willing to fund your deal. However, with the right mindset and preparation, you will be sure to find private real estate lenders who will want to help you.

Understand The Anatomy Of Private Real Estate Loans

Financing terms, especially when you are first starting out, can be quite confusing. Are private lenders the same as hard money lenders? If not, what are the differences.

Basically, private lenders refer to individuals not affiliated with a financial institution, who lend funds to promising investors. Either from a private investor or someone within your social circle who is decided to invest in your venture.

Hard money lives in a middle ground between the two. Hard money lenders are usually affiliated with a more traditional financial institution but have less strict standards. (This comes at a price: generally higher interest rates.) Though hard money is technically private money, as an investor you will generally want to distinguish between the two.

In addition, it is important to know exactly what kind of information a private lender will be looking for. In many cases, private real estate lenders will have experience investing directly in properties themselves. Therefore, they will know exactly which numbers and areas to look at when considering a certain deal. While it is important to build a positive relationship with a potential lender, be prepared to answer questions about the facts and figures of a given deal. Here are a few questions to prepare for when looking for private real estate loans:

·         Will they get their money back?

·         What is the incentive to invest?

·         What are the risks involved?

·         How will you secure my investment?

·         Is your plan well-researched, and it is achievable?

·         Build A Network

Unlike securing a loan from a bank—or a hard money lender—working with private lenders is all about building relationships. This starts with developing a solid investor network.

It is a good idea to begin building your network on two fronts. First, get to know professionals in your industry, such as real estate agents, fellow investors, title companies, attorneys, and private investors. Many private lenders will come through referrals within your own real estate network.

Second, it is a good idea to build your contact list from people outside of the real estate industry. This includes friends, family, colleagues, and anyone who is not currently an investor but might be looking for new opportunities. Many aspiring investors may just be waiting a good opportunity to come around before getting started. Alternately, some of your friends and colleagues may have valuable connections outside of your existing network.

Always approach potential connections with respect and keep these networking tips in mind. Remember, it will take time to create positive relationships with fellow professionals, but it will open a lot of doors in your career. Building a strong investment network is crucial to finding private lenders to work with.

Prepare Your Materials

Put together the materials that you would be sharing with private lenders during your pitch.  This includes a company overview, which covers your education, goals, past deals, and experience, and what makes you the right investor for their funds.

Along with this information, you will want to prepare a presentation or video that outlines previous properties you have worked with. This should outline the success of the past deals, including pictures, numbers, and relevant information. You do not need to include every single property you have completed, and instead should select the properties that show your best work. Remember you want to make a good impression and highlight your strengths.

One more thing to add to your to-do list, which may not be as tangible as a company overview or introductory video, is to have a clear understanding of the private investor process. Look into the documents you will need to present to an investor, such as a promissory note and insurance. Also write out important information like how long the process will take, when they can expect to see the loan paid in full and what happens if there are multiple investors. Going in with this information will ensure you are prepared for any questions that come your way during the pitch.

Select Your Private Lender

Finding private lenders might be tough at first, but it is important to keep in mind that the relationship is a two-way street. Although you will spend time pitching to potential investors and trying to impress them, you will want to make sure that the lender you ultimately choose will serve your needs, and not just the other way around.

First, make sure to ask them about their proposed loan term and interest rate, and what the loan will be based on. This will help you find out how long you will have to pay the loan back, and how quickly it will accrue interest. Further, you will want to know if they prefer to make their loans based on the property’s current value, or after-repair value. Be sure to inquire about potential fees they charge, whether they are upfront or in the form of penalties. Finally, find out the schedule at which the lender will disperse their funds to you.

Based on this information, you will be able to identify which private loan will present the least amount of risk to you.

Make The Pitch

Finalizing a deal with a private lender is about far more than explaining the numbers and going over the property. You need to put your potential partner at ease and make sure you are both on the same page.

To establish this rapport, go into your initial pitch meeting focused squarely on educating them about the process. Keep building that relationship piece-by-piece. Resist the temptation to go for the quick sale, or fast deal, it will not work — and it may leave you in worse shape than when you started.

Instead focus on answering questions, especially those referring to profit splits and timelines. This is what most private investors are worried. And the more you can put them at ease by thinking of things from their point of view, the more likely you are to secure private financing.

Pro Tips For Securing A Private Lender

Private real estate lenders are not nearly as hard as many new investors make them out to be. In fact, a great deal of private lending companies is always looking for investors to lend their money to. The trick, however, is proving that you can manage their money well. For more of an idea of how to find private money lenders and convince them you are the right choice, try following these steps:

Understand Negotiation Tactics: In securing private money lenders, investors will need to learn how to speak their language. That said, there are two strategies to consider: the hard sell and the soft sell. The former, the hard sell, is a more professional approach that will have investors develop a convincing elevator pitch. The idea is to sell the private money lender on the idea of funding an attractive deal. In this situation, it is important to remember private lenders are just as eager to work with investors as investors are to work with them; both parties stand to make money on a successful deal. Therefore, investors will want to approach lenders with all the necessary information and prove to the lender that the numbers are correct. Doing so should convince lenders that they are making the right decision. The soft sell, on the other hand, is typically reserved for friends and family, and will typically involve an indirect approach. More specifically, the soft sell will catch the interest of investors by casually slipping an opportunity into a conversation. Either way, investors need to know who they are talking to before they begin negotiations.

Find Lenders Online: Proceed to find lenders using every method possible, not the least of which will include online searches. There are several online sources designed to connect private money lenders with potential investors, all of which may be found with a simple, localized Google search. One of the best online search’s investors may initiate, however, is one that looks for local real estate investor meetups. Look for a local REI group and find out when they meet next. Attending a local REI meeting will connect investors with several industry professionals, many of whom may be private money lenders themselves.

Cold Call: Investors should try every outlet at their disposal, and cold calls are no exception. Simply obtain a list of lenders online and begin to call each name. When doing so, be as upfront as possible and lay everything out on the table. Proceed to tell them everything they will want to hear about the deal and be prepared to answer a lot of questions. That said, the initial phone call is more of an introduction. Instead of working the deal out on the phone, schedule a meeting to go over things in more detail later.

Launch A Marketing Campaign: Not unlike looking for a deal, investors should market for private money lenders. There are several marketing campaigns to consider, but investors should not limit themselves to just one; try them all. A direct mail marketing campaign, for example, will have investors soliciting potential lenders through a highly targeted mailing campaign. Another idea is to place a sign on any property that is currently being worked on. Place a sign in the yard that suggests you are looking for a private money lender to fund the next deal, and to inquire within.

Private Money Lenders FAQ

Working with private lenders is not a complex process, though it can be mysterious for investors who are unfamiliar with alternative financing methods. As you begin to ask how to find private lenders, make sure you do not have any lingering confusion about the process. Read through the following frequently asked questions to make sure when you do find a private lender to work with, you know what to expect:

How Do Private Lenders Work?

Private lenders work by investing their capital into real estate deals in exchange for interest paid on the loan. They will work with investors to establish the terms of the loan, which will be paid back according to the term. Private lenders are often investors and turn to private lending to expand their portfolios.

Are Private Lenders Regulated?

Private lenders are regulated by state and federal lending laws. Depending on where they are located, there is often a limit to the number of loans they can provide without a license. So, while private lenders are not regulated as strictly as bankers, there are rules they must follow as well. For more information on the regulations in your state, be sure to research online.

Do Private Money Lenders Check Credit Scores?

Unlike their hard money counterparts, private money lenders are not known for checking borrowers’ credit scores. That is not to say all private money lenders do not check credit scores prior to lending, but rather that the decision to loan is based primarily on the asset at hand. Otherwise known as asset-based lending, private money lenders will typically base most of their decision to lend on the quality of the subject property. The more likely the property is to sell for a profit, the more likely a private money lender will be to lend funds to an investor. Of course, the asset at hand is merely part of the decision-making process. Many private money lenders will want to know who they are lending to, which could result in some questions, not the least of which may include a credit score check. That said, not all private money lenders will look at a borrower’s credit score. Only those who are more diligent will typically consider the credit score when lending.

How Much Do Private Lenders Charge?

Private lenders charge different interest amounts ranging from four to 12 percent. The amount they charge will be dependent on several factors including your investment history, the numbers of the deal at hand, the proposed term length and more. However, the good news is that oftentimes the interest rates will be negotiable. Remember as you practice your pitch that not only are you trying to secure financing, but also the best loan terms possible.

Summary

Your goal when working with private money lenders should not be to simply land a deal and move on. Instead, you should seek out someone you can present deals to on a long-term basis. If you focus on building a strong relationship, you can secure financing for both your current and future investments.

Always remain professional when building a network, a strong portfolio and a great pitch can go a long way in landing a deal. By making strong connections and maintaining positive relationships with each lender you work with, you can help ensure you always have options when it comes time to finance a deal.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701

About:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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