Have you ever came across an incredible real estate deal but had it slip through your hands because you were not able to line up funding quick enough to lock it up? If so, you are definitely not the only one.
Losing out on great opportunities that present themselves to us real estate investors is a painful experience. This is why we must place a great deal of focus on making sure we have access to the capital needed to act quickly on these great deals.
One of the greatest sources of capital for real estate deals is Private Money Lenders.
What Are Private Money Lenders?
Private Money Lenders are usually individuals or organizations that lend money which is secured by real estate. Private money lenders can differ a great deal from banks because of their non traditional lending guidelines.
In trade for the capital you need, private money lenders are usually looking for one of two things, debt or equity.
Most private money lenders are seeking an interest rate in trade for the capital and this is secured by a promissory note or mortgage.
Some private money lenders may seek equity in your deal in trade for the capital they provide you. In other words they will receive a percentage of ownership of the property.
Who Are Private Money Lenders?
A private money lender could be anyone from an accredited investor who is a complete stranger to you, to a close relative of yours.
There are really two markets of private money lenders. One being your warm market. These are people that you already know pretty well such as family, friends, co workers, business associates, etc.
Cold market private lenders could be complete strangers to you, accredited investors, people you have met while networking, people you have found through social media or their advertising online.
Some private money lenders may be found through warm market referrals. This creates more of a lukewarm contact for you since your friend/family member introduced the two of you.
Why Should I Use Private Money Lenders?
There are many benefits of having access to private money that can often far outshine other methods of funding.
Here are a few of the benefits:
Typically much lower interest rates than hard money loans. 4-10% rather than 10-12%. Plus hard money loans will most often require that points be paid as well.
Terms are negotiable and more favorable to the borrower than traditional financing.
Easier to qualify. Much less stringent qualifications. They do not have to follow institutional guidelines.
No limits on how many properties you own. Many banks will have a limit.
Quick funding. Banks may take 30-60 days or longer to fund when private money may only take a few days.
You are typically working directly with the individual lending the money rather than someone on the totem pole
Where Can I Find Private Money Lenders?
The first place to look for private money lenders is your warm market. Let you friends and family know exactly what you are looking to do. See if any of them may be interested in lending their money. Ask if they know of anyone who may be interested.
Next you can network at local events. A great place to find private money lenders is at REIA’s (Real Estate Investment Associations). Most major cities across the US will have a real estate investment club or association that meets once or more every month. There will be people from all avenues of real estate at these meetings.
Tax records are a great way to find private money lenders. Some counties have their records online while others can only be accessed by visiting the recorders office in person. You can search for cash transactions and look up who the lender was. Look for individuals names rather than institutional names/lenders.
There are many list brokers that you can find online which can provide you with a list of private money lenders. Once you have this list the next step is to send them a letter introducing yourself.
You can also find private money lenders searching online and even networking/searching social media sites as well.
Tips For Speaking with Private Money Lenders
Before you ever speak with a private money lender, especially in your cold market, you must have a clear plan in mind. It is important that you are prepared to answer & address common questions and concerns that will come up. Practice handling objections before pitching to a prospective lender.
Think about what you would want to know if you were in their shoes and considering lending a large sum of your hard earned money to someone. What concerns would you have?
When you meet with a potential private money lender remember the following:
Listen carefully to what their needs, wants and concerns are
Be completely honest. Don’t hide anything
Use layman’s terms rather than too much technical jargon
Know all of the numbers and be ready to explain them
Ask for referrals. They may not be interested but could know of someone who may be
If you are truly serious about building a thriving real estate investing business, private money lenders can play a vital role. They can be the helping hand or safety net that you need to ensure a great deal doesn’t slip through your hands. They can be that stepping stone that propels your business to the next levels.
I encourage you to get out there today and start building relationships with private money lenders. I know that you will find these relationships invaluable moving forward.
I hope that this post was very helpful to you. If it was, please share with someone who you think may benefit from it.
Here’s to your success!!!