Private Money Lenders for Real Estate
Private Money Lenders are a HOT COMMODITY for real estate investors, especially in this financial market where funds are not readily available from conventional sources. And, the available deals are better than ever before – as long as you’re prepared! Let’s face it – you need to have ready cash to get the good deals out there.
Who are Private Money Lenders, anyway?
They are not banks or financial institutions. They are private individuals, or companies formed for the sole purpose of lending money and backed by private investors; i.e. not government regulated.
Now you might wonder what is the difference between a Private Money Lender and a Hard Money Lender? Hard Money Lenders are 3rd party lenders, which means they make money by lending out other people’s money (basically the Private Money Lenders’ money). They make their profits by charging additional interest over what they pay the private lender, as well as application fees, loan points and “junk fees.”
What Matters to a Private Money Lender?
One of the most important things about raising private funds (whatever your source) is establishing relationships with your lenders. If you have read any biographies of real estate entrepreneurs who’ve made great fortunes you’ll find they established relationships and credibility before even raising their first dollar.
The good thing about it is that you really don’t need to have your own money or good credit to work with Private Money Lenders. What you need is a solid plan, a professional attitude and determination.
Tips for Funding with a Private Money Lender:
The following is a pretty thorough To Do list for breaking into this highly sought after territory:
Develop a business plan and/or executive summary where your personal income or credit is not required. You need to present yourself, establish your credibility and show that you have done “your homework” on the subject property. An executive summary is divided into two parts; the first part (your resume) gives your background and experience (updated from time to time) and the second part that changes for each property for which you are trying to raise money.
Research cash sales in the area of interest. Find out where real estate investors are getting their deals funded. The easiest way is to do an MLS search for cash sales in the last 6 months for the subject area. This will give you the property address, selling and listing agent and some times the buyer’s name (depending on the MLS system in your area).
Now that you have the property addresses, just check online at the local Tax Assessor’s site to find out who is on title (ownership). Next check the Recorder of Deeds office to find out where the “cash” came from. If the cash did not come from the buyer’s bank account, it will have come from a Hard Money or Private Money lender. A lien and note will be on file, with the name and address of the lender.
Spread the word. Make a list of everyone you know who might have liquid funds; pension funds, IRAs, credit lines, etc. ‘Partner’ with people who might have gathered this information on different individuals; i.e. mortgage brokers, investment advisors, insurance agents, real estate agents, etc.
Host a free seminar. Once you have a list of individuals who may have funds available, host a free seminar at a hotel meeting room. If you prefer, you can meet the possible investors individually. Be prepared with a business plan and sample executive summary, explaining your vision and what you can offer them. Professionalism is a must!
Real estate syndication. Organize the Private Money Lenders that want to work with you in a group, where you are the ‘syndicator.’ Real estate syndication is where a group of people pool their money together with the purpose of funding real estate, both long and short term. You make money as a syndicator/consultant, and through partnership arrangements and more, (without using any of your money or credit)!
As I mentioned, great fortunes in real estate have been made by visionaries who were able to present their projects in a professional way and establish credibility. I have personally used real estate syndication and private funds (which I raised by following the steps outlined above) since 2001!
Would you like to know more?
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