Finding Private Lenders

My blog continues with tips from real estate investor Chris McClatchy on how to find private money. A lot of private money comes from sellers doing owner financing, or investors looking for a better return on their money than what they can get in the bank, or from people wanting to invest for higher returns in a self-directed IRA.

Other than sellers, how does a borrower find these folks with private money?

Again, speak up within your network and sphere of influence! Let people know what you need, by reaching out through various social media and "touches."

Touches may be coffee, lunch with a friend, phone calls, email, newsletter, blog, social media/websites.

McClatchy's lenders have included a friends mom, business owners, coworkers, other real estate investors, a banker referral to clients wanting more interest, even an NBA player and a bank employee.Tell everyone!
 

Borrowing private money is not about you, as much as it is about the lenders.  What are their goals and timelines?  Their financial situation.?  Do they want to increase their monthly income? Get a   return they can't find elsewhere?  

Real estate investors are creating jobs, supporting the local economy, building community and improving neighborhoods.  Give people the opportunity to invest in something that does so much good for their city. 

Private lenders want to avoid the Enrons, Bernie Madoffs and losses.  One way to prevent abuse is to be sure that a lender's funding is secured by property.  

It is up to the borrower to build relationships, educate potential lenders to get the appointment to sit down and discuss private money.  Send thank you notes and appreciate those who believe in you.  

Make prospective lenders curious with your elevator speech, e.g. "I rob banks legally."

Be excited! Use simple language, not so much real estate terms.  For example, "The rent more than covers the loan I need;"  "I buy real estate with people tired of getting low returns and tired of the stock market gamble;"  " I share real estate deals with people looking to put money to work...private lenders"   

Be credible, be on time.  You must be sure about your deal and project confidence.  If you're not, why would they be?  

Protect their investment by sending money directly to the escrow company.  Ask if they have any questions?

Chris McClatchy usually asks for a 5 year term on a private loan.  But he adds that the lender could call the loan with 6 months notice.

Ask for and provide testimonials and referrals- "would you be comfortable telling people that we met your needs? and paid as promised or better."  

Pay your private lenders a week early,  and they usually re-up on your next real estate deal.  Send cards and notes with payments, letting your private lenders know how much you value their support, or keeping them posted on your progress.

So start searching for your private money today!

Happy New Year!
Happy Investing!

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Making Offers

Once you have a motivated seller respond to your marketing campaign, what do you offer?

Typically, I ask a lot of questions when I get a seller call: tell me about this house; what work have you done to the property? does it need any repairs? why are you thinking of selling? what will you do with the money from the sale? etc. At this point, I thank them and offer to get back in touch.

Depending on their answers, I may offer them different options. For example, if it is a listed property, I am likely dealing with a real estate broker. In this case, I may offer 10% down (to cover Seller's closing costs and real estate commissions), with payments over 120 months (assuming I believe I can cover these payments out of rental income).

If I am dealing with the Seller directly, my first offer might be 0% down, with payments over time. I might make at least three offers, if the Seller is willing to negotiate. See how this might play out below.

Mindset is important: Remember, we are not real estate investors, we are problem solvers. Zig Ziglar says, "Help enough people get what they want, and you get what you want."  Help solve the Seller's problems with your offers.

Before I make any offers, I might follow this seven-touch approach advocated by real estate guru Chris McClatchey. 50% of Chris' completed deals are done without advertising that he will be using creative financing. Here is his approach:

7 touch approach

1. Gather info. why are you selling? Thank you very much I'll be back in touch.
2. Set appointment; 
3. Call to confirm appointment.
4. Visit the house; speak with familiarity.  Let them lead the tour.  Make them feel in-control. Ask open-ended questions: "Tell me about..."  Ask what they need. Do not talk about price. Don't make an offer. Don't ask about seller finance. Do state: "I'm willing to give you more of what you are looking for if you can take some of the payments over time."  Make it a statement.  Redirect immediately to next question.
5. After leaving call to ask a question.
6. Set an appointment to discuss a "few options".  Don't do it over the phone.  The Sellers get choices, and it is much better to do in person. All people on deed must be there.
7. Present three offers, if possible.

Here is an example of a 3-offer proposition, using $100K as the market value:  

1. low cash offer 65% After Repair Value (ARV) less repairs: $60,000

2. Small down (10%), 0% interest and balloon payment. $75,000

3. Full price.  No money down.  0% interest, balloon at 10 to 15 years. 

Here is another example of how this might work on a $100K deal:

Buyer to pay seller $500 per month for 120 months, on the 121st month buyer to pay seller $30,000 as payment in full.

As I mentioned, the monthly payment needs to be covered by cash flow. Average rents for similar properties in the area can be found using websites such as Rentometer.com. Typically, your first offer is a lower amount  so you have room to negotiate a bigger percent if needed. For example, you might offer 60-70% of Net Operating Income (NOI) for cash flow; 70-80% of NOI to pay off the loan quicker,

Make your offer what you want, not what you think the seller will accept.  Never assume what a seller will and won't do.  Ask for what you intend to have.

Here are some good scripts for your presentation of offers:

1. I know this isn't what you're looking for.  Banks aren't lending, cash is at a premium, we have to be careful where we spend our cash. (Shake head no during this discussion.)
2. I can give you a little more of what you're looking for, if you can take some of the payments over time.
3. I can give you exactly what you're looking for if you can take payments over time.
4. Which option works best for you? 
5. I am sure you can appreciate that I make several offers every week. If another offer is accepted before this offer, then I may not be able to honor what I can do today. (Both deals). 

Offer deadline is the next day.  $500 to escrow as earnest money. 

1/3 of your prospects will accept an offer on the spot.  Leave the three offers behind for all of the prospects.

If you agree to a higher counteroffer- propose that the increase in purchase price is the interest, just simply rolling it into the purchase price.   

There are at least four ways to cover balloon payments at the end of a cash-out period.

1. Refinance with a conventional mortgage at this time.
2. Ask the seller to extend payments and payoff, with interest.
3. Bring in a private lender.
4. Sell the property and take a big profit.

There are some extra tips if you are purchasing multifamily apartments. As buyer, you should negotiate to close the transaction on the 7th of the month.  Here's why.

The Seller collects the rent that month.  

Let's say rent is $28,630 per month, prorated at $954.33 per day.  Times 23 days.  Equals $21,949 credit at closing to the Buyer for rent collected.  Then negotiate first payment due in 60 days.  $28,630 x 2= $57,260 rent collected before first payment to Seller;  equals $79,209 credits in the first couple months after purchase. Nice way to build up some cash reserves!

Tomorrow's blog will continue with tips on Negotiation.

Happy Holidays! Happy Investing!

Real Estate Crowdfunding

A relatively new federal law enacted in 2012 (H.R. 3606) opened the door to a different and radical method that entrepreneurs can use to attract private investors, a method that is now called crowdfunding.

Crowdfunding is basically an Internet-based means of finding funding that can enlarge your circle of potential private lenders immensely.

Nevertheless, you need to educate yourself about the method and the rules that apply to it before utilizing it.

There are basically two types of real estate investors who are active today:

Type 1 – Those who are unaware that they are issuing a security when they borrow money from private individuals

Type 2 – Those who are aware that borrowing money from private lenders involves issuing a security but are so confused about what the SEC is and does that they are scared of doing anything at all that requires dealing with the SEC.

The first set of people unwittingly set themselves up for some pretty expensive consequences because in thinking the rules don’t apply to them, they ignore them. And, as always, ignorance is not an acceptable excuse.

Those folks in the second group miss out on something that could provide them with a huge competitive edge.

On Oct. 30, 2015, the SEC finally released new crowdfunding regulations for real estate investors – including a federal crowdfunding exemption that allows real estate investing businesses to raise as much as $1 million annually by selling their securities to investors over the Internet.

And that’s not all! The new rules also change the guidelines you need to follow when advertising for investors and set new minimum net worth and income requirements for investors.

Let's look at the latest statistics, which show that the amount of funds raised via crowdfunding has increased from $1.5 billion in 2011 to an estimated $10 billion this year, and the global market is expected to reach $90 to $96 billion by 2025, which is almost double the size of today’s global venture capital market. Crowdfunding is here to stay!

Fundrise and Realty Mogul are two of the top real estate crowdfunding portals.

I'd love to hear stories from my blog readers on your experiences with crowdfunding - good and bad. Please post comments here.

Happy Investing!

Private Funding for Investors

Cheap easy financing for your real estate investing deals!

https://tvallc.isrefer.com/go/vsl/WendyC

Happy Investing!

Structuring Private Money

Daniil Kleyman, full-time real estate investor,
is featured on this 40+ minute all-content video called: 
"Private Money Structuring – How to Get Lenders to Chase You".

In this video,  he shows you:
-          Breakdown of typical financing avenues for real estate deals
-          3 Ways to structure private money deals, with examples
-          A slick way to borrow money from people who don't have money to lend
-          A way to structure private money deals that will have lenders chasing you
-          And much more
         
Just click on the link below to go directly to the video:

Click here to watch the video 
This is the kind of info everyone else is trying to sell you.  You get it at
absolutely no charge so go watch it now!

Watch the video and leave your comments and questions at the bottom!

Or cut and paste the link below:

https://tvallc.infusionsoft.com/go/RehabLite/WendyC/

Happy Investing!