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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Sources of Cash

As an investor, you may be looking for quick sources of cash in order to purchase a property for future re-sale. Perhaps you are looking for cash to make the purchase, pay the down payment, or pay for fix-up costs. Whatever the issue, the speed with which an investor can come up with cash may spell the difference between getting the deal or not.

Conventional buyers rely on savings for a down payment, and then qualifying through a bank or lending institution for a conventional mortgage. But many lenders today will put a limit on the number of residential mortgages that may be held in your name. Or require a significant cash reserve, or lower debt to income ratios. This source of cash is not infinite to any investor, and the true investor will be looking for other sources of funding.

Here are just a few.

Seller financing is typically the least expensive form of financing for the purchase of real estate. The Seller may be willing to carry 80-100% of the financing, for as long a term as a conventional bank, depending on the issues surrounding the sale of their property. Typically, sellers will provide this kind of financing if it is impossible to get bank funding on a property, due to its condition or other factors; if the seller is trying to minimize their tax burden upon a sale; or simply to speed up the transaction or attract more buyers. The terms of this financing are negotiable to the buyer, and may be anywhere from 0% to whatever the market will bear.

Short-term financing will typically have the highest interest rate, as will a second- or third-lien position of the Seller behind another mortgage. Some sellers will help finance the down payment, when the Buyer can come up with a conventional loan, so this interest rate will tend to be shorter-term and for a higher rate.

Buyers may also take out a home equity loan or home equity line of credit on another property they own to come up with the cash they need for a new purchase.

Sometimes buyers will offer collateral to make up the difference needed for a down payment. This might be in the form of an automobile, boat, airplane or something else of value to the seller.

Buyers may work out installment plans, or offer to do a lease with the option to purchase later at a set price.

Many cash buyers will get hard money loans from non-bank lenders. Hard money loans are issued by professional money lenders, who usually offer terms with shorter-timeframes, higher interest rate, and lower loan-to-value ratios (requiring some skin-in-the-game by the borrower). This funding tends to be the most expensive.

Buyers may find private lenders, generally private individuals they know who are willing to lend money at a lower interest rate. Family and friends are a good source of this type of financing.

Buyers may come up with cash by doing a joint venture with the seller or another partner. Partnerships may be formal or informal, and take the form of true partnerships, limited liability companies, corporations or syndications.

Buyers who are at least 59 1/2 years of age may make withdrawals from their IRAs or life insurance policies without penalty. They do however have to pay taxes on any distributions.

Buyers may sell something else of value to come up with cash quickly, such as a car, gold or other collectibles.

There are many different ways for a Buyer to come up with cash, if they want something badly enough. Or they could broker the deal for another buyer by selling their interest for a wholesale price to another Buyer prior to closing.

Real estate investment can be enormously creative, and finding cash is not as difficult as some investors make it out to be. So get out there, and start finding property!

Happy Investing!