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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What Does It Mean?

Since April 2009, there have been 1.15 million foreclosures. During that same time, 6.1 million American homes have been refinanced and 2.8 million have received a loan modification from either the HAMP or a private lender program. That means that there have been almost 3 times as many loan modifications as foreclosures in the last 13 months. Government leadership has led to a more comprehensive and lasting modification program than the earlier HAMP.

What do all of these trends in my previous blogs mean?

It means that there is OPPORTUNITY!

Opportunity for lucky sellers, who are fortunate enough to offer financing in a world where credit is tight and lenders are running scared. These sellers will have a bigger pool of potential buyers and command a HIGHER PRICE for the sale of their home in LESS TIME than the same seller down the street who cannot offer owner financing.

Opportunity for private lenders who are looking for bigger returns on their investments than what they can get in the stock market, or with other investments. Why? Because many borrowers cannot find funds or credit to purchase a house, a home or an investment without it.

Are there risks associated with these opportunities?

Of course there are! And would you like to know how to mitigate those risks, while taking advantage of the unique opportunities that exist today?

Then stay tuned for my next blog!

Risks of Being a Credit Partner

What if I partner with an investor who fails to fulfill their promises?

Whenever I lend or borrow money, I try to secure my financial pledge with a promissory note and some collateral, in this case a lien on the subject property. If my partner defaults on their payments, then I have a legal right to foreclose on the property. When I work with a credit partner, they have paid nothing out of pocket, but have the right to foreclose on a property should I fail to make payments as promised.

If your partner is promising to cover payments through rental income, then it would be important to ensure that there is a legitimate long-term lease on the property, or that your partner has a good track record of property management. If not, you may want to hire a property manager, or seek their opinion on the potential rental income on the property. I find that rentometer.com does a pretty good job of estimating median rents for property.

But what if I have to foreclose?

If you have to foreclose, hire a good real estate attorney and have them handle the details. Expect to spend $2000-4000 in Washington state (a non-judicial state) to handle the foreclosure. This may not be a bad price to acquire a property for which you originally paid nothing. Make sure you have access to funds should this become necessary.

In working with a partner, be sure to always do your own due diligence. Hire an attorney to draft and/or review any legal documents; and be sure to get references on your partner, especially if you have not worked with them before. Most investors are small business owners and entrepreneurs who are looking for venture capital to expand their business. And ideally, your deal is structured in such a way that makes lending money or credit a win-win for both of you!