Money talks—in this industry, it’s that simple. If you’ve got cash, then you’ve got the power to make deals happen on your terms and your timeline.
But that doesn’t mean you have to have a pile of cash stuffed under your mattress (side note: don’t have a pile of cash stuffed under your mattress…ever…). Some investors don’t have tons of money kicking around, especially when they’re just starting out.
While there are many ways to do real estate deals with little to no cash, if you intend on buying houses to fix-n-flip or buy and hold for cashflow, then you’ll need funding.
Wouldn’t you LOVE to have the confidence of knowing that if a hot deal just came across your desk today, you can secure that deal quickly and close on it because you have access to funding. And even those that do have cash still use OPM (other people’s money) to do more deals or bigger deals.
“OK, But Where Do I FIND The Money?”
That trickles down to YOU. If you can do that—if you can secure the financing you need to start closing and rehabbing deals—then you’re in a serious position of power. And that’s exactly where you want to be starting right now.
Already scratching your head? You aren’t alone. Until you’ve figured out your optimal paths to funding, the entire process can seem a little overwhelming.
But it doesn’t have to be. We’ve been hammering away at all the ins and outs of one very high-value funding source: private money.
WHAT IS PRIVATE MONEY?
Private money is a very common funding source in real estate investing. Private money always originates with an individual or group of individuals—that could be a friend or relative or, even, a “professional” private money lender. As long as the money comes from a person or group of people and not from a bank or formal lending institution, it’s considered private money.
Most private money sources can be divided into one of two groups:
Inexperienced lenders, including friends, family, neighbors and, really, anyone with money. Think “normal” people who have a good amount of cash on hand or in savings, but aren’t getting great returns. These are prime candidates for private money investing.
Experienced lenders, such as investor groups and professional private money firms
My goal is simple. If you’re new to real estate investing, I want you to feel confident enough to dive head first into the business, without worrying for a second how you’ll fund all those incredible deals. If you’re up and running, I want you to see the path to growing, evolving and scaling your real estate investing business successfully and on your terms. And if you’re an old pro, I want you to gain a new perspective—or, even, just a few new tips and tricks—to keep your investing business moving in the right direction.
THIS IS A RELATIONSHIP BUSINESS FIRST
The best and most important thing you can do when it comes to private money? Build relationships with your prospects first and foremost.
WRITE THIS DOWN:
PRIVATE MONEY = PERSONAL RELATIONSHIPS
Hang it on your wall. Stick it to your computer monitor. Fold it up and stick it in your wallet. But no matter what, DON’T FORGET IT.
It doesn’t matter where your leads come from, you must build a relationship with every single one, every single time. Not only is it good business, it’s required by the Securities and Exchange Commission (SEC). Really. If you present an investment opportunity to a total stranger, the SEC considers that solicitation and they aren’t interested. If you aren’t registered with them, this could land you in some serious hot water.
Avoid all the drama and build relationships. Get to know prospective private money sources. Understand their needs, goals and business models. Figure out what they’re looking for. Then and only then should you present opportunities. So those postcards and direct mail pieces soliciting funds? Toss them. We’ve got a few you can use to get your foot in the door without ruffling feathers (click here for more). They educate without selling, introducing you and your business without violating any SEC rules and regulations. And they’re the right way to go, trust me.
To be successful on the relationship building front, you need to shift your mindset from being a seller to being an educator. This takes the pressure out of any situation and gives you an opportunity to engage and build those valuable connections. If that lender winds up being right for you, great. If not, move on. It’s as simple as that.
To do that, I’ve organized my process for generating new private money leads and, from there, maximizing those prospects and streamlining the funding process from start to finish. In other words, I’ve done all the heavy lifting so you don’t have to. You can just focus on deals, deals, deals—on finding them, securing them and making the most out of every opportunity every time.
But back to your question—to, literally, the million-dollar question: where do you find these lucrative private money sources?
And once you’ve spotted them, how do you engage and activate these lenders to close more deals? It’s actually a lot easier than you might think and, chances are, you’ve already got at least a few of these resources in your investing universe. So roll up your sleeves and let’s go—let’s find you some private money.
THE PERKS OF PRIVATE MONEY
There are lots of perks tied to private money. For starters, since your financing isn’t coming from a bank or major lender, there are no hard and fast rules or regulations to follow—a private money lender has the power to determine interest rates, payback terms, loan to value (LTV) ratio and more. I’ve seen private money lenders give investors the funds they need and only charge points and interest—or even just interest. I’ve seen plenty of others lend 100% of the deal including rehab work and, in exchange, all they want is a percentage of the profit once you sell or rent the property.
At the end of the day, I consider private money lenders to be the excuse busters of the real estate investing industry. It’s asset-based lending, so lenders only care about the deal itself, not you as a person. Even if you’re totally broke and can’t squeeze a few bucks from your inner circle, private lenders are likely still a possibility. Many will give you the capital you’re looking for without anything in return—that is, until you flip the deal.
It’s not cheap money, but it’s there and, again, that gives you no excuse not to reach out and grab it. If you can leverage that kind of debt capital, then you’re in good shape—because, if your deal is solid, you’ll make a good return and kicking back to your lender won’t be a big deal. I’ve seen these kinds of profit-sharing deals range from 10%-50%. Sounds steep? It is—but if you make $10,000 on a deal and invest nothing, you’ll still have $5,000-$9,000 to show for it. Not too shabby for a $0 investment.
1. Network, Network & Network Some More…
Let me just start by saying…
YOU SHOULD ALREADY BE NETWORKING!
Whether you’re looking for financing or not, networking is a critical piece of the real estate investing industry. If you’re not networking, you aren’t doing your job—it’s as plain and simple as that. So the first order of business? START NETWORKING NOW.
The next step: find and engage those private lenders out in the world. My advice? Start with your inner circle—your real estate agent, contractors, inspectors, attorney, accountant—the people who have long-term relationships with you. They know you, they trust you and, because they’re elbow-deep in the real estate industry, they likely have ins with private money lenders, either personally or through extended connections. Don’t be afraid to ask for the intro. If they connect the dots and help facilitate a great deal, it’s a win for everyone.
And it doesn’t just have to be your real estate circle. Talk to your friends, families and neighbors. Tell them what you’re doing. Show them the successes and the ROI. Even a soft sell like that can be enough to convert a disenfranchised saver.
DON’T FORGET ABOUT YOUR BUYERS LIST
Many real estate investors overlook a key networking source. That source? Your buyers list. I’ve had a lot of success simply sending an email blast out, letting these cash buyers know that I can also help connect investors with private money lenders. Sure, I get tons of responses from investors who want to connect with alternative private money sources, but I also get quite a few from those who have cash and are or want to be private lenders.
And it makes sense—if they’re on my cash buyers list, they have cash. While many of them made and continue to make their fortunes investing in real estate, many want to diversify their portfolios and create added passive income streams for their businesses. For those investors, becoming the bank could be an ideal next step.
Then there’s NETWORKING EVENTS, prime opportunities to meet and mingle with potential private money sources in your area. Many industry events and opportunities are ripe with private money potential.hitting up these networking events could be very profitable for you and your business.
Some of those networking events?
Local Real Estate Investor Association (REIA) events and get-togethers
Local real estate, real estate investing and investors club meet ups—check sites like Meetup.com for a list of local happenings
Real estate/Foreclosure auctions and tax sales, where you’ll rub elbows with top-notch investors, lenders and agents in your market—in other words, people who have cash at the ready
And besides the “live” opportunities, there’s plenty of online networking happening 24/7, including:
- Real estate investing message boards
- Public and private social media groups and pages, for real estate investors and insiders
- Online education and certification platforms
While not everyone in the mix will be a private money lender, many will be or will have the potential to be. I know many real estate investors who are also private money sources. Down the road, you might decide to diversify by investing your cash into other people’s deals. It’s a great way to create passive income—wealth that works for you without you lifting a finger.
As you’re engaged in these events, get-togethers and digital forums, be sure to survey the scene and really listen. It’s usually easy enough to figure out who’s the “money.” Bring lots of business cards and be prepared to approach people with confidence, clarity and conviction—no one’s going to go all-in with a half-hearted real estate investor. And when you do make a connection whether it’s with a private money lender or not, ask for their contact info and follow up.
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Keep in mind that any relationship can be a lucrative one if you know how to work it. Send an email and thank them for their time. Pick their brain on upcoming opportunities. Meet for coffee or lunch. And as you’re ratcheting things up on the relationship front, suss them out for lending potential or, even, to see if they have any contacts or referrals.
WHY YOU WANT—AND NEED—REFERRALS
Referrals are an enormous piece of the real estate investing business on every single level. Those personal connections and contacts tend to drive you to the best leads, the best lenders, the best contractors and, really, to everything and everyone in between.
This is especially true when it comes to private money. Once you have a lender or two in your arsenal, start asking for referrals. A single private money source can’t fund every deal and, chances are, they know at least a few other go-tos who can help keep your deals in motion.
When I first started out, my initial private money lender turned me onto two others, who came with their checkbooks wide open. Then those two pointed me towards a few others and, within months, I had people literally begging to fund my deals. I didn’t even have to sell them on my business or my investment opportunities—the referrals had. Again, another major plus that comes with building your referral network!
2. Talk to Investor-Friendly Title Companies & Closing Agents
Title companies and closing agents are the front lines of real estate investing and purchasing in your market, and that means they have an unparalleled look at who’s who and what’s what. Because they close so many deals, these experts and insiders can readily see who’s using private money and who is private money. By building good relationships with a few title companies and closing agents, you’ll be able to tap their know-how and connections to engage and activate new private money lenders for your business.
Granted, most aren’t just going to turn over the goods, so don’t expect a comprehensive list of every private money source to magically land in your inbox. I usually ask my contacts if they have any private money contacts they’d be willing to introduce me to, or see if they’re spotting new lenders working their way into the market. If you’ve built that relationship and proven you’re a good investor, most agents will do it since, ultimately, it benefits them in the long-run. The more deals you close, the more potential they have to close those deals—and make some serious cash in the process.
3. Search Public Records
Public records are a wealth of investor-friendly information. Think about what happens when a deal closes with private money:
- The buyer and seller close, with the help of a private money lender
- The title company or attorney records the documents, including the deed of trust or mortgage (this varies state to state)
- These records are now on file and searchable to the general public—hence the name “public records.” And that means anyone can see every deal, including who financed those deals.
Pretty simple, right?
In many counties, you can search mortgage and purchase records online, making this step incredibly easy. In others, though, you may need to make a trip or two to the Clerk of Court’s office to do some digging. Not hard either.
Every area is set up a little differently but, in most cases, you’ll be able to search records with a few quick clicks. With most online systems, you can search the deed of trust or mortgage records and look for the private individuals who have lent funds on recent deals. It’s very straightforward.
SEARCH PUBLIC RECORDS LIKE A PRO
Ready to search public records for private money? Try these two simple methods to enhance your search and ensure you turn up some quality private money lenders every time.
METHOD #1: Search Mortgage Records
Search deeds of trust or mortgage records, looking specifically for the “grantees” or “mortgagees.” The majority of your search results will show traditional banks and lenders. Look for private individuals, and put a STAR next to their names. These people are already lending—if you spot their name on a few deeds or mortgage records, that tells you they’re lending private money a lot and could be a good prospect for you.
METHOD #2: Search By Owner Type
The second method involves searching through owner types. The easiest way? Search absentee owner properties for the last few months or so. These types of searches are usually best by purchasing a list from a list brokerage firm.
These properties tend to be investment properties which, in many cases, leveraged private money. If you can get your hands on these lists, it’s usually much easier to spot private lenders than with other search methods.
Once you’ve got your parameters in place, you’ll be able to scan lists of all mortgages and lenders. Again, most will be obvious banks and major lenders—your name brand financial institutions and regional credit unions, for example. But in some cases, you’ll see names of individuals or less recognizable small companies—companies that could be small private money lenders.
Spot a few and click on the links to view the mortgage. Here you’ll see the amount loaned to the buyer by a private person or group of people—in other words, from a private money lender. Cross check that with any list you started in step #2, above. If a private money source is new, add it to your list. Either way, be sure you’re jotting down a few key details—who they are, the amount they loaned, the property type, the date and any other intel you can cull from your search. These private money sources are good jumping off points. More to come on what’s next…
4. It’s Simple—Just TALK About Your Deals
This one’s a no-brainer: talk about your latest business dealings. It sounds super obvious but, more often than not, new real estate investors keep quiet on their latest and greatest goings-on. In some cases, they’re scared to talk business with friends and loved ones—maybe they’re nervous about what their inner circle will have to say, or maybe they don’t want to jinx an upcoming deal. But, either way, it’s mum’s the word—and that’s a huge mistake.
Because private money can originate from anyone, one of the best tools in your investor toolbox is your ability to spread the word. I’ve done deals at the dinner table and I know I’m not alone. You never know if your aunt/brother-in-law/cousin/family friend is considering jumping into real estate investing. And guess what? If you keep quiet, you’ll never know.
Social media is another great platform to share your upcoming deals, and generate excitement and buy-in. Post your latest and greatest deals to Facebook, Twitter and Instagram and see what happens—these platforms were built for sharing, so one quick post could engage thousands of people in your circle and out. I’ve personally closed on tons of deals and found a few private funding sources, all because of a direct result from my simple social posts alone.
Before and after pics work really well on social, and are perfect for sharing—who doesn’t love those side-by-sides? And besides your actual deals, you can also share industry news, tips and other intel that positions YOU as the expert. Soon enough, you’ll start peaking people’s interest and driving them to your site. Voila! New private money lead.
And don’t forget, even if your crew isn’t interested in getting in on your latest—or first—real estate deal, they might know someone who’s itching to invest. Often those individual private money lenders want to invest in the person and not just the deal—if your friend or family member can make the intro, it’s a win/win/win. You get your private money, that person gets a fantastic investment opportunity and your shared connection is the hero. Really, what could be better?
Got your list of potential private money lenders? NOW LISTEN UP…
So you’ve run through these four simple steps and, now, have a robust list of potential private money lenders. Well done!
But now we have to tackle part two: what to do with those leads. Because having a list of potential lending sources is nice, but it really doesn’t matter much unless you actually lock one or more down, right? Right.
As I mentioned earlier, add all of your prospects to your running Excel grid with any critical notes—who they are, how you wound up in contact with them, if they’re heavy duty lenders or more into one-off deals and, if you have it, how much they’ve loaned in the past and the types of properties they seem to be trending towards—single-family homes, commercial buildings and things like that. If you know the terms they typically look for or, even, mandate, include that here as well.
Got that in place? Good. Your next step is to focus on the relationship-building piece of the puzzle. If you already know some of these lenders from your all-star networking efforts, GREAT. If not, start reaching out. Figure out where they go and when—the industry events they’re speaking at or attending, the programs they chair, the auctions they frequently hit up—and do your best to get front-and-center. If you have a mutual connection, see if that shared contact will make the intro. It’s all about building your network before you solicit private money lenders for their buy-in.
And once you’ve got those valuable connections in place? Start reaching out—don’t wait. I usually write a simple, short and very to-the-point letter or email that introduces myself and my business and explains that I work with a number of private investors. I mention that I have some upcoming deals I know will be of interest to them.
Then I close with a call to action—to check out my site, for example, or to get in touch before this deal floats on by—and provide my direct contact. I also mention that if this isn’t the perfect time to get in touch anyway—that I always have great deals come across my desk, and I’d love to keep them in-the-know on future opportunities. Really, who can pass that up? Sure, you didn’t lock down the private money, but you’ve just grown your list by one more potential private money lender—not too shabby.
WHAT TO DO WITH THAT PRIVATE MONEY LIST…
As you’re building your potential private money list, don’t forget to STAY IN TOUCH. This should go without saying but, too often, real estate investors let their prospects collect dust—not ideal.
Don’t be THAT INVESTOR. Write quick notes to your list monthly, and be sure to include them on any upcoming deal notifications. Just because they haven’t invested doesn’t mean they won’t in the future. If they see your business is thriving and are wowed by some upcoming deals you’ve got on the table, they’re way more likely to raise their hand and earmark their cash for your next investment property. So don’t ignore your not-quite-ready lenders—keep them in the mix and help carve the perfect path from your next deal to their financial front door.
GOT A BITE? GOOD!
Chances are, you’ll wind up with a few responses and some potential for that all-important private money. When a lender shows interest, you want to prove that you are the REAL DEAL—that you can make this deal happen and, equally importantly, make it very lucrative for them, too.
This next step tends to trip people up—so read very carefully. To do that—to show that your investment is where they want to put their money—you need to LISTEN. You’ve got two ears and one mouth, right? Use them proportionally. As real estate investors, we’re used to having to pitch ourselves and our businesses constantly, so we’re used to—and comfortable—talking. And while you will talk in these transactions, to craft the right deal for a private money lender you need to tune into their priorities and interests.
The easiest way to do this? Ask them to meet for coffee and pick their brain about the kind of deals they like to invest in. Find out if there’s a set return they’re looking for. Get a sense of their budgets, timing and expectations. Talk about their best investments to date and what made them so great. Talk about real estate deals that didn’t pan out, and what they wish had happened instead.
From there, talk terms and next steps. People want to be heard and they want to know that they person they’re turning their cash over to really “gets” them. Be that investor who delivers on their wants, needs, hopes and dreams. Those are the people who get funded.
You should also be prepared to talk exit strategies at this point—in other words, how you’ll get their money out of the deal. Again, listen to what they’re saying and craft your talking points accordingly, but know going in what your end game is and how it, in general, benefits a private money lender.
And from there? You structure the deal and structure away the risk for that particular private money lender. You’ll want to outline pay structures for the investment loan, repayment terms, rates and other key details. If you’re working with someone who hasn’t lent private money before, they’ll probably need you to education them, draft the loan documents with the agreed upon terms and really be their eyes and ears from start to finish. If you’re working with an experienced private money lender or group of private money investors, they may even have this framework in place for you, outlining their terms and conditions. Review their documents and, if it all works for you and your deal, then you’re golden.
WHAT’S NEXT: MAKING THE MOST OF PRIVATE MONEY
Sounds simple enough, right? It is—and it’s also the exact same process countless real estate investors have used to generate millions in private money. It’s how I find new leads and engage my list so I can 100% vouch. So if you’re ready, then let’s do this. Start networking, start chatting up your contacts and start pitching private money lenders on you, your business and your next great deal. Because once you’ve got a few cash sources in place, the entire real estate investing process gets infinitely easier. Now I can just pop an email off to my “money list” and voila! Potential lenders ready to go. That’s the goal—and, by following these simple steps, you’ll be there in no time.
Remember, all real estate companies rise and fall based on their ability to secure funding—and, more so, to find and gain access to unlimited capital to keep their business moving forward. If you’re ready to take that next step, enroll in our PRIVATE MONEY MASTERY COURSE. Learn the ultimate strategies for sourcing and securing private money lenders for your business. PLUS gain all the tools and techniques you need to start successfully leveraging private money, including scripts, presentations, legal documents and expert intel we’ve used to raise millions in capital and diversify countless portfolios in a BIG way. CLICK HERE to enroll now!