Use Private Money or Else!

I teach a class every so often about how to structure deals with your private lenders. I do this because I believe that the only way to leverage yourself properly and sustain your business is to have an availability of funds greater than the number of properties you need to buy to keep your business model on track. That’s a mouthful, but the truth in that statement becomes more evident all the time.

Take it from me; you are going to eventually run out of your own money if you plan on having an investment business that thrives. If you just want to buy a property, flip it, and buy another, then you need not pay attention to this article (although the writing is spectacular!). However, if you are serious and want to see exponential growth as an investor, then listen closely....Go get as many private money lenders and partners as you can find!

News Flash: There is a TON of money out there to be borrowed. People have no idea where to put their investment dollars. Stock market? Yeah, that’s safe. Money markets? Sure, if you like less-than-one-percent return . Real Estate? Now we’re talking! My company routinely offers our lenders between 10 and 12 percent interest, and often we do equity splits as well! Where else is your Rich Cousin Bobby or your dentist going to find returns like that? I’ll wait while you try to answer.....still waiting.....Yep, I thought so. Stumped, aren’t you?

The deal is this: Because we buy our properties well below current market value (which is far below what their values were three years ago), we have an equity cushion of at least 25-30% in each project, thereby creating a very safe scenario for both lender and borrower. Then, we secure the loan with a Deed of Trust, which basically says that if we don’t pay back the loan, the lender can go after us and take the property. In short, we do everything we can to protect the money guy (or girl).

You have to be confident and know all the awesome selling points for you to have in your arsenal when you go search for money. My suggestion is that you begin with this mindset: You are offering something that is so beneficial to the potential lender that if she passes on the opportunity, she might as well bury the money in the backyard (hey—these days that’s not a bad second choice!). You see, I don’t beg people to borrow their money. The money comes to me because the opportunity speaks for itself.

And yes of course, if you are someone’s Rich Uncle Bobby, then take my advice and lend your money on some real estate. You can even use your IRA or 401K money and earn tax-deferred or (yes its true) Tax Free returns.

If you have any questions or comments about private money strategies, please call or write.