The Truth about Private Money
“If you want money, go to the bank. But not the marketplace”! – Jim Rohn
I want to take the next few paragraphs and debunk alot of myths that are floating around the real estate realm and share our personal experience on how we raised millions in private capital. This can mainly be summed up with Jim Rohns quote but allow me to elaborate.
When Steve and I first started off in real estate and got our first official deal under contract, we were fortunate enough to have a lender right in our office. He was actually the one who made it known to us we were working our talents to hard for someone else to make all the profit. The “aha” moment occurred when he non-chalantly said “Ill fund your deals”. Within 10 days Steve and I had an opportunity to present to him. We went on to borrow around $250,000 in private money at 12% and a $2000 origination fee and soon realized we should seek better terms.
But we didnt stop there. We tried the whole lending institution and bank financing role and did get a swift $40,000 line of credit within two months of being established (with NO previous tax returns mind you). We had a knack for turning every opportunity into something more than seemed on the surface. One of our largest lenders appeared out of a meeting that wanted to buy one of our properties and sell it to his son on land contract. We were able to see that what he really wanted was more monthly income. Not the whole investment side of the bargain.
Ill never forget what he said to me at that appointment when I stepped out of my Lexus to show him the home…”WOW, you sure are a young buck for being in the real estate game, how are you able to buy all those houses I see on your website”?
“Quite simple actually! We have a proven business model of buying and selling undervalued properties and we seek people just like yourself with excess capital in a savings, checking or 401k looking to increase their cashflow while having the security of a first position lien on a deed of trust” You can take that verbatim if you like!
HE never did buy the house but the next day we met at a property two streets over with him and his wife and he lent us $40,000 on a property after one day of meeting him. HE was in love. We gave him wonderful terms, ultimate security, personal service and got him to unlock more money as time moved on.
He was an incredible source of private money and a good advisor on economics.
Another lender we had was someone that Steve had spent countless (and I mean countless) hours learning from and molding into a superhuman investor/top producing agent/ lender and we partnered on almost $2,000,000 worth of deals.
Check out Steves outrageous video on how he turned our markets top producing Realtor into a partner and lender.
As you can see it takes RELATIONSHIPS and TRUST to get someone to lend their hard earned cash. Being young entrepreneurs in an uncertain and often deceiving world, it is challenging to overcome peoples skepticism with Bernie Madoffs running around the world going to extremes to rip people off and see legit.
When you can open your world and show people your track record, business model, let them peek inside your operation you lighten their load.
Before long, we realized we needed to go bigger once again so we sought a global company to help us place a solid infrastructure underneath our company, including corporate buy-sell agreements, full insurance on ourselves, the company, inventory and everything under the sun. We structured a team of advisors in one of the tallest buildings in the financial district of our city and constructed an equity fund that pooled money from people around the globe to invest in the fund and get a guaranteed rate fo return at all times, whether we used the money or not.
This took some tweaking and alot of input from lenders, attorneys, accountants, and ourselves before we had actual access to this fund. But no longer did we need to go to multiple lenders to fund a large deal. We had one central location to get our money and it was always available. This allowed us to move fast.
Now there are alternatives to seeking out private money lenders and I must tell you the two characteristics of borrowing funds aside from relationships and trust is having a proven track record and being transparent. You are dealing with peoples hard earned money and I see people walk out of seminars trying to explain what some guru did 5 years ago to get access to millions in private money.
For those who arent able to lock up private funds, I think hard money is a poor alternative but IT GETS THE DEAL DONE and you learn how to truly handle a deal and the financial structure of funding properties. These prices can be outrageous and the terms even more pressuring BUT if you have a large marginal spread to get this accomplished, you can make it work.
One last place we were able to extract private funds was through our local title companies. It was only a matter of closing so many deals per month that conversations and opportunities arise. I specifically remember being asked by our closer if we had any opportunities for her mother to lend on that would close quick and show her the real estate returns are out there. Within 10 days we had her fund a deal that returned her $750 for lending $27,000 for only 5 days. Tell me what bank is able to do that.
This opened the door for the whole office to begin lending money on our quick flips and rehab deals.
Once again, lets look at WHY people lent us on all situations.
We had the EXPERIENCE…
We had the TRACK RECORD…
We had them PROTECTED…
Our office does have some of the simplest, protected documents we have ever seen. If you would like to get your hands on them we are able to forward you both sets of our mortgages, promissory notes and lender payoffs for $97. These have been scrutinously drafted by our attorneys and protect all parties involved. Contact us at [email protected] if you would like to save hundreds of dollars on your documents that actually work and protect your lender and investment.
Hope you enjoyed this quick presentation. Do us the ultimate justice and leave your comments below and share this with your world of people who are just looking for real life results.
Until we speak again…LIVE FREE and FEARLESSLY
keywords private money, hard money, transaction funding, real estate finance,
– See more at: http://ww1.therealerikstark.com/blog/2015/private-money-explained.html#sthash.tYg1G40b.dpuf