Monday, December 23, 2013

How to find Private Money Lenders because Banks are useless.

While going to make a deposit today I remembered an important point about banks. They take zero risk on any deal and typically are pretty much useless when it comes to investing in real estate.  The issue I had at the bank today was that I had a check in the name of an old business. In comparison to my monthly deposit volume the check wasn't for allot of money. I explained to the banker and even the branch manager that if I did not deposit the check in the name of the old business, I would have to go back to the client and tell them about the name change.  My motto is if it ain't broke then don't fix it so I really didn't want to have that conversation with a smaller client.

The point is if a bank won't even risk a small check deposit for a client who has deposited a lot of funds in their bank, imagine the sleepless nights that they would face if they ever invested in one of our Major Fixer upper deals. I remember back in the beginning of my investing career I went to a prominent loan broker and created a great presentation on how I would purchase 10 properties in one year. I showed him with intricate graphs how I would fix them up and sell them for a profit.  I spent a lot of time and money creating the presentation. I even offered to give him a personal guarantee.  I still remember how angry I was when after two weeks I heard nothing. This was during the heyday when all you had to do to get a loan was fog a mirror and yet I still did not get a call.  Later I learned that most bankers and brokers only really care about how much money you bring to the table. If you have no money then they are not going to waste their time with you.  I understand why, this is their livelihood and they are trying to make a living but this still does not help your cause.

Yet a lot of us that are starting our real estate investment careers automatically want to try to use banks to fund our deals. In the real estate investing game we can pretty much evaluate and identify that banks are completely useless for most rehab projects.  Even most Hard money lenders in this tough lending environment have become so strict that its almost worthless to use hard money. Hard money lenders will require a down payment even if you're getting the property at $.60 or $.70 on the dollar.  With a proven track record and strong financials some Hard money lenders will lend 100% of the purchase price on a property at the right LTV. I am not saying it's impossible to use Hard money or even banks but what I am saying is there is a better way. I am a huge fan of private money for a couple of reasons:

Number One: Anytime you can bypass the big institutions and go direct, I am always for that,  but private money allows us to do something even better. Be the first to the deal and be the fastest.  In short, SPEED AND PROFITS!!

Number Two: The second reason I am a big fan of Private lenders is cost. Most private lenders are much better with their terms and much more lenient with their requirements. The best private lenders are those that are seeking a stable return in exchange for a promise to pay with a guaranteed outcome.  And there is no better guarantee then under market hard real estate. 

Which brings us to the question: how do you find private moneylenders? Are they like the Lock-Ness Monster and only to be found once every 100 years? Are they like Santa Claus and only appear to those that believe?  They do exist, yes they do lend money and yes they are fast. A good private lender can lend money and close within 7 to 10 days.

Using your personal network of Power.

Finding Private money lenders can be tricky but it is possible to find them in your area.  Talk to all the people around you and use your personal network of power, including social networks. Tell them what you do. Tell anybody that will listen. Even if you think the person is not in a position to invest, tell them anyways.  Explain to them that you find real estate at under market value and fix up properties and resell them on the market.  Explain to them that you are looking for private money lenders and you are wondering if they would ever be interested in investing. Once you finish your pitch always end with the following:

"Thank you for listening to my pitch, I really appreciate it. Even if you're not in a position to invest, I wanted to let you know what I was doing in case you know anybody else that might be interested. I'm going to leave you my business card and if you ever find anybody that's interested I would be more than happy to give you a referral fee." 

In a few weeks follow up with them and find out if they have thought of anybody else that they could refer you to.  If they can't think of anybody then help them brainstorm. Everybody knows somebody with money. It could be the local gas station owner, the owner of the local grocery store, a favorite insurance salesman, a retired executive, or even family and friends. Those of you that have ever done MLM will recognize this technique.  It is a powerful technique that the major MLM's have been using for decades and has proven to be very powerful. In this particular case you are not trying to sell them a product but merely trying to expand your network. I will elaborate on this even further and say never leave a network at a end point. That is to say that you will never accept a dead end.  Never leave that contact until they give you a name. It's kind of like an old detective trick where they sit you down and don't let you go until you give them a name. This may sound like a very aggressive sales technique but it depends on the delivery. Never make it seem like you're being pushy or aggressive but merely asking them to really help you expand your business. It doesn't even matter if at the end of the day all they give you is the name of the water delivery man. 

The harsh truth is that finding real private money sources takes dedication and hard core salesmanship. If you are really trying to find true private money that is endless and fast it will take some time for you to dig and find the right contacts. Be dedicated to your business and never give up a lead. Eventually you'll turn up a source that is too hot to handle.  When you're starting from zero you have no choice but to build your network and expanded until one day your network of private money lenders is so big that you are funding all the deals that you can find.  

Good Luck and Happy Investing.