The Trick To Attracting Private Lenders
There is perhaps nothing you will do in your real estate investment business that is more important than aligning yourself with a private money lender. The doors opened by attracting private lenders will position your business for immediate success. Instead of pooling money or stretching every last dollar you have, private money behind you will give you options and help you grow your business. However, having this option and knowing how to get it are two very different things. If you want to attract the attention of private money lenders, you need to have a plan.
Private money lenders are in the business of making money on their money. Simply because you have bought a couple of homes and want to see what they are all about does not mean they will hand you over a blank check. If you do not have a plan of attack, you can forget about securing financing from a private money lender. You need to know where you want to invest, how you want to invest, what you plan on doing with the properties and what the specific exit strategies you plan to employ are. These are just a few of the details that you need to have ironed out before you set up your first meeting.
Every option and plan you make should be based on realistic projections and numbers. Take the time to play out a scenario with actual properties and numbers. Having an idea of what you want to do is nice, but if you are looking to use someone else’s money, you need a little more than that. They are going to ask you for numbers, projections, comparables and any track record you have. The more prepared you are to answer these questions, the more likely they will feel confident in giving you access to money.
The biggest item that private lenders look at is exit strategy. Simply put, they want to see how and when they can get in and out of every deal. If you have a general plan to flip a property and sell it, you will require more to convince a private money lender. You need to base this on actual properties with real people and estimates. Don’t just throw out a number that you think the house will sell for after the work is done look at real comparables either currently on the market or that have sold recently. Whatever your strategy is, you need to base it on fact. This is the only way that anyone will trust you with their money.
You may not make as much as you thought on every deal, but you will have the opportunity to close many more deals throughout the year. If you use this money wisely, after a few deals you will build up your own nest egg which you can use to buy less expensive properties with the goal to be able to fund your own deals in the future. This all starts with being prepared and having a plan when you meet these lenders. Having someone else fund your real estate deals can change the way you do business, but it will not happen without putting the work in and having a vision for your future
By Paul Esajian