“How to Find More Private Money” by Richard Roop

If you’re being challenged by recent market changes or struggling from a lack of cash, here’s a solution for you.

Raising and using private money can help you enjoy more profits in a slow, normal, hot or post-hot real estate market. I want to help you start buying more, holding more and flipping more houses…all without ever using any of your own cash or credit.

Many cities and counties across the nation have experienced shifts in the market. If you’re having any trouble collecting cash when you buy, collecting positive cash flow each month or building long term wealth by capturing lots of equity, this article will give you the competitive and strategic advantage you want and need to achieve your financial goals as a creative real estate investor.

I work one-on-one with many real estate entrepreneurs each month. One of the keys to some of our most profitable strategies (that are working best right now) is finding, nurturing and using private investors as part of your house buying operation.

The benefits of developing your private lender program and lining up dozens of inventors eager to give you cash are substantial and significant.

• First, you can begin buying more houses for ‘all cash’ at significant discounts…up to 70% off retail value.
• Second, you can structure offers on houses that have lots of equity…receiving $20,000 or more of your profit in advance..in cash…on the day you buy..even if you plan on holding the property for many years.
• Next, you can get back all the cash it takes to find, fix and occupy a deal so none of your money or credit is tied up in a house…allowing you to collect dozens (or hundreds) of ‘free houses’ each year for long term wealth accumulation.
• Finally, you can turn many non-deals with not equity into super profitable deals with substantial equity by paying off existing debt at a discount..using private money.

Here are the steps to systematically raising private money:

1. Create your program so you can explain it to others.
2. Write your 60 second ‘elevator’ speech.
3. Build your info/credibility kit.
4. Create your presentation.
5. Flap your lips to everyone you know.
6. Follow up on your leads.

Understand lots of people with whom you come in contact have idle cash savings or retirement funds that are experience little or no growth. Offering double digit returns secured by local real estate is a great opportunity for them. Your private investors can enjoy high profits…thanks to you. And, you can make more money…thanks to them.

It’s quite simple…

1) Create your program so you can explain it to others. Private Lender Program – EXAMPLE:

• I pay my private lenders 9% interest on a first lien. I prefer paying monthly interest only payments supported by the income on the property, but I can pay principle and interest if needed. Interest only payments keep my lenders entire investment working and they make more money.
• I pay my private lenders 11% interest on smaller second liens. I prefer to have their interest accrue with no monthly payments. My investor can earn interest on interest and I can avoid a negative monthly cash flow.
• I prefer making no payments on a first or second lien when rehabbing a property that I expect to be sold and cashed out within 6 months.
• I prefer my note payments are due on the 15th of each month allowing the properties income to help cover the payment.
• My minimum investment is $10,000.
• I am confident that I can pay off an investor early with 60 days advance notice by replacing them with another private investor.
• I offer a minimum earned interest of 6 months in the rare case I pay off my investor in less than 6 months. Since they probably do not want their money back that fast, I will attempt to substitute the collateral or reinvest their pay off into another property.
• Interest begins on the day their cleared funds are received by my closing or escrow agent.
• I will never pool funds together. If I need more than one lender to fund a deal I will give one lender a lien and the other lender a junior lien.
• I will buy my lender title insurance when acquiring a new property. I may not buy a lender title insurance policy if I’m borrowing against a property I already own.
• I always keep valid hazard insurance on all my properties and each and every lender on the property will be added to the policy as a mortgagee.
• I will never accept private money from my lender until they have received an original promissory note and the security instrument (deed of trust) has been sent off for recording.
• I will never pressure an investor to do a deal. It’s pass or play. If they pass, I will offer it to my next lender waiting for a deal. If I cannot find private money, I will use hard money lenders as a back-up.
I structure my offers taking into account the cost points and higher interest I might have to pay to a hard money lender. Using a private lender instead just increases my profits. If I can’t raise hard money or private money from my existing contacts then perhaps the deal is not really a deal.
• I keep all my promises. If a lender wants me to sign personally, I will do so since I am committed to take care of them first if anything goes wrong with the deal. However, I never offer to “guarantee” my lenders investment as that may violate federal or state rules and regulations related to securities. I prefer to sign as trustee or as president.
• I follow state and federal rules and regulations related to offering securities and seek expert legal advice as needed.

Now create your own program using the example and ASK YOURSELF…

• Will you pay simple interest or compounded interest?
• Will you pay a higher interest for no monthly payments?
• Will you do second liens, and if so, will you pay a higher rate?
• Do you ever want to make quarterly or annual payments instead of monthly?
• What day of the month will you pay all of your notes?
• What is your minimum investment?
• How will you handle a lender’s request for an early pay off?
• How quickly can you respond to such a request?
• Will you offer a minimum earned interest or prepayment penalty?
• When will interest begin?
• What will you do if you need two lenders on one deal?

2) Write your 60-second ‘elevator’ speech

How can you quickly grab someone’s attention and peak their interest about your private lender program? What do you say to someone you know ore meet? Review these examples and then develop your own, brief script. Then practice it.

Example #1:

“I’m a professional buyer of single family homes throughout (your area). I buy and fix up houses and can offer my sellers all cash..plus a quick and easy sale. When I pay all cash I use private lenders. We make excellent profits helping our buyers and sellers and that allows me to offer a high rate of return to my private investors. Do you know anyone who might have cash savings, other investments or retirement funds that are not consistently and safely getting them a high rate of return?”

Example #2:

“My company is always looking to buy several houses each month throughout (my area). We can pay all cash and close within a few days if needed. When we pay all cash for houses, we use private lenders and pay them a very high rate of return. Do you have any idle cash or retirement funds that are not getting you a well-secured, double digit return?”

Example #3:

“We buy houses and when we pay cash for a house we use private lenders. We pay 9% to 11% on notes secured by local real estate. If you are not getting that type of predictable return on some of your money, I’ll be glad to get you the details. We could sit down sometime, whenever you’d like, and I’ll show you how it works. Or, I could send you some info. If it looks good, just let me know how much you’re looking to invest and how long you can have your funds tied up. I’ll put you on my list and look for an investment opportunity that meets your needs. When I find one, I will call you. At that time, you can pass or play. There’s not obligation.”

Example #4:

“I’ve been building my real estate investment company here in (my area) over the last (X) years. We buy and sell a number of houses each month and can pay all cash quickly and easily. That’s because when we ‘buy houses cash’ we use private lenders. My private lenders can make 300 to 400% more money than they can get sitting in a savings account or in bank CDs. Do you know anyone that might have a retirement account or some other investment that is not paying a consistent 9 to 11%? That’s what I pay on notes well-secured with local real estate.”

3) Build your info/credibility kit

Here are some ideas to help you put together an information package for prospective clients. Always carry some kits in your car and a few standing by to be mailed out. Much of what would go into your kit can be used with buyers and sellers also.

• Personalized cover letter
• Bio: Write a biography about you with achievements even if not industry related
• Your Team: Write up information about other people and staff in your company
• Mission Statement: Tell prospects what your operation is about and what’s most important to you.
• Certificates: Memberships, associations, recognition, awards, licenses, etc.
• Testimonials: From buyers, sellers, investors, CPA, attorney, banker, insurance agent, title company, etc.
• Free Special Reports: For sellers, buyers and foreclosure. It’s okay to use the one page “advertorial” flyers or copies of advertorials that have run publicly
• Press Write-ups: Stories about you, your company, your community service, etc. and articles you have had published or print online
• Actual Deals: Show a number of buy/sell transactions perhaps with how much your private lender made or could have made on the deal. Photos are an added touch.
• Associations: Real Estate Investor Association, BBB, Chamber of Commerce, Rotary, etc.
• Private Lender Info: Sales letter, information kit or lender presentation slides
• Lumpy mail items: $100 bill business cards, customized pens, magnets, custom key chain, audio CD, DVD, etc.

4) Create your presentation

Use a written outline, brochure or PowerPoint slides to cover all the important benefits of your private investor program. Use examples, answer common questions or objections, include testimonials and have a call to action.

5) Flap your lips to everyone you know

Always be on the lookout for an opportunity to deliver your elevator speech. Explain your program to anyone who shows an interest. Many of your best prospects will not be wealthy. Offer to mail information to anyone interested. Set appointments whenever possible to more fully explain your offer or to deliver your prepared presentation. Work your ‘warm list’ before ever cold calling or cold mailing. Your warm list includes:

• All friends and family members
• Business associates, employees, contractors, vendors and dream team
• Fellow attendees of seminars, conventions and retreats
• Sellers, homeowners with equity and retail buyers
• Real estate entrepreneurs, investors and landlords
• Your previous and current private lenders plus their referrals
• Business owners, executives and professionals you meet
• Members of your REIA, Chamber, Rotary Club, etc.
• Contacts made during business or pleasure travel
• Retirees, retirement plan owners or IRA holders you know
• Your in-house buyer/seller follow-up list
• Your entire in-house contact list

6) Follow-up on your leads

Close for a phone appointment, office meeting or lunch. Deliver your presentation one-by-one. Take a new prospect to lunch once a week. Add your goal for 4 appointments to your monthly marketing plan. Follow-up after appointments with phone calls, postcards and letters. Add new lender marketing campaigns for generating new leads to your monthly plan.

In Conclusion:

There you have it, six steps for getting more private money. Now for some good news…all you have to do immediately is Step 1 and Step 5. There is no need to wait until everything is perfect to get started. Build this bicycle while you’re riding it. Perfect your elevator speech and lender presentation as you’re flapping your lips to everyone you know.. and lining up cash for when you need it!