We use the How To Hire A Private Money Coordinator to hire our private money coordinator. A private money coordinator will be responsible for raising all the private money you need to fund your deals as a real estate investor. It is their full time, commission based job to go out and raise money for deals for your business and that is their sole focus.
You will want to create your private money program first or have that be the first step for the private money coordinator you hire.
I recommend that you provide potential private money coordinators with written documentation of your program, what you would expect from them, ways other investors and private money coordinators have gone about raising private money, sample elevator speeches and so on. They should read through this material and get questioned on it with you before you sign an independent contractor agreement with them so that they fully understand what they are going to be doing.
I also insist that our private money coordinators call their local state securities office to find out what licensing, if any, and what they need to do to be in compliance when raising private money for us.
Until my next post,
James
P.S. Raising private money is an extremely popular topic right now in the real estate investing community. We have checklists, independent contractor agreements, sample private money programs and so on for our Real Estate Investor Bronze Members in the Real Estate Investor Wiki.
The following is the frequently asked question answer to: Why would I consider lending you money to buy properties?
In our current financial markets you have several options for investing your capital to get a fair return and lending money secured by real estate may be an extremely competitive way to earn a return on your investment.
Let’s consider some alternatives and see how they compare to private lending.
Certificates of Deposit
Maybe you have considered investing in Certificates of Deposit (also known as CDs). The overwhelming majority of people would consider CDs an extremely safe investment with a very, very high probability of preserving your initial capital investment and relatively low return on your investment. CDs are also usually relatively liquid. This means that if you really needed access to the money you had in a CD, usually for a nominal penalty, you could access your capital earlier than the agreed upon investment duration.
Bonds
Or, perhaps you have thought about investing in Bonds. Each bond’s return, risk and likelihood of preserving your initial capital investment is different. Typically, bonds offering higher rates of return do so because they are considered to be a higher risk. While many people would consider bonds to have a relatively high liklihood of returning your full capitial investment, it is possible to lose money investing in bonds.
Stocks
Many investors are familiar with investing in Stocks (usually via the Stock Market). Unfortunately, history has shown the while the stock market as a whole has historically had an upward trend and there have been periods of amazingly high returns, there have been periods of extreme and significant losses of capital and sub par performance lasting many years. During periods where the stock market is going up, many people believe that the stock market is the place to invest. Stocks, as history has repeatedly shown, can also drop to fractions of their intitial value and even go to zero leaving you with a loss of capital.
Private Loans
Other investors have decided to lend money secured by local real estate as a Private Lender. In many ways, private lenders are acting just like a bank would except instead of agressively lending with very high loan to values, they insist on lending a smaller amount in comparison to the value of the property that secures the loan.
Just like most Certificates of Deposit, the notes that describe what you earn with Private Loans usually have a fixed return and a fixed duration. This is very different from investing in a stock where the return is dependent on the performance of the business (good or bad) and the management of the business.
How Banks Lend Money and Earn A Profit
Banks will often pay you a low return for depositing money with them and then turn around and lend your money out at a higher rate so their other customers can buy real estate. The bank makes a profit by paying you a small return and then lending money at a higher rate. With Private Loans you can become the direct lender of your money and earn the higher return directly.
Bad Bank Policy
Some banks were lending more than the value of the property they were lending against (loans with greater than 100% Loan To Value) and ran into significant problems with that strategy. Traditionally, banks would lend 80% and sometimes 90% of the value of the property knowing that in a worst case scenario they could sell the property that secured the loan.
As a Private Lender you act like the bank and get the same paperwork that a bank gets: a note that describes the loan and a security instrument that ties the loan to a specific piece of real estate. Plus, just like the bank, you are named as a lender beneficiary on the insurance policy which helps to protect your investment from things like fires and other natural disasters covered by the insurance policy.
Just like a bank, the paperwork and the actual distribution of the loan is handled by a third party: usually a title company or escrow company (depending on what is customary in that real estate market).
Until my next post,
James
I am in the process of putting together a series of frequently asked questions from private lenders that I will be adding to a page on our website where I present different private money lending opportunities for private lenders to lend us money to purchase additional properties or to refinance properties that are have with better rates and terms.
If you were going to be setting up a similar page on your own private money section of your website or adding it to your Private Money Presentation (an exclusive resource for our Real Estate Investor Bronze Members), you might want to use these as a starting point.
- Why would I consider lending you money to buy properties?
- What type of interest rate do you pay?
- What secures my investment?
- How am I protected as the lender?
- How is all the paperwork handled?
- Who pays the closing costs when I lend you money?
- Do I need to do any additional paperwork for this?
- Do I need to attend the closing?
- Do I need to collect the payments on loans I make?
- Do these loans pay down or are they interest only?
- What is the minimum I can invest?
- Is there a maximum I can invest?
- Is private lending really a safe investment?
- How frequently do I get payments on the loan?
- What is the term of the loan? Or, how long will this loan last?
- What if I don’t like the property you are asking to borrow from me on?
- Are all the loans in my local city?
- How do I know the value of the property I am lending on?
- Can I use my retirement accounts to do this?
- Why would you be willing to pay such a high interest rate on these loans?
- What if I need to get my money back in an emergency before the term is up?
- How does title insurance help protect me as the lender?
- How does property insurance help protect me as the lender?
- How do I get started?
So, that may give you some ideas of potential questions to answer in advance for your private lenders on your website or in your presentation.
Until my next post,
James
I just had lunch with an friend of mine that is also a real estate investor yesterday and we were discussing finding hard money lenders. It was not too long ago that hard money lenders were everywhere and it was relatively easy to find ones that would do 100% of purchase price and repairs based solely on the property. Today, it is a bit different.
I am going to share with you the slow way and the faster way. First, the slow way: if you go through the phone book, search on the internet and call a hundred plus hard money lenders I think you can still find one that is flexible enough for the right deal.
However, there is a huge shortcut… what if instead of doing all that legwork yourself, you go to your local investor club and call all your investor contacts and ask for recommendations of hard money lenders they’ve used that are still doing that. Don’t have a ton of contacts? Consider using an Absentee Owner list and doing a voice broadcast or postcard to them to get together and network.
Until my next post,
James
P.S. To get access to our extensive training library of over 100 real estate courses plus much more, upgrade to Real Estate Investor Bronze Membership today.
I am a huge advocate of spending part of your marketing time each day marketing to find new Private Money Lenders (links to exclusive resources for our Real Estate Investor Bronze Members) that are willing to work with you in a win-win relationship to help you purchase more investment properties and for them to get a safe, secure, fair return on their money. Protecting your private money lenders with, what I refer to as, reasonable ratios of the loans they make in comparison to the current fair market value of the property is critical to your long term success as a real estate investor.
So, what does it mean when I say reasonable loan to values?
Well, for all but a few rare exceptions, I am recommending that you do not exceed 80% loan to actual, current fair market value.
Does that mean you can’t do no money down deals with private money lenders? Absolutely not. You should be buying properties that are less than 80% of value. You can ask them to fund 100% of the purchase as long as the loan they are making is less than 80% of the actual market value of the property.
This is not the time to be cute and use an artificial value. This is not what the property was worth a year ago before the market dropped 10% (or more). This is not your wishful… I hope it will sell for this in a year from now. It is not the rent to own price that includes some speculative appreciation. I am saying it is the price that you could sell the property for within 3 months of having a real estate agent sell it for you. That’s the number to use. And, in slow markets, it may be lower than you think to get it sold in 3 months.
So, for a long successful career investing in real estate with the help of private money lenders, I recommend you keep their loan to values at very conservative levels.
Until my next post,
James
Hard money loans are available from a variety of sources.
First, check with your local real estate investor group. This is a great place to network with other investors and find out where they get their hard money loans.
You can also look in your local newspaper under the “money to lend” section.
Additionally, your mortgage broker may be able to put you in touch with some hard money lenders, or, he may even broker hard money himself.
You might also consider another source for your hard money needs: Yourself.
That’s right. You probably have access to money that you never thought about using to finance your real estate investments. Here are two possibilities:
Credit cards – If you have a substantial amount of untapped credit, chances are that you regularly receive offers for three to six month long teaser rates. This could be a great way to get the money that you need at a substantially better interest rate than a hard money lender would give you. But remember, as with all hard money loans, it’s a short-term proposition. You need to get in and out and pay off your credit cards before the teaser period ends and the interest rate spikes.
Home equity loan or line of credit: Do you own your own home? If yes, and you have some equity in it, you might consider borrowing against it to do your hard money deal. Again, it will probably be at a lower interest rate than a hard money lender would give you. If you get a line of credit, this can be an ongoing source of money to finance deals. Once you finish a deal, pay back the money and it’s ready for the next time.
Remember too, that just like private investor loans, you can always encounter new sources for hard money by talking to lots of people about what you are doing. Put the word out that you are in the market for hard money, and you are bound to find some lenders.
Until my next post,
James
P.S. For our Real Estate Investor Bronze Members, we discuss a variety of ways to finance your deals from owner financing, private money, traditional loans, hard money and more creative offer structuring. Plus, part of the membership includes you being able to bring deals you have to consulting sessions to have us help you analyze possible ways to purchase them so that you, and other members, can learn creative deal structuring. Sign up for Real Estate Investor Bronze Membership today to access a variety of courses on deal structuring and financing strategies plus the live training and consulting.
