I want to talk about private money; how to get it, where to find it and how to utilize it to invest in rental properties. This video is the third video in a bog list of videos that I have made to teach you how to get financing.
When you finish with this one, go check out my video highlighting the 14 Ways to Fund Your Real Estate Investing here.
First, you have to know what private money is. Private money is where you go to someone else, like a friend, family member, or someone you know, where you ask them for money, and offer them interest on their lent money.
This person could be someone that has a little extra money and wants to be a private investor. You can provide a better interest rate than a bank, and you pay them back monthly with interest.
I will walk you through how to find the people to borrow from and how to build trust with them so they know you will pay them back.
How to Find People Who Trust You to Pay Them Back
When I first started investing, I had to go through while trying to figure this all out. But, I am going to share all of the lessons that I learned in that process.
I have also coached numerous students about how to invest in real estate rental properties. We utilize private money all the time.
Steps To Find and Secure Private Money
Step 1: Find Out Who You Can Ask
Go through your network and figure out who would be willing to lend you money. This could be family members such as brothers, sisters, mothers, or fathers who know you and hopeful trust you.
You don’t have to do much convincing because they already know you. To do this, you will create a list of all the people in your network that you can ask. Next, consider business owners you may know that might have money.
The idea is to create the most extensive list you can. I will teach you how to do the asking.
With the list, you are going to set it aside and put it on hold.
Step 2: Educate Yourself On The Business Model
The people you ask are going to want to know if they are going to lose money. They are going also to want to see if they are going to make money as well.
You can do this by having experience with your investments. Someone may trust you but not necessarily trust you to invest their money and receive a return.
Steps To Gain Experience
#1: Get Education
One way to do this is to take my free real estate investment course here. The course will walk you through finding and fund properties, making it an automatic business, and making $250+ per month in passive income.
After that, you can also become a part of the Wealth Builders community I have created to assist real estate investors.
#2: Show You Know What You Are Talking About
If you go to an investor and ask for money, they are going to ask you questions. If you do not know the answers, they will not believe you know what you are doing.
Know your business, and get experience. I suggest buying your first rental property and getting that experience under your belt.
I have students with numerous properties that they purchase with private and hard money, which we will get to later.
You want to prove to the possible investor that you know what you are doing and that they feel comfortable lending you money.
You also want to make sure they know you can save, protect, and make them more money.
#3: Crafting Your Pitch
You don’t just want to go up to someone and ask them for money to invest in a property to make them money.
You are going to want to present a deal. After this, you need to be telling everyone in your network that you are an investor and that you are excited to be doing it.
You are planting the seed for them, so eventually, they may think about lending to you.
They may sit back and watch for a while to see how things are going for you, and they may want to jump in and invest with you.
Because I am an investor, have my YouTube channel, my courses, and my membership, and I have many people who want to give me money to invest with. I sit down with them and talk about things.
I have been investing for a long time, about 16-17 years, and people know they can come to me and ask questions since they know I have a lot of experience.
You want to get to that point that they are seeing year after year that you are doing well.
# 4: Write Your Pitch
You want to itemize it out and make sure everything sounds good. Most importantly, you don’t want to say, “Whenever I get a deal, I am going to bring it to you.” In the pitch, you want to present a deal.
If you have deals in the past, show them how you made money or are making money. Present an offer with the deal, including the address, how they will make money, how you will make money, and how everyone will win.
Make sure you have the deal ready, so they know right away if it is going to be something they want to be a part of.
I suggest not getting someone involved as an equity partner. I would rather you do, and what I suggest you do, is have them give you a loan.
You don’t want to have them as equity partners who own some of the property with you. You will be able to refinance the loan. Everyone wins and makes money.
Next, make sure you talk about the terms of the loan, including interest rates, length of the loan, or if it has a balloon payment at the end, etc.
What Lenders Will Want To Know
You need to have all of these things itemized out and documented so that as they are going through their process, they will be able to know how they are going to make money.
They also want to know how long their money is going to be tied up, and what their rate of return is going to be.
I suggest offering an interest rate of about 4-5 interest points above a savings account.
You can start low and always negotiate to make it look attractive for someone thinking about lending you money.
You will want to write up a loan contract or even talk to a lawyer to make sure everything is correct. I am not a lawyer, but I am sharing what I have learned from working with my lawyers in the past.
Then, you get the contract signed and receive the money. If the lender needs to put the money into escrow for when you buy the property, that is fine.
You will just want to talk to the escrow company, and the title company will take care of it.
From there, you have private money! I suggest that you then turn the money into a mortgage or conventional loan as quickly as possible so that then they can free up that money to lend you again.
They lend you money, and you buy a house. You get it fixed up and rented out so you can start making passive income. Then, you refinance it, pull that cash out, and pay your private lender off.
Now you have a property with a loan on it, and with private money, you have someone you can go back to again because you have made them money, and received it in a reasonable amount of time.
If you ask them to do it again, they will likely want to because of your good track record.
Private money is just one of many ways to get money to invest in real estate. Remember there are 14 ways to obtain money for real estate investing in this video.
- Capital Gains Tax in Real Estate Explained and How to Put Off Paying Taxes
- The Best Passive Income Ideas To Make Money and Retire Early
- How to Make Money w Good Debt Versus Bad Debt
- What Is Equity and How to Make Money From It
- What Is Escrow In Real Estate?
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