RAISING PRIVATE MONEY
$200K PLAN! IDENTIFY-INTRODUCE-INVEST
- Mindset – you are not borrowing money from them. You are offering an attractive rate of return for them. They will love you when done properly.
- Framework – Indentify your potential partners. Introduce to them the opportunity. Invest with them.
- 5 Questions – Every investment partner has these questions whether the express them out loud or not. What is it? How much do you need? How much will I make? When do I get my money back? What happens if you die or default on the loan? What happens to their investment if something happens. How am I protected?????
- Identify your Private Money Partners – make a list of people you know who are potential private money partners. Don’t disqualify anyone.
- Develop your ‘Value Statement’ this is your elevator speech, your 20 second commercial of what it is you do.
Elevator speech --- ‘I put together lucrative Real Estate deals so that my partners can make safe and consistent returns. I have some deals in the pipeline…….how about we get together so you can take a look.’
- 3 types of people that will lend you money. Who is most likely to invest with you. 1. People that know & trust you. 2. Someone who knows a good deal when they see one. 3. Someone who already is investing in real estate.
- Credibility piece – Have you ever done this before? I just recently started getting private money for my investors…….but my mentor has been doing this for years. This is not a new concept here. There are investors all over the country that use private money for years. They have raised over 26 million dollars over the past several years.
- Contact all 10 people on your list and arrange to meet with them for lunch. Share your presentation with them.
Whether buying or selling, knowing the options available to you as an agent real estate investor can open doors to new opportunities and extra income that you may not have thought possible. It’s important to also understand which option best suits you, since the proper amount of leverage will maximize returns.
And of course, always consult an attorney anytime you are creative
financing and be sure to adhere to local laws. As long as you know the rules, creative financing can be a very helpful and lucrative tool.
1) INSTALLMENT SALES
Knowing your creative financing options is also helpful for crafting a good
exit strategy. Let’s say homeowner “Ed” wants to sell his property and you
are ready with a substantial down payment. However, like many agents, you are self-employed and have difficulty securing traditional financing because of your irregular income.
Ed can negotiate with you to receive amortized payments—payments that include both the principal and interest—on a monthly, quarterly, or annual basis. In this type of creative financing, called an installment sale, you get the property and Ed can charge a higher interest rate because he is, essentially, acting as the lender.
2) CARRYBACK LOAN
Now let’s say Ed has another property he wants to sell and you can only secure financing for a percentage of the cost through traditional means. Ed can negotiate a creative financing plan for the remainder of the cost – again, at a higher interest rate. If you can only put $10,000 down on Ed’s $100,000 property, but the lender will loan him just $70,000, Ed may have to provide financing for the remaining $20,000.
This scenario is called a seller carryback loan because Ed is agreeing to “carry back” a portion of the purchase price and is acting as a junior lien holder or second mortgage holder. You get the property while Ed gets to sell and earn interest on the amount he financed.
3) WRAPAROUND MORTGAGE
It turns out that Ed is actually an investor himself and he has a third
investment property. He wants to sell it to you, but you are not able to
secure traditional financing. Ed decides to just keep his original mortgage and accept payment for the additional value of his property in the form of a promissory note or junior mortgage from you.
This option is called a wraparound mortgage or simply a “wrap” because the secondary mortgage is higher than and wraps around the original mortgage. How does it work? Ed negotiates a $1,500 monthly payment from you. He uses $1,200 of that payment to make his original mortgage payment and will pocket $300.
Ed will still be responsible for the original mortgage, which is first in line to be collected. Again, both sides should consult with an attorney before using any seller financing.
Let’s say someone else is now interested in Ed’s fourth property that’s for sale, but he isn’t ready or maybe isn’t able to buy just yet. Ed consults with his attorney and presents a lease option, allowing the interested party to rent the home with the option to buy at the end of the lease.The lease option addresses all necessary conditions, the length of the lease, and the non-refundable deposit, which goes toward the down payment. Ed can charge a higher rent than comparable properties since part of it will go toward the down payment also.Investor organizations believe that less than 20 percent of all lease options result in the renter purchasing the property at the end of the lease. If Ed’s renter falls into the majority, Ed gets to keep the deposit and the extra rent paid, unless the lease option is extended or redrawn.
Some states have strict laws governing lease options, so it’s important to speak with an attorney or educated real estate agent who can point you to one. But the reality is, as the property owner, you can benefit from the additional cash flow that lease options bring in.
ONE OTHER TECHNIQUE:
You may be wondering why Ed, a successful portfolio investor, is trying to sell off all his properties if they are generating positive cash flow. It’s because Ed recently discovered that his passion lies in rehabilitating properties rather than being a landlord. He’s decided to join forces with his new brother-in-law, an experienced contractor, to purchase dilapidated properties, fix them up, and resell them for profit. Ed’s real estate agent just showed him a modest home in need of some minor and major repairs. Ed’s confident that he and his brother-in-law can tackle everything except the property’s foundation problem. And for that, he’ll just call a foundation repair specialist to fix it. Ed is excited and ready to get to work, but his traditional lender doesn’t want to loan him the money because the foundation problem makes it a riskier investment. Ed’s real estate agent refers him to a hard-money lender. Ed discovers the hard-money lender drives a hard bargain, but he’s willing to loan him the money. His interest rates are much higher, but his turn-around time is much quicker. If all goes according to plan and Ed rehabs and resells the property before the end of the term of his loan, he will get a fantastic return on his investment in a very short period of time.If you are interested in cash flow investing, you likely won’t be doing many rehab & resell investment deals. But the option does exist, if you are so inclined.
Cash in on the Exploding Investor Market. There are incredible opportunities available in today’s market. Don’t get hung
up or sidelined by traditional financing.
Are You Ready to Own Cash Flow Real Estate?