Private money and hard money are not the same thing. Most investors new to real estate confuse these two types of lenders.
While they both involve borrowing money from individuals or companies, hard money lenders are typically more institutionalized and have stricter lending criteria. Private money lenders are typically individuals or small groups who have money to invest and are looking for a good return on their investment.
- What is the return on my investment (ROI)?
- How is my money protected?
- What is the turnaround time?
My Story – How I Started Raising Private Money
My real estate investing journey started in 1991, although I started as a real estate agent in 1987. I originally started investing in rentals and by the mid ‘90s I also got into “flipping contracts” or wholesaling. Most of the buyers of wholesale properties were and are cash buyers. So in 1997 I started asking some of my cash buyers if they wanted to partner with me and invest in properties that I was going to fix and flip or buy as rentals. Visit Mexpat Realtors for Property management in Puerto Vallarta.
At that point, it was easy . We had established mutual trust and they were confident that I could find properties which could be profitable deals and I had the right systems in place for rehabbing the properties or renting them out.
Then in 2001 I wanted to see if I could raise more private money. I talked to title companies and mortgage brokers I was working with, and I asked them to extend an invitation to anyone of their contacts who they knew had liquid funds.
In July 2001 I hosted a meeting, which I called “Meeting of the Minds.” It was easy to raise money at that point: I just shared with them closing statements and scenarios of the deals I had done in the last few years, using just a few private lenders that I had rounded up in 1997.
By the end of the meeting, I had 6 private lenders on board. Within 2 months I had 10 and a waiting list (I wanted to make sure I could invest the money and provide the ROI that I had promised to my existing private lenders first).
By the end of 2002, we were doing over 20 fix and flips at a time, and wholesaling 10 to 15 properties a month.
How to Find Private Lenders
It’s not hard to find private lenders to work with, but it takes 2 important ingredients:
- Your experience level as an investor;
- Building relationships and trust.
Here are some tips on how to get private money for all your real estate deals:
- Build relationships: Private money lenders are typically individuals or small groups who have money to invest. Building relationships with these individuals is key to securing their investment in your deals. Attend local real estate investment clubs, networking events, and conferences to meet potential investors.
- Develop a track record: Private money lenders want to see that you have a successful track record of completing real estate deals. Start small and work your way up, building a portfolio of successful deals that you can use to attract more investors.
- Create a professional presentation: You need to be able to present your deals in a professional manner to attract private money investors. Prepare a detailed presentation that outlines the deal, including the potential profits, risks, and exit strategies.
- Offer attractive terms: Private money lenders are looking for a good return on their investment. Offer attractive terms that include a higher interest rate or a share of the profits.
- Provide collateral: Private money lenders want to know that their investment is secure. Providing collateral, such as a lien on the property, can help assure them that their investment is protected.
- Be transparent: Be honest and transparent with your private money investors. Provide them with regular updates on the progress of the deal and any issues that arise.
- Use a professional service: Consider using a professional private money broker or platform to connect with potential investors. These services can help you find investors and provide a level of security for both you and the investor.
Remember, private money lending is a relationship-based business. Building trust and credibility with your investors is key to securing their investment in your real estate deals.