Using Private Financing To Make An Offer
By Paul Esajian on October 6, 2014
The ability to use cash when making offers will help you find more deals and close more transactions. The problem is that not every investor has enough cash to cover these purchases. This doesn’t mean that you can’t find someone to help you in the process. Every investor should have private money to fall back on, whether they need it currently or not. Getting this money isn’t easy, but it is far from impossible. Regardless if you are on your first deal or your 100th, you have an equal chance at finding money with the right pitch and the right strategy. A solid private money lender can open doors for your business that you may never thought were imaginable.
Why would someone want to give you money? This question sounds obvious, but it is the first question any private money lender will ask. If you don’t have a good answer, you can forget about getting very far. Using money to make money isn’t really much of an answer. You need to have specific strategies on how you will find deals, what you will use the money for and how they will get repaid. The more specific you in these areas, the higher the chances that a private money lender will want to work with you.
Even though you are asking for money, understand that you will need to show some kind of collateral. If you are looking for rewards, you should be willing to take some kind of risk. This means having either some cash reserves you can show or equity in a property. If you don’t have anything, you don’t have any “skin in the game” and you may be willing to take unnecessary risks just to make a profit. Without a proven track record or some reserves to fall back on, you will have a difficult time finding money.
Every property is different, but you need to have defined timeframes and exit strategies in place. You also need to support your answers with having a team ready to go. If you are looking for rehab deals, you should be in and out in 45 days with set schedules and people ready to work. It is also important that you have multiple exit strategies and not just one set plan. Things will happen on every deal that are out of your control. If you are not flexible or don’t have options, you will be stuck looking at only bad options.
The biggest misconception investors have going into these meetings is that it will be all about money. There is certainly a fair share of talk regarding exit strategies and rates of return, but there is also a large degree of selling yourself. Most business ventures are done by people that either share the same vision or personally like each other. This doesn’t mean you shouldn’t take the meeting seriously, but you should be able to inject a little humor or be able to talk about other topics. This alone won’t get you the money you are looking for, but if they are on the fence, your personality may be the deciding factor. Talk about your personal beliefs and goals for the business and what having access to cash will mean to you. Like anything else in real estate, you need to do a good job of selling. Just remember you are selling yourself too. If you give off a good vibe and they feel you are a good person you will have more opportunities come your way.
Lastly, before you go into any private money meeting, you need to know what you want out of the relationship. You have to know that you have little leverage and that you are the one looking for money, but you have to know your limits. If they feel you are desperate and just looking for a lifeline they won’t want to work with you. If the terms and fees are outrageous you should politely pass and look to find someone else. That being said if you can use someone else’s money to make money and your risks are mitigated it is better to make a small profit on something than to make nothing on a deal. You may have to do this for the first few deals while you are building up your portfolio and your resume. Keep the big picture in mind and understand that this will only help your business.
Using private money will help you close more deals and close them quicker. It will also help you make higher profits, but only over time. Using private money means taking baby steps and making money where you otherwise may not have. This should be viewed as one of the many tools you have available in your tool belt. You may not use it on every deal, but you never know when the right deal will come along.