BiggerPockets

4 Tips For Working With Private Lenders

As real estate investors, we all know that having access to financing for our deals is critical to the profitability of our business. And in this economy, developing private lender partnerships can be the difference between success and failure. Yet, when it comes down to â"asking' for the money, this is one of the biggest fears that we face. Of course it is! Who wants to ask someone for money? I certainly don't, and, to be honest, I really never have had to do that.

Tip 1: Don't Ask For Money
If you go around asking people for money, you're likely to get NONE. Nobody likes a salesman, especially a bad one at that! You must focus on what your lenders want. They want what we all want: A solution to a problem. And I can tell you the main problem most people with available investment funds face these days is finding good, trustworthy people to invest with and still earn a decent rate of return. You see, part of the problem is the programming that goes through our minds which may be saying "you have to ask someone for money" which creates fear/anxiety/etc…Instead of telling ourselves, "I have a tremendous opportunity for private investors to invest their money to earn above market returns that is secured by real estate"…or somthing along those lines…Focus on creating value and security and the lenders will come…

Tip 2: Be Quiet & Listen
So instead of focusing on the money and what you're going to say, I encourage my students to focus on listening to their lenders goals, fears and overall objectives before discussing any investment opportunity. Don't focus on your deal or perfecting the â"perfect close' to hook them in. To borrow from Stephen Covey, â"Seek first to understand, then be understood'. Once you develop the relationship and learn what your private lenders are looking to accomplish with their investment, you can then begin to structure â"win-win' deals and mutually beneficial arrangements.

3rd Tip: Focus on Developing Win-Win relationships
After you've listened to your lenders goas/objectives, structure the deal that will benefit both parties with a solid/viable long-term business plan and model that can be duplicated over and again…I've found that when you put together deals like this, the referrals from friends will start to coming soon thereafter…I've literally had to tell lenders to â"wait in line' because I just don't have a deal for them right now…Believe me, this is a great â"problem' to have and, as we know, a lack of supply will only increase demand.

4th Tip: If it's not Win-Win, Walk Away
Another Covey principle here…If what you and your lender need to make the deal viable for both parties just isn't meshing together and there is not a solution => Just walk away. Because, more than likely, someone is going to end up not happy By taking this approach you will be all more the wiser for walking away from a potential â"bad fit' than going forward with the deal…Just trust me on this…

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