Ultimate Private Money

How to Lawsuit Proof Your Business

Here's how to make yourself bullet proof from lawsuits, malcontents and jealous peers:

Shut Your Business Down

Huh?

That's right: if you don't want to risk getting sued, raising the ire of people around you who hate their spot in life or jealous peers who gossip about you and your business like highschoolers at lunch time, then just pack your stuff up and get out of the game.

It is impossible to make everybody happy. You simply cannot do it. Stop trying.

One of the best money making principles I've ever heard is: "the surest way to go broke is to try and please everybody."

Truer words were never spoken.

But don't mistake this as meaning you should deliberately try to make people mad or be a jerk on purpose.

On the contrary, providing great service and value is first and foremost in any business owner (and real estate investors) mind.

Just remember that not everyone is going to be your biggest fan.

Why go on this rant?

There are several reasons.

Reason #1:

Frankly, I'm sick of talking to and hearing about real estate investors being taken to the cleaners by lawyers in some all noble effort to bullet proof their business with legal paper.

Can't be done.

No matter what you do, you can always be sued for something. That's the America we live in today.

It doesn't matter how good the contract is, how much disclosure you make, how many times you have somebody sign something. If they get mad at you and their attorney thinks they can get money, they could sue you.

Am I saying that you should never have a contract? That you should do everything with the shake of a hand?

I only wish it were so.

Yes, you should have contracts. You absolutely must provide the proper disclosures to your private investors before they invest with you. You must carry the right types of insurance.

But you should not delude yourself into thinking you are invincible because you've got some legal papers.

Reason #2

If you lose money for someone in a real estate deal, you stand a chance to get sued no matter what. It doesn't matter if you made the proper disclosures, the correct filings. People get mad when they lose money and they seek out recourse in any way they can.

If you make money for someone, while preserving principal value, you are very unlikely to get sued. You still might, but it is not likely.

This is why you must be extra careful with your investment selection when you are funding with private investors. Never over-leverage the property. Always have title, hazard and liability insurance. Be a good steward of the investors money.

Reason #3

Be not afraid.

I don't want you to be afraid to raise private money - or even get into the business - for fear of lawsuit or generating flak from others.

And...

I don't want you to be afraid of raising private money or investing in real estate for profit for fear of what others will say.

Sometimes people will say negative things about what you are offering with your private money investment.

Sometimes they will say negative things about real estate and how you "can't make money doing that."

If you are easily deterred or swayed by the opinion of others, shun your own carefully determined conclusions, then profits (and capital) will elude you.

To make money requires you to take bold steps. You must take action. Everybody said Henry Ford was nuts. Well, if that's the case I'll take a billion dollars and be called crazy than have empty pockets and get to stand in the approval of everyone.

Reason #4

Don't be a jerk.

Profound, I know.

Still, it's worth noting that you should keep an even keel in the face of the hyena's that will always nip at your feet. By simply stating and pursuing a worthwhile objective and productive existence, you are effectively thumbing your nose at the doomed-to-be-broke-forever masses.

And the masses won't like it that much that you stand out above them - or even strive to

Pay them no mind.

Put the blinders on and keep your foot on the gas.

-Happy Investing.

Do You Make These Mistakes When Raising Private Money?

"Let's wait for a while and see how your next deal goes..."

"I'm going to keep my money in CD's..."

"You've never done this before?! Ummm..."

"My lawyer says this isn't a good idea..."

If you've ever heard a prospective investor say one of those things to you, then this is one of the most important messages you'll ever read.

Here's why:

I'm going to share some common (and blatant) mistakes that real estate investors make when raising private money. Once you know these pitfalls, you'll have 80% of the game won.

Mistake #1:Waiting until you have a property under contract to talk to private investors

Mistake #2:Having marketing materials that talk all about your company and do not focus on benefits for the investor

Mistake #3:Not listening at least 5 times as much as you talk when you are communicating with potential investors

Mistake #4: Not asking enough questions of your private lenders

Mistake #5: Pursuing somebody to lend their only $50,000 to you

Mistake #6: Not getting a written commitment from you lender once they say 'yes'

Mistake #7: Poor (or zero) follow up with potential lenders after points of contact

Mistake #8: Offering terms that seem "too good to be true"

Mistake #9: Not building unshakable credibility

Mistake #10: Not covering your behind from a legal standpoint

Mistake #11: Using a 'broadcast' marketing strategy

Mistake #12: Using a one-dimensional marketing approach

Mistake #13: No flexibility in your deal structuring

Mistake #14: Bad mouthing the stock market as an investment to your investor's face

Mistake #15: Improper or lack of positioning yourself/business to private investors

Mistake #16: Making sure the lender thinks the only benefits to investing with you are rate of return

Mistake #17: Sending a direct marketing campaign to an untested list

Mistake #18: Poorly designed marketing materials/sales letters/website

Mistake #19: Being too aggressive/needy in pursuing a potential private lender

Mistake #20: Discounting the value of your own sphere of contacts in developing potential private lenders

Mistake #21: Trying to use one-step versus multi-step marketing

Mistake #22: Not knowing which problem you are solving for prospective private lenders

Mistake #23: Not providing enough of a value proposition to those lenders who are on the fence

Mistake #24:Being unprepared for a presentation to private lenders

Mistake #25: Not knowing the in's and out's of self-directed IRA investing

Mistake #26: Not knowing the basic tax impacts of various types of private money investments

Mistake #27: Eliminating your profits on deals by paying all of it to private lenders b/c you gave away the farm

Mistake #28: Not knowing basics of securities laws

Mistake #29: Allowing the potential lenders attorney to kill your deal at the 11th hour

Mistake #30: Not educating yourself on new changes in tax/real estate/investment/retirement laws so you can exploit to your benefit

By all means this is not a comprehensive list, either!

In coming days and weeks I will be going through each of these one by one so that you can better arm yourself for raising capital. A wise man once said: "just tell me where I'm going to die....and I won't go there!"

-Happy Investing

How to Spot a Private Money "Bandit"

A few weeks ago, I saw something strange as I was driving to my office.

A roadside "bandit"sign that read: "Earn 18% on Your Money - Call XXX-XXX-XXXX".

You know what a bandit sign is...it's one of those signs you write on and stick in the ground.I've used them before to market for houses (buying, selling and renting) but never for private money.

As I sat stopped in my car staring at this sign, I figured I'd give a call. And then, in spite of my curiosity...I thought better of it. Why didn't I call?

Because I probably wouldn't have been able to bite my tongue.

Sometimes I have a habit of saying what's on my mind, even if it's unsolicited. But, what could have caused my blood pressure to increase? What could have gotten me so fired up that even dialing a phone number was difficult?

Simple: these guys weren't playing by the same set of rules I was.

You see, securities laws specifically prohibit open advertising to the general public (which a roadside sign would constitute) for offering a security. And...yes...any time you take money from somebody to invest with you in real estate it is deemed a security by Big Brother.

If these guys are allowed to put out bandit signs to get potential private money lenders to call them, why wasn't I?

Admittedly, this is sort of like saying: "all the other people are going 90 down this stretch of highway...why can't I?"

Damn it...I hate sounding like a whiner. And, I really don't mean to. Frankly, at this time I have other ready means of raising private money than having to field calls from random strangers calling off of roadside signs. But, it's hard to stomach a (potential) competitor who has no regard for the rules possibly get a private lender before you.

Or...worse...one of your private lenders calls them!

Alas, my private lender was calling them to give them a hassle and do some recon work for me (see, I did call them in an indirect sort of way). I have a very good relationship with this particular lender and have earned their loyalty over many years of providing great returns.

However, the fact remains that some people will break laws, disobey rules and basically do anything they want. It's kind of like competing in a sport where you know the other guys are using steroids and you aren't.

What to do about this?

The way I see it, you have 3 options:

1. Whine and complain - You can whine and complain to your wife, your friends and anyone who will listen about how 'wronged' you are. You can holler and scream that you're the only one that has to play by the rules and all the rule breakers are getting ahead of you by breaking the rules.

The only problem with this option is that, even though it might feel good to you, it annoys everybody you come into contact with.

At the end of the day...nobody cares as much as you do. So, that brings us to....

2. Blow the whistle - You could be like Barney Fife and call a citizens arrest on these scoundrels. You could call the cops and complain about the sign nuisance (but this was likely already done by somebody else). You could write a letter to or call the state securities regulator and let them know that they have some rif-raff out here breaking all kinds of securities laws. And, you know what?

They probably wouldn't care either!

Yes, it's true. Blast it...those securities regulators are so busy chasing down Ponzi schemes that have already blown up and trying to monitor investment advisors and "bigger fish" that they will probably sit on your letter for years. Unless you know somebody that works at the Administrator or you know a local prosecutor who will make a call to the state attorney general on your behalf (not likely for bandit signs along side the road), then you might as well chalk up your complaint to shouting into the wind.

So...that brings us to option #3...

3. Go merrily about your business - Indeed. Yes, this is what I would do if I were me and saw private money advertising bandit signs alongside the road whilst on my way into work.

Honestly? Nothing. "Adam, you wouldn't do anything?!" Surely you jest!

Nope. I would do nada. Zip. Zilch. At least about these other guys.

You see, I cannot control what they do, but I can control what I do. And...what I can do is happily go to work and improve my own private money marketing. I can improve my business. I can improve my positioning. I can call all of my private lenders and invite them to lunch.

Why? Partly because I admire the gusto to go out and put the bandit signs out in the first place. And, secondly, since these "bandit sign guys" are willing take an action, they must be willing to deal with the consequences. More than likely, they have less to lose than I do by breaking the law.

And, that's ok.

There's always somebody out there who is willing to lie, cheat and steal to get what they want. Doesn't mean you can get what you want by doing things the right way. It all comes down to choices. You have them. I have them.

For the sake of fun, though, let's say I forget about the legal aspects and just critique the marketing approach of using bandit signs to get private lenders?

Here goes:

I don't like the strategy of it. You're targeting the wrong sorts of people with this method. Bandit signs are a quick response and give pertinent information. It's an impulse call. Most high net worth people (those likely to be private lenders) won't be inclined to call from these signs as it will smack of a scam to them.
Credibility is gone. By the sheer act of putting out signs asking for money, it makes it look like you need it.. This is cardinal rule #1 that you must not break in marketing for private lenders. You cannot be in a position of need. "Banks always lend money to people that don't need it." Have you ever heard that phrase? It's a nice pearl of wisdom to remember. The person calling the sign cannot escape the thought that YOU were the ones putting them out. "If you are such a successful real estate investor that I should invest money with, why are you sticking signs in the ground at 11pm on a Thursday?"
Bad response mechanism. When it comes to money and investing, people like to have something in their hands to think about. If you don't hit the market with your bandit signs, all your marketing dollars are down the drain. It's a 'one shot, one kill' deal or you miss out.
Tracking. You don't know which sign people are calling off of unless you have a separate phone extension or number for each sign. This makes it hard to know which areas are performing better than others. If you're going to spend money on marketing, you should make it more trackable. Website might even be better with separate URL's.
It just plain seems desperate. Positioning in your business is everything. If you lose position and posture with your investors (potential investors) than you've lost the battle for their mind.

So, there you have the whole argument. Take and do with it what you will. Hopefully, you now know what to do when you see yellow roadside signs advertising for private money lenders.

-Happy Investing

Be Careful if You're Buying Into "This" New Private Money Fad

Before you read this, I have a little exercise for you.

First, go grab a big wad of cash.

(If you don't have a big wad of cash, hop in your car and go to the ATM machine. I'll wait.)

Now, once you've got this wad of cash in your hand, grab a lighter and set it on fire. If the flame gets too hot, throw the money into the toilet and then flush it.

Watch your money burn and then watch it go down the toilet.

In a small personal journal, describe your feelings as you do this.

End of exercise.

Why have I had you do this little exercise?

Because I want you to know what it feels like to needlessly burn money.

And that's exactly what you'll be doing if you aren't careful buying into the latest fad out there for raising private money.

Maybe it's not a fad.

Maybe you haven't bought into it. Perhaps you have.

I"m talking about getting lists from public records of people who (supposedly) have made private mortgage loans. The idea is: you get this list and send them a letter asking them to be your private lender. The rationale is that the person you are mailing is likely to loan you money because they (again, supposedly) have made a private money loan before.

On principal, the concept of this is not all bad. I can see the logic, although it is a bit flawed.

However, like always, it is the implementation of the idea that counts -not just the idea.

And, the implementation of this idea that I have seen has been downright laughable.

How do I know this?

Because I have been the recipient of hundreds of these letters!

How have I done this?

Because all of my private mortgage lenders have my business address as their "draft & return to" address on their mortgages (this is the address that goes into public records as the private lenders address).

Why have I done this?

Precisely because I don't want other nosy real estate investors learning who my private lenders are!

Hopefully you'll take the same precautions with your lenders. Once you earn funding from a private lender, you don't want them getting bombarded with letters from people all over the place promising them 20% on their money. First of all, it's annoying to your lender to receive this mail. Second of all, let's say one of these other real estate investors hires a guy like me to write a their direct mail campaign...now you've got a real problem because your lender might jump ship.

Ok....back to what I was saying...

This fad of buying a list of recorded mortgages (or trust deeds) is a pretty rock-headed way to do things. Even thought it's been passed off as the latest and greatest.

Why does this method stink?

2 Reasons

1. Because you can get better mailing lists!

A good mailing list is an important fundamental in direct marketing. If you don't have a starving crowd, forget about selling hamburgers. In terms of buying these private lender lists, you can do better than what you've seen on this.

Talk to a good list broker. Describe your ideal private lender prospect in detail (age, income, investing experience, etc.). If you can't describe your ideal lender prospect, don't even think about sending a direct mail piece. Why? Because it will miss the mark.

You can get mailing lists that have names of accredited investors who have over $1,000,000 to invest and who are actively looking (this is a big key) for direct participation programs (like yours) to invest in. You can find out more about them than you'd almost ever care to know.

Just about all of the mailing lists offered for this new fad are compiled lists versus lead generated lists. This is a night/day difference. Compiled lists generally stink.

2. If you don't write good copy you might as well burn your money (hence the exercise a few moments ago).

I know I've said this before, but it's worth mentioning again: never waste a chance to make a sale. Doesn't matter if you're selling in person or if you're selling through mail or via internet. If you get the prospects attention (e.g they've opened your letter) then you have only one chance! Make it count.

Unfortunately, exactly ZERO of the mailing pieces I have received that were intended for my private lenders have had anything remotely close to resembling good copy. Most of it has been downright awful.

Here's a snippet from one of the letters:

Dear Mr. Smith

Public records show that you recently loaned money on a private mortgage. I currently own a real estate investing business that buys and sells houses. You can lend money to me instead! I will pay a great rate of return and you can make more than you can in the stock market right now....

Blah...Blah...Blah

No, I am not making this up. You just can't make this stuff up.

Please follow guidelines for good sales letter copyrighting if you're going to do mailings. The old: AIDA format (attention, interest, desire, action). Make it about "them" instead of about "you" (e.g. stop using "I" and "we"). Use a headline. Etc.

While I applaud the effort to even drop the letters in the mail (most people are happier watching DWTS), I can't help but to feel a little bit bad. Somebody got duped.

Hopefully now it won't be you.

-Happy Investing

How "This" Little Strategy Can Help Your Private Money Raising Efforts by 500%

You and I have never met.

But I think I know you a little.

You don't like to make people mad. The thought of having another human upset with you makes you uncomfortable. You like to resolve all conflicts and issues or you have a hard time sleeping. You like to be a people-pleaser and value when others talk highly of you.

How am I doing so far?

Good?

Don't worry...I've just described myself, too. It's just human nature. You feel better when other people like you and say good things about you.

So what's wrong with this?

Nothing...unless you want to: a. make a lot of money in business or b. raise capital for your real estate investing business.

Sometimes we have to get away from our natural tendencies in order to get results.

Let's back up for a second...

There's this one old country song that goes something like this: "Son, you've got to stand for something or you'll fall for anything..."

I think there's a lot more business sense in these song lyrics than even the singer may have realized. Why? Because "standing for something" is one of the most important marketing principles.

It's called "positioning."

Positioning means you can't be all things to all people It means you're going to have to rule out a lot of potential prospects so you can get to the ones that will invest money with you.

And you should put this right up there toward the top of your private money raising "to-do" list. Before you starting getting your website designed. Before you prepare your business plan. Before you even get your business cards printed.

What do you stand for?

Not in a patriotic way (although there's no problem with being patriotic). In a purely business context.

If you want to get private money to buy real estate investments, you absolutely must stake out a 'position' in the mind of your prospective private investor. Otherwise, your message will bounce right off.

The worst spot for a business to be in is when they try to be all things to all people.

Naturally, as a real estate investor seeking to raise capital for your projects, you cannot be all things to all people. You can't offer FDIC insured deposits. You can't offer people the potential to triple their money in 10 days like a penny stock.

But you must take care to create a position in the mind of your prospective investor which puts you in your own category.

Want a tighter definition of "position?"

Here goes:

Picture your prospective investors mind like a grocery store. This is how the investor's memory stores relevant information. There's an isle for cereal. There's an isle for condiments. And so on.

Your investors brain can only remember (on average) up to 3 brands or companies in any one category that they buy from regularly. All the other brands and companies are lost. Blanked out and forgotten.

Your "position" means exactly where your prospective investor sees you on their grocery store shelves.

Since Kelloggs, Post and General Mills have all occupied the shelf space for cereal already in your prospects mind, it would be difficult for you to stake a claim in that area. After all, it would take major effort and time to dislodge a lifetime of messages which created this shelf-space monopoly.

If you had cereal to sell, a good option for you would be to create a completely new food category and then own the shelf space in that category in your prospective investors mind. This option would be a lot more profitable for you.

It's the same with investments.

When your prospective investor thinks of investments, they most likely think of the big guys (Merrill Lynch, Ameriprise, Fidelity, etc.). And when you shout at them a message of "earn 12% secured on your money," they are going to put you in the category of investments. Your shelf space will be limited.

You've got to carve out a position for yourself, so you can occupy space in your investor's mind. From there, you communicate a strong benefit driven message.

It's not as hard as you think.

For example, you could take the position (which I do) that the stock market is an evil, ugly and manipulated gambling mechanism not suitable for the average person to place their life savings. Here's how I stake out a position in the prospects mind:

"7 Things You Financial Planner Isn't Telling You - And How It Could Delay Your Retirement"

Simple. Straight to the point. Benefit driven.

I've told them a lot in one sentence, haven't I? They know that I'm not a financial planner (e.g. lumped in with all of the other guys in their mind). They know that I have information they want (e.g. I've positioned myself as an expert). They know that I'm on their side. They know I'm no particular friend to the financial services industry.

In fact, it's just as important that your prospects know what you DON'T do, as it is they know what you DO.

How you position yourself has a lot to do with who your prospective investors are.

If your prospective private money lenders are accredited investors (e.g. wealthy individuals), you might want to take the position where you are providing:

"an opportunity that investment insiders would kill for..."

For the wealthy individual, this type of position lets them know you aren't just offering the "same old, same old." You aren't trying to manage their assets. You are a firm which has access to investments they cannot get anywhere else.

Bottom line: whatever you do, please take just a minute or two answer this question for yourself:

Why should my prospective investor listen to what I have to say?

If the answer you came up with is: "because I offer 12% returns" or something like that, then you're being mentally lazy. Try harder. Come up with at least 3 unique reason why someone should do business with you instead of the next guy offering to manage their money.

Do you specialize in a certain type of investment (e.g. apartment rehabs, mobile homes)?
Do you offer a special type of tax advantage?
Do you offer anything else in addition to funds placement?

The worst thing you can do when raising private money is get lazy and start down the same old track of just talking returns. While this may well be the deciding factor for the prospect, when you give them something else to go on they will put you in a different category and you'll have a much better shot at the dough.

-Happy Investing

Using the Internet to Get Private Money

This is a subject I've wanted to tackle for quite a while...using the internet to get private money.

For today, I'm going to leave out the legal "nitty gritty" - as that could take up a few pages in itself. Instead, I'm going to focus on the practical aspects of it.

First, I need to get something off my chest: if you want to use the internet to attract prospective investors to your opportunity, please stop using the garbage industry slang "...X% secured by real estate..." as well as using the term "private lenders..."

If you're doing this right now, whack yourself on the head with a rolled up newspaper. Bad dog. Ok, you probably want to know why you shouldn't do this...you probably want to know why, considering there are a lot of companies who will build "custom private lender websites" and the like for a pretty penny.

It's all about... getting results instead of spinning your wheels.

Attracting private investors to your opportunity is all about the right marketing. The standard dogma that somebody trumpets about how you should broadcast "x% secured by real estate" really doesn't hit home with many prospective investors. Plain and simple: people that will invest with you simply aren't searching for this stuff on the internet. Want to know who is? Other real estate investors, that's who. People who want to get the same private money you do. You don't want this kind of traffic on your website.

Not matching your message to what your investors are looking for and what interests them is a mistake. This is akin to a computer maker leading their marketing with the fact that they offer a full 1 year parts warranty. Nothing wrong with offering the warranty, it's just that people don't look for that when they're looking for computers.

As far as using the term "private lenders" goes...well, I can say that veritably NONE of my private lenders think of themselves with that particular moniker. They think of themselves as "investors" and, typically "partners". Even though they may very well be private lenders, they don't think of themselves that way. It's a term we use in the real estate investing industry that the general investing public is unaware of.

Also, please stop trying to close the deal right on your website. Most of the real estate investors website that I have seen pretty much brow beat the visitor over the head with a sales pitch without really showing the benefit for the investors. There's no compelling reason to do anything. The best of these sites I have seen (which my coaching students have solicited my help on as well as randomly looking once in a while via Google search) simply asks the investor to submit information to receive a prospectus.

Not a great call to action.

I mean, why should the investor request a prospectus, when they don't know anything about how investing with you works.

These sites that say "become a private lender!" make me want to vomit. While there may be isolated cases of results with this, I haven't seen any evidence of long term success using this approach for purely online generated leads (via organic search, link or landing page from PPC or email). This "become a private lender" message simply doesn't resonate well with the demographic of your prospective investor target.

The only way this type of approach works, is if you have established yourself in another sphere as an expert, and the hits to your website are being funneled there from other sources that pre-qualify the visitor.

If you are going to generate traffic to an online website, your website should present an extremely unique and compelling story. You should explain (in simple terms) the benefits you provide your investors. You should make the entire purpose of your private money attraction website to generate qualified leads and build an email and physical mailing list. Your website should be the first step in a multi-step, qualifying private money attraction campaign.

Since I rely so heavily on offline promotion (direct mail, space/print, etc.), I'm often asked what "makes me an expert" in online marketing.

Well, I don't hold myself out as an "internet marketing guru" (though I'm sure my experience and pure profit results in this sphere dwarf by many times what some of these alleged internet "guru's" have done). However, I do spend close to 5-figures each month on online marketing (I pay Google a lot of money, but I also make more off of them) and I've spent a great deal of time over the past several years honing my approaches. Testing to see what works and what doesn't.

You should never rely on just one way to generate interested private investors. That would be like me telling you (if you owned a retail clothing store) that the only way you could get customers in your door was to advertise in the yellow pages. Not true. If you did this, you'd be dead in a week and liquidating your inventory. If you did own a store, you'd use every profitable means possible to get customers in your door.

Same with private money.

If you rely on just one way to attract investors - say, if you solely relied on the internet - then you could expect about the results you'd get. Now, if you're really, really good you can laser focus like this. Personally, I want to raise private money quickly, so I employ a variety of tested approaches. You should use an integrated approach combining online, direct mail, networking referrals and others to raise private money in a hurry. You results will be much better and you will lose out on less deals this way.

Use your website as a lead generating tool. If you don't have the right sequence in place, you shouldn't' put up a website. Take your time and do it right. This way, you won't drop the ball with a good opportunity.

-Happy Investing