BiggerPockets

How to Spot a Private Money "Bandit"

Sunday, October 31

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

Comments

1. 

   Kevin Kaczmarek Reply
   over 1 year ago

   Wow, bandit signs for private financing. Pretty scary stuff, and in both of our own backyards.