Starting out with Private Money Lenders

Hi All, I'm a RE newb to the board and have completed 8 conventional deals in the last 2 years. I just got done reading everything Adam Davis has written on BP regarding Private Money Lenders. Excellent place to start!

I've got a couple questions I'm hoping someone can clarify:

1. The Business Plan: is this specific to a particular deal you are trying to pitch to a potential investor? Does it give all the nitty gritty details like location, purchase price, rehab costs, time line, etc? Or can it be more generic, giving a general overview of what your business does?

2. Offering Documents: can anyone elaborate on what these are exactly, and where to get them. I plan to start with a call to my attorney, but figured I would throw it out here as well.

Any books recommendations or other resources you think would be of use to me would be much appreciated!!

Thanks in advance!
Mark

Edited: 06/26/2010 at 12:53PM

Jon K.

Real Estate Investor · Dallas, Texas

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May 19 '10, 04:06 AM

Mark, I completely agree that Adam Davis' blog is a great primer on raising private money http://www.biggerpockets.com/blogs/862

The business plan depends on your approach, For what I do, I'd include case study deals and not necessarily specific prospective deals.

I don't do offering documents, so no input on your second question.

Edited: 06/26/2010 at 12:53PM

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William S

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May 19 '10, 07:12 AM

Yes..it should be specific to a deal you presently have on the table that needs funding. The general overview should be prior in the form of your presentation, how your private lending program works,the benefits, security,equity position (which should not exceed 65% LTV in most markets) and exit strategies. In truth, todays private lender is quite different from today's potential PL. They have the same concerns from the past only now they're MORE concerned. Before you do your presentation you must break your program down into an easily and well thought out story. If they buy your story, your chances of getting a yes doubles IMO.

The docs you are referring to are a 1st and ideally only mortgage on the property you are purchasing, an original note, hazard ins, title ins etc. In the end all the proper docs any bank would receive when they originate a loan collateralized by real estate

The mortgage is the doc which allows the PL to Foreclose in the event that you,as the investor, fails to meet your obligation to pay back the PL.

If explained properly, those docs should suffice. But this is just part of it, your whole presentation has cover the following completely and thoroughly: 1) How PL works from beginning to end 2)Docs securing PL 3) equity position (conservative LTV's) 4) Exit strategies.

But again before you even begin your presentation make sure to overcome the most important area of concern which is the current real estate market and it's cyclical nature and how history repeats itself. They have to feel like they must get in NOW before you even present your presentation.

Hope this helps

Will

Edited: 06/26/2010 at 12:53PM by William S

Kevin Amolsch

Hard Money Lender · Lakewood, Colorado

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May 20 '10, 10:15 AM

I agree with both responses and have a few things to add. When you say offering documents that normally means private offering documents which would be when you want to raise lots of money and pool it together. i would say more than $500k and you would need an attorney to handle those. What Will is saying about a note and mortgage is by far the best way to go when you are getting started. I would not worry too much about a business plan. Lenders just want to know they are going to get paid back and that you have a plan to do that. I nice return is helpful :-)

The best way that I have found is to sit down one on one and just talk about it. Dont stress out about a big sales pitch but do anticipate questions and how you will handle them. If it were your money what would you want to know? Those are the questions you will get asked. Once you get one lender it is all down hill. People with money have friends with money.

Stay confident and good luck!

Edited: 06/26/2010 at 12:54PM

Scott Nachatilo

Real Estate Investor · Oklahoma City, Oklahoma

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May 21 '10, 02:01 AM

I agree with Kevin. Keep it simple. If you are just meeting with an acquaintance or family member, you shouldn't need to worry about an offering document...your main concern should be whether or not you will work together.

Edited: 06/26/2010 at 12:54PM

William S

56 posts
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May 21 '10, 05:48 AM

Yes..one on ones are the best. Don't pull out your lap top and do a power point. Too formal and stuffy. People want to feel comfortable. If you are talking a to a REIA group or in front of a larger group then thats a little different. But with one on one's, it's Like Kevin said, just have a good talk about what the program is about and how they benefit...and don't beg..

I will add that if you don't believe that what you have to offer (in any field) is absolutely a great opportunity for a potential PL, then they wont think so either. Presentations aside, if they don't buy you because you don't seem credible and know what you are talking about then it doesn't matter what your selling. A PL program is not a hard sell in the first place. You don't have to be "MR. Saleman" but you do need to convey that you believe in your opportunity/service 100% . Someone can tell you to be exited or passionate about what you are doing but unless you believe it yourself or believe in it yourself then you will come off as "salesman". It's like telling you wife her meatloaf is delicious when all the while your trying to stop yourself from gagging. People trust people who either make things happen or they believe can make things happen...that's what you sell.

Emerson once said:

"Self-trust is the first secret of success...the essence of heroism"

Just keep at it...don't let your pop corn start to sizzle in the pan and then turn the heat down ( I've down that a few times). Take massive but efficient action. Pick to ways you will market to PL's and do those two things every day!

What the hell, here's another quote i love, "fortune always favors the bold" - Virgil.

Hope this helps.

Will

Edited: 06/26/2010 at 12:54PM