How to Build Your List of Local Private Money Lenders

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“Raising Money!”

Two words that send quivers down most real estate investors’ spines. Now add to that the need to raise money from third party investors and you have the perfect “fear storm.”

The fear storm causes most real estate investors to feel overwhelmed with SEC, Securities Law, Blue Sky Rules, Meetings/Luncheons….and feel like waves of raising private money are crashing on top of them.

First thing, close your eyes and breathe. I want to teach you to surf these waves through a simple three step system:

Step I- Finding Third Party Investors (List Building)

Step II- Reaching Them (Marketing to Them)

Step III- Presenting to Them (Drafting a presentation to build credibility

This article will focus on the first step of Finding Third Party Capital Investors – with the intent of helping you build a list of potential and prospective third party capital investors.

Step I- Finding Third Circle Investors

I glanced over ideas on how to find private money lenders from the Third Party circle in my previous article Private Money Lenders: Who They Are & How to Find Them. Now I want to provide more detailed and practical advice on how to find these investors.

Disclaimer: You need to follow SEC rules on raising private money from third party investors. I found a good Biggerpocket Article that address the legal issues  and provides tips on raising money from capital investors: How to Raise Money for your Real Estate Investment by Clint Coons, though more recently, there have been some changes following the Jobs Act Amendments to the Regulation D advertising rules. You can read more about those changes here: SEC Website

My Article Disclosure: There is no magic directory or website that will supply you with ready, willing and able capital investors.  Rather, raising money (like finding deals) is a blend of marketing and persistence.  This may change once the Jobs Act rules relating to Crowdfunding are released to the public and take effect (Check out this WSJ article for more information on that.) Until then I will show you an old school way.

Building Your List of Private Money Lenders

The first thing you need to do is to build a list of potential capital lending prospects investors. “Easier said than done,” you must be thinking. Yes this is difficult – but it is doable as I was able to do it so you can too (Trust me – I am not necessarily the sharpest knife in the drawer).  There are two ways to build this list in my experience:

A.) List Brokers:

 A list broker acts as an agent for those who wish to conduct direct marketing campaigns via direct mail, email or telemarketing. List brokers provide lists that, minimally, contain a prospect’s name and contact information. There are many list brokers out in cyberspace that you can find with a simple google search, such as Click2Mail.com. Here are the steps you need to take to build a list of “potential” capital investors:

  • Area: Decide which areas or cities that you want to target to compile a list of prospective capital investors. This can be done in a variety of ways. You can pick your entire state as you target area or the cities closet to your investment area.
  • Ankit Recommendation: You can utilize Census.gov, City-Data.com, or Bureau of Labor Statistics to do a quick search for the highest median household income towns relative to your state median income and pick those towns as your target areas.

  • Filter Criteria: Once you have identified the areas then comes the step of picking filter categories. The categories if picked correctly will allow you to a build list that has a higher propensity of being interested in lending money to local real estate investment projects. This step where list building becomes more an art than a science as the filter categories are large and varied so pick yours wisely. The best general advice that I can provide is “Be a Capital Investor” what I mean is think like a capital investor in terms of how much money would you want in your bank account before you started investing, what would be your interests i.e. cigars, wines, boats etc, would you be already investing in the stock market or other investment categories etc. This though exercise will help you come up good filter criteria so that you list would be more relevant and targeted.

    Category Recommendation:

    • Median Household Income (Greater than $90,000)
    • Invested in Stocks or other investment products (Yes)
    • Owns a Personal Residence (Yes)
    • Has Individual Retirement Account   (Yes)
    • Responsiveness to Direct Mail (Medium to high)

B.) County Records:

 Searching county records is like being a Real Estate Detective as you are trying to find a needle in a hay stack; the needle being “Prospective” capital investors. What are you looking for? That is the first question I had when I started doing this. There are two subsequent question that arise from overall question of what are you looking for?

  • What document should you be researching? Some investors think it’s the deed – rather, you will have to go through Mortgage Document records. You can do this research either from your home computer if your county is online or physically at the county recorders office. In the State of New Jersey, there is a website that lists which counties are online and which are not.
  • What should you be searching for within the Mortgage document? You are looking for the Grantee line (Mortgage Provider.) Your mission (if you choose to accept it) is to find Grantee lines that either have a personal name or a corporate entity name that is not a bank (i.e. you don’t want Wells Fargo, Bank of America, Chase, Valley National etc. or a national servicing company like Ocwen, Saxons etc.) You simply want a no-name LLC like 32 Main St LLC. The reason you want it to be either a personal name or a no-name LLC is because these are private lending individuals/ firms that have already lent money in your state or investment area (Ankit Time Saving Tip: If you want capital investors that already know your investment area then search for mortgage records that is within your investment area as this makes it a easier to find capital investors that are more familiar with your area and there is no less hurdle to have them invest into your deal) and they will be more to lend more money in that area if you have a good deal.
  • The county record way of list building can be both time consuming and frustrating as it takes a long time to search through the records and you run into more dead ends than private lender records. However, this activity provides  the best yielding list of “prospective” capital investors in my personal opinion as these lenders have already done two things: (1) Lent money on local real estate investments and (2) lent money within your state or investment area.

    Bonus Offer: I know that searching county records is frustrating so over my last 5 years as a real estate investment director I have found a way to cut down your search time at the county records so that you can more quickly find potential capital investors. It is not perfect but its a  decent shortcut. However I cannot just give away that shortcut without something back from the readers. To get this bonus I simply want you to read and share this article with your friends, family and other fellow investors and once this article either reaches 100 tweets or 25 comments then I will share the shortcut below! ;)

Moving On…

The next step of this system is reaching this list of “potential” & “prospective” capital investors that you have complied followed by presenting to them to establish credibility. How to approach them and how to be successfully across the following two steps we will cover next time. (Cliff Hanger Ending…..I know I hate those as well but I want you to tune in next week same Bat-time, same Bat-channel)

Until then, I would love to hear your ideas on compiling a list of potential capital investors along with any questions that you may have; Leave your thoughts in the comments section below.

Happy Investing
Photo: Phphoto2010

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About Author

Ankit Duggal(G+) is the Investment Director of a New Jersey Income Operating & Consulting Company . Ankit is a seasoned value investor who enjoys achieving a zen through surfing, hot yoga, and snowboarding.

31 Comments

  1. Hey there Ankit, great tips in this post! When searching by area another good way to find investors is to use Trulia, it will tell you the the price ranges of houses in specific areas helping you target the best areas. Keep up the good work Ankit!

    -Daytona

    • Daytona
      That is a great idea of defining your investment strategy and most capital investors appreciate an operator having a solid investment strategy. I appreciate your kind words.
      -Ankit

  2. I have been trying to follow the SEC’s rule making for the JOBS act changes to Reg D section 506 etc. The problem is that no one is commenting on what are the facts today (1/7)? Can I get a new form D with the new 506, advertise to the general public check box? Any Lawyer comments in the last week?

    BTW on the comments link to the SEC re their work on the JOBS act, this fellow just scorches the SEC and system. Good read. Hopefully comments like this (and your comments that might take his lead) will help SEC to get out of the way of funds raising.

    http://www.sec.gov/comments/s7-07-12/s70712-221.htm

    I want to be able to advertise under the changes being proposed for section 506, advertise, but limited to Accredited and Sophisticated with the new looser reporting of investor status.

    LInks to the new Form D available?

    Curt

  3. Searching within your county can be found on this website that is very handy for nationwide buyers: http://www.publicrecordsources.com/

    But for us GA buyers/ private lender seekers, not all counties have their security deeds on their website. They off loaded that to a pay for 3rd party: https://www.gsccca.org/
    You have to get their Premium $25/mo service to search the Grantee. :( If anyone has a better service for Gwinnett / Fulton / Dekalb counties please let me know.

    Curt

    • Thanks Ankit for the great article. I am looking forward to reading about the shortcut. Good info that I am ptting to good use. Keep up the great articles.

      • Matt
        I look forward to sharing the shortcut. Get this article to your friends, and family so that they can tweet it out more. Did you find the tips useful in creating your list within your market?

    • Curt

      Thanks for sharing this great free website with the readers. That is a really good resource. Anyone else have a good resource, please share it with other readers as that is the value of free flow of information in my personal opinion.

  4. Great article Ankit.

    I always think back to the kevin bacon rule and seven degrees of separation. Everyone knows someone that can get you one step closer to a private money lender. I got a lead through a bank just by asking the loan agent about getting a lower rate on my mortgage and suggesting that i had heard about private lending and if he had heard of that. Gave me the name of someone on the spot.

    Network and follow the leads.

  5. Great information. I really need more capital investors! My market is pregnant with great deals. I’m getting so many good deals coming across my desk it hard for me to fund them all. This will help me get refocused on talking with more private lenders! Thanks

  6. hey! This is great. I would much prefer doing the county record way versus cold calling investors. Because I am in baltimore, you get a lot of people who are “scared” to invest, even though I have done it successfully in the area. Thanks, waiting for that shortcut :-)

    • Lisa
      Thanks for the kind words. Put on seminars at your local library showing people how to invest in Baltimore real estate market. So a education 101 on why and where in Baltimore. Doing this will get you people who are interested in investing but may not have the time. Those can be potential capital investors.

  7. Thanks for the solid information about private lenders.
    I have done research at the county records and one can get a bad headache searching through all those files, plus eye strain. So far my results have been weak. Most grantee I found don’t respond to direct mailers. I would like to find a short cut method if there is one. Several lists I have paid for were old lists and yet the provider claimed they were current. When I did my research I found that many of the names on the list were older than 18 months and some were 3 years old. Be careful who you buy your list from. Thanks again for your good advice.

  8. Great Article.
    County records are a great place to start buiding a list of Private Money Investors.
    Question: How do I start building rapport and credibility with those Private Investors if I have NO 800 fico and only experience in the real estate business as Broker/salesperson, short sales and mortgage business?
    Thanks,
    Leonel Lopes

    • Leonel

      The best of building rapport is to start finding off market deals and talking to other potential active investors and working along side of them by throwing your wholesale fee into the investment pot. As you get a few deals under your belt you will get a track record but its sacrificing money today for money and deals tomorrow. This is a personal choice as that is how I started to build a track record to validate my credibility. I hope this helps.

      Happy Investing

      Ankit

  9. Great Information. Look forward to the shortcut and many more such valuable articles that help active investors.

    Thanks for sharing Ankit

  10. Ankit (and others), was wondering what your thoughts are on some of the private money websites out there? I’m about to subscribe to one to see if it’s legit. Supposedly, they have done the leg work in getting leads and the individual investors have shown interest and provided the company with their emails and phone #s and even a dollar amount that they have to invest. They say many or most of the investors are newbies in the industry so getting a decent interest rate is very possible. Are some of these legit or too good to be true? Seems like they could be doing the marketing to get these individuals since we have a need for this. Thanks for your opinion!

    • Josh,
      Google around to see what others have to say about that site. What are their credentials/accomplishments? Have you looked up the principals of the company that owns the website and done any research on those individuals? I always try to do this when money leaves the door. Good luck!

      And insightful article Ankit.

      ~Andrew

      • Josh

        To add what Andrew stated. See if they are BBB rated and if they have any complaints against them. In addition, see if they will get a money back guarantee of any kind that you can hold them to.

        Ankit

        • Thanks for the feedback. Was trying to see if in general, anyone has used a private $ website and any success or issues? Thanks again!

  11. Great information, thanks for the advice. I’m going to try it in Santa Barbara, CA, where I feel is a gold mine of private capital. Looking forward to seeing the short-cut.
    Thanks again,
    Tim

      • Yes, Ventura County and Los Angeles area. I went through kind-of the same situation and lost my equity, credit, and ego/confidence, which is why I’m having a challenging time trying to get back into the game. I’m looking forward to reading your book to see how you rebounded. Thanks again.
        Tim

  12. plenty of deals come across my desk after being a broker for 27 years- post reccession, needed a new, real way to raise capital

  13. Good information. I too lost some confidence. I am restructuring how I sell now and finding private lenders will be a key element. I need to keep my pay out on interest below 8 percent if possible. Also it seems dealing with private lenders is more about finesse, hard money lenders are more experienced and just want to know the numbers. Thanks!!!

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