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A Proven Way to Get Private Money for your Real Estate Deals

Adam Davis
6 min read

Ready for a shocker?

“If you want to get private money, you must think raising it as a marketing process instead of a financing process.”

I always get funny looks from people when I say this; like I told them a unicorn was grazing on their front lawn or something.

Here’s what I mean…

Basically, a financing process is where you fill out an application at an institution,  subject yourself to all kinds of hoop jumping and fire-walking and then pray that the mortgage and banking gods rule in your favor. It’s a ‘crap shoot’ in today’s credit market.

Getting private money is not like this at all.

With private money, there’s no loan committee.  There’s no application process. You don’t have to put together mountains of paperwork and hope and pray.

To get and use other people’s money you must focus on two major things: establishing an opportunity and then putting the opportunity in front of the right people.

For today, I’m going to assume that you have established an opportunity. You have a “product” (aka: an real estate investment that would be mutually profitable for yourself and a financier).

How to best promote your “product?”

Allow me to answer that question by briefly posing another: If you asked a room full of business owners what they thought was the best form of marketing, what would the answer be?

A. television

B. newspaper

C. internet

D. “word of mouth”

If you said “D” give yourself a pat on the back. Whenever I speak and address audiences of real estate investors and entrepreneurs, I throw this question out there and 9.9 times out of 10 the overwhelming answer is word of mouth.

I think this is the absolute single best way you could ever market your private money opportunity. Get people telling other people about you. Instead of selling yourself, you let others do the selling for you. And, the best way I have accomplished (as well as coached others to accomplish) this is not to take a  “blind archery contest” approach. It’s all about setting up a referral marketing system.

Remove the Guesswork

It is entirely possible to set up a steady stream of referrals for private money leads. However, this will require you to invest a little bit of time up-front for big rewards on the back end. For those that crave immediate gratification, this isn’t the approach for you. Maybe you can try a ‘get rich quick’ idea or something – but building a quality business is going to take more than 15 minutes.

If you are not involved in a networking or referral marketing group in your area, then I suggest doing so right away. Any objections like: “I don’t have time” are unacceptable. Check with your local Chamber of Commerce or google business networking groups in and around your home area. Do this right now while you’re thinking about it.

Believe me, I wish private money lenders just showed up at my doorstep upon me raising an “investment opportunity available” smoke signal from my house, but it just doesn’t work that way in the real world. You must think of your $50,000, $100,000 or $250,000 investment opportunity as your “product.” If you worked for a company and got paid a salary to sell that product, what would your boss want you to do?

That’s right: the boss would tel l you get out there and start selling.

Building a network of other business owners or individuals that you know and trust to be referral partners for you can “fast track” your results.

The premise is pretty basic: you send other people business (which makes them money) and they will reciprocate. As long as you work hard at the beginning and choose good referral partners, you will have success.  Show your referral partners that you’re a person of integrity, that you have a good “product” and that you are in business for the long haul. Take the time to understand the other person’s business as well, so you can send them real leads and not tire kickers.

Here are some tips to get started right away:

  • Start building the right relationships – Since you are already  in business right now, you probably meet a lot of other people in and around the real estate  industry – agents, brokers, contractors, etc. I call this your ‘circle of influence.’ If you don’t have much of a circle of influence, you should work on expanding this right away. Develop a list of 10-20 solid contacts of people that you have determined would be good candidates (based on reputation, service, etc.) to send and receive business from. Get close with this group. Set up some “get to know you” lunches and bring them details on your business. Show them what you do (with private money) explain the benefits and show how people will win on both sides of the deal. Equally as important, find out what the other person does and commit yourself to sending them some real business. Nothing talks like money!
  • Do something for somebody – Again, nothing will get you a referral faster then sending business to somebody else. It’s kind of like magic. When you help somebody else out, they feel inclined to return the favor. If you think about it, this is just good business sense. Why not keep feeding the golden goose? As long as the people in your circle of influence are good businesspeople (see point 1 above) then you should have no problem sending  business to them. I guarantee that you are in a position more often then you think where you can find a spot where somebody in your circle of influence could help somebody.
  • Don’t Jump the gun – Don’t be in a huge hurry to jam your great private money offer down everybody’s throat. Your goal should be to create interest so people want to learn more about you and what you do. This is quite easy when you tell someone that you use private investment capital to flip real estate. With the TV shows (like Flip This House) most people will be somewhat familiar with what you do in some capacity after you go through the basics. Standard private money qualifying rules apply. See my other posts on “ready, willing and able” if you want more info on this.

One of my favorite authors and speakers, Zig Ziglar is often quoted as saying: “you get more of what you want by helping other people get what they want.”

I couldn’t agree more.

Just the other day, I was able to bring in a fresh chunk of six figure capital from a private investor. How did it happen?

It all started with meeting an individual at a real estate networking event. Exchanging basic information. Setting up some lunches and meetings. We identified each other as good referral partners. After a few months, I had sent him some good business (he’s a real estate agent). From me he got leads on deals that I didn’t want, that he ended up closing and making money on. We kept in touch. He has referred people to buy my books and other private money education. It was true Win/Win.

Last week I saw him at a business networking meeting. He mentioned to me that he had somebody that wanted to get into real estate, but they weren’t looking to “get their hands dirty at all.” Perfect The meeting was set with the private investor and the rest of the pieces fell into place.

You’ll notice a few things from the experience I just shared. First, note that I made a point to refer business. I helped somebody get what they wanted. Also, I was very careful to take good care of the people that he sent me (many of which I was able to help raise private funding so that they could buy houses from my referral source!). You will also note that I was “face to face” meeting with this person. Not facebooking back and forth or sending emails. Shaking hands and meeting in person still goes along way in today’s business world. I recommend you do more of it.

Special Note on Referral Marketing for Private Money: Sometimes people may be leery of sending private investors to you because of the fear of money loss. For instance, if I send you a private money investor as a referral and the deal goes bad, then the private investor may blame me. This is a valid concern. But, you can handle this up front by showing your referral source how they won’t face any liability (as long as they act legally) and you can also walk people through your disclosure forms and offering documents. Having a solid business plan is vital in these instances too, as it establishes more credibility for you.

Special Note #2 on Referral Marketing for Private Money: you probably cannot pay referral fees to people who introduce you to private investors. So don’t ever offer to pay any. Usually, securities laws prohibit you from doing this. Unless you have a registered security and the person getting the referral fee is a licensed securities broker, there’s nothing but trouble going this route.

Remember… if you think you can just randomly post deals up on the interest or talk to other real estate investors (probably those that are going after the same money you are!) about how you need funding for your deal, you will come up empty-handed.

Pursuing a systematized word-of-mouth approach to private money marketing will require you to get out a little bit and shake some hands. You’ll have to put in a little time up front. But the results are well worth it. You could have your first $50k, $100k or $500k very quickly by putting these techniques to work.

The more people know about your “product” and what it can do for them, the more likely people are to “buy” it.

-Happy Investing

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.