Mortgages & Creative Financing

4 Simple Steps for Newbie Investors to Start Raising Private Money

Expertise: Landlording & Rental Properties, Real Estate Investing Basics, Personal Development, Business Management
32 Articles Written

If you talk to a seasoned investor, raising private money is one of the most important things they can do. To be honest, it isn’t all that difficult. Once you’ve established a track record, it becomes easy to raise money. As a matter a fact, you’ll be in situations where you’ll have to turn away money because you don’t have a use for it. What a great spot to be in, right? But what you don’t realize is how long it takes to get to that point. Hopefully after reading this, you’ll be one step closer to being able to access all of that private money.

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4 Simple Steps for Newbie Investors to Start Raising Private Money

Create a Track Record

I don't think this can be said enough. You want someone to lend you money on a deal and you have never even done a real estate transaction? Get real.

I have to say, I have avoided some of my local investors because I’m tired of seeing people introduce themselves saying they have no experience and are looking for private money. Really, what you should be saying is, “I have no experience, and I am willing to do anything to partner up with someone who does.” There really are no shortcuts to this. Can you convince someone to give you money without a track record? Sure you can, but it will always be an uphill battle. It will be quicker and easier to find someone to partner up with and learn from.

Let me speak to the partnering up thing, too. I've sat down with a lot of new investors and it pisses me off when someone says they want me to teach them what I do and how I do it. From what I can tell, all they offer to me is their company. You riding around with me all day soaking up all the information that I can give you does nothing for me. You are a distraction more than a help. Offer something of value in return. Guys, don't become full time investors without having put in many hours to get there. Why should they give you the whole process gift wrapped? Just because you've asked for it?

End of rant.


Related: 10 Smart Tips for Building Trust With Private Money Lenders

Remember: You’re the Prize

I went to a syndication seminar a while back. There was some good info there, but one of the biggest takeaways that I got was there is more money than deals out there. And that is always the case. People are always looking for good deals.

Once you've established competency in putting a deal together, stop begging for money. You have something that people want. It is a deal that offers a great return in exchange for lending you money. And above all, it is collateralized. A very clean, asset-backed loan. I would like to share a little tip that I have found: "People who are most interested in this offer are the people who are looking for capital preservation instead of capital growth."

People who are in their 30s and 40s still think they are going to buy into the next Facebook. When they get to their 50s, they realize that they probably won’t find it and settle into a more conservative portfolio. Asset-backed lending fits that bill.

Be Professional

The more you act professional, the more people will trust you know what you are doing. Make sure you have the proper documentation. Pay a lawyer to draft it up. Understand what your documents say. Nothing blows a deal faster than when you get a call from your investor asking you a question about the paperwork and you don’t even know what he is talking about.

Create a checklist to make sure that you are on top of all the paperwork. One thing that we got incredible feedback from our lenders was a simple monthly statement.  It shows the loan amount, the collateral, any payouts and a running total of how much money they’ve made this year. This leads me to my next point.

Related: The Definitive Guide to Finding Private Money Lenders in Your Network

Start Small

Don't be afraid to start small. If you are looking for $50,000, it might be better to find five people who will contribute $10,000 each. (Talk to your lawyer about how to write up the paperwork correctly to secure everyone's interest.) Also make sure that you send MONTHLY interest checks along with that statement.

I can’t tell you how often those same investors who may have been on the fence writing the first check call me up after a few months and say that they want to put in more money. Receiving that monthly check along with the statement showing how much money they made gets them thinking about all the money sitting in the bank that they aren’t using.

Why It's Important to Become Successful Slowly In Real Estate


Raising private money isn’t that difficult if you are ready to do some work and use your personal finance, too. You need to give to get. That’s how it works.

What are your experiences with raising private money?

Please share in the comments below!

Mark Ainley is an investor, managing broker, and property manager with almost two decades of experience in real estate. Mark found his way into real estate by purchasing and flipping condominiums p...
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    Vincent G
    Replied about 5 years ago
    Hello Mark, I’ve been investing myself also since 2002, I’m a buy and hold investor, I’ve been using most of my IRA, cash and equity of my properties that I’ve hold since 2002. Can you email me the company or guru that you attended for the syndication seminar. I would like to learn how to put deals together. I truly appreciate it. Thanks Sincerely, Vincent G
    Jerry W. Investor from Thermopolis, Wyoming
    Replied about 5 years ago
    Interesting post. I know you are supposed to start with friends and family, but most of my family live from paycheck to paycheck, so I have focused on owner financing. That can be difficult because if you finance the entire purchase price, it is much harder to cash flow.
    Replied about 5 years ago
    Mark, Thanks for the great read. Also thanks for being blunt :). I have worked many hours and years doing tons and tons of sweat equity taking chance after chance. No one showed me the ropes, I had to learn through sweat and tears. I wish I could of just walked up to a very successful RE investor and say show your business plan please I have no desire to do any work to learn. I see it all of the time now. Through action of a motivated investor and proving themselves shows the true characteristic of a really determined person and not just someone looking for a free ride.
    Brenda A. from Woodland Hills, California
    Replied about 5 years ago
    Hello Mark, this is one of the best blogs I’ve read you covered the important points without once saying “get rich”. I am definitely saving this blog for future reference.
    Kellum Lewis Investor from Pasadena, California
    Replied about 5 years ago
    Hi Mark. I can verify from my own experience that what you say is true! When I was taking a real estate course back in March, I thought I’d have done a couple of deals by now. I’m learning that this is a pretty big game to get into — not un-doable — just challenging. I’m starting to feel more movement now that I’ve been at it for about 6 months, especially in terms of making relationships with some private investors. I’m finding these truly are business *relationships* not just *deals*. Thanks for helping keep my attitude on track.
    Rick Grubbs Rental Property Investor from Salisbury, NC
    Replied about 5 years ago
    Show prospective lenders an amortization table printed out for them with the total they will make over the life of the loan. Contrast that with what they will get if they leave it in the bank at 1%. The numbers will do the convincing.
    Replied about 5 years ago
    Mark, You mentioned having something to offer in a partnership. What are some things you would be looking for an inexperienced investor to offer to in exchange for your advice?
    Sheree Cole
    Replied almost 5 years ago
    Mark, I am with the poster, Shaquetta, above, . It’s great to know that mentors actually would like to have something in return for their time and expertise. Duly noted. However, newbies are not always knowledgeable about what is valuable enough to even out the exchange. Please give some idea of what can be offered to a RE investment mentor.
    Lesina Vaka from Salt Lake City, Utah
    Replied about 4 years ago
    Ah, I see your points, Sheree Cole and Shaqueta. I think that it might be the approach more than what there would be to offer. I would see that the newbies would be able to offer their own time, dedication and “share” in the profits; basically do all the due diligence project after project. If it were me, I would offer my personal services and not even expect a dime, in return for the “mentor’s” time, knowledge and hands-on experience because TRULY the ROI for the newbie becomes infinite after that.
    Cornelius Charles Investor from Oxnard, California
    Replied almost 5 years ago
    Hey Sheree. I don’t want to speak for Mark, but the organizer of our local REIA talks about real estate investing being a three-legged stool, with the three legs being experience, money, and time. If you don’t have experience, you could be an asset to someone who does if you have money or time. If you have time, for example, an experienced investor may like help with their administrative tasks that need to be done on a regular basis. Some examples I can think of are making/retuning phone calls, organizing files, updating a website or social media, pulling probate leads from the courthouse, combing through MLS listings, etc.
    Jeanne Victor from Mansfield Center, Connecticut
    Replied almost 5 years ago
    I guess this is what blogging is, but don’t see the real help in someone saying starting out and getting investors is kinda easy. You never say how exactly. Everyone brings a different something to the party! Our experience can vary greatly and it still doesn’t make it easy to find an investor. What happens when you have a lot of experience and no cash? Advertising for an investor primarily on having a small amount of funds and a property with surplus equity is not getting me an investor. They all want $20k at least for someone starting. It is not easy. Where are all those investors investing?
    Don Alberts from Frankfort, Illinois
    Replied almost 5 years ago
    Mark, I appreciate your input on this topic. Thanks. Don
    Lesina Vaka from Salt Lake City, Utah
    Replied about 4 years ago
    Haha nice! That was perfectly done! I was trying to figure out how the heck to arrange those words. As a “new” (not, yet) investor, we don’t even think of it like that, right away. Thank you for sharing, it gave me a new perspective.
    Bob Pates from Tucson, Arizona
    Replied about 3 years ago
    Hey Newbies, what you need to take away from this article is that throughout your career you’ll run into guys like this and his over-inflated ego and pompous attitude. Politely thank them for their Godly Wisdom and move on with your Due-Diligence. I’d be willing to bet that this guy is just another legend in his own mind!