How to Get Money For Your First Deal
As an experienced real estate investor and now also a private lender, I often get asked the question: "If I am a newbie and lenders don't want to lend to newbies, how can I get money for my first deal?"
Looking back over my 10 years of experience and knowing what I know now, here's how I would get money for my first deal.
1) I would focus on finding good deals. If the deal is good, the money follows. I would make a lot of offers and put out a massive direct mail campaign to out of state owners of vacant properties.
2) I would work with rehabbers & landlords and tell them I am their "great deal finder machine." How will I find these rehabbers & landlords? I will spend the majority of my time networking online (BP, Meetup, LinkedIn) and offline (REIA's, Landlord associations, live meet ups, cashflow 101 groups, Rotary club, Chamber of commerce, etc). Instead of me borrowing money without any experience, I will first focus on "gaining" the experience by working with rehabbers & landlords. Wholesaling a couple of deals first will help me gain experience and be familiar with property values in my area.
I met one of my private lenders because I spoke in front of a REIA meeting and I told everyone I have 11 wholesale deals. I never rehabbed a house before but the private lender I met viewed me as experienced because I have a lot of wholesale deals and every time there's a REIA meeting, I always get off my chair and speak in front of the group about the deals I am getting.
3) Talk excitedly about real estate investing to everyone in your network. I talked with my family, relatives, friends, colleagues at work and even strangers I met. My very first investors were my colleagues at work who wanted to get into the action because they got swept by my excitement and energy level. Of course, I put their money into good deals (again, see #1 above).
4) Only after you have a couple of deals, then that's the time you will approach hard money lenders or the banks. These institutions want to see you have experience and skin in the game. As a lender, I want my borrowers to have 10% or more skin in the game and I only lend money to investors who can show they have done at least 3 or more deals.
5) Lastly, have organized financial records (Income Statement and Balance Sheet). I was able to borrow $5M from a bank for a 100+ unit apartment building because I operated as a business and not as a "real estate hobbyist". Obviously, you can't borrow $5M for your first deal from a bank but starting right now, even if you have not done a single deal yet, learn how to be organized in your financial records already. It will impress on your prospective private lenders that you know how to handle money and it will make them feel at ease about lending you money.
So, the above 5 things are what I would do...knowing what I know now...if I am a newbie and I want to get money for my first deal.
What about the other experienced real estate investors out there? How did you get money for your first deal?
@Wendell De Guzman Wonderful information! I like how you said you couldn't initially get a 10k loan, and now can get millions from investors. It just goes to show that it takes: time, energy, patience and a lot of tenacity, but it's not impossible. Again, thank you for the detailed information and insights.
Awesome Info. Thanks!
Thank you for posting this valuable info!!
Great Post...
Also don't forget the most important thing...
Real Estate Investors....Act....Now...
Don't Wait...
Great article @Wendell De Guzman thanks a lot.
Being prepared and showing the right knowledge gets you farther wheather you are requesting funds or negotiatig a deal with the seller or buyer.
Wendell De Guzman Hey Wendell! My name's John and I'm 15, but I've already decided that I want to be a real estate investor. I want to be able to create massive, passive residual cash flow. I just want your advice on what I should be doing now to prepare for that? Is it too early to go to a REIA/REI/cash flow 101 clubs meeting and begin networking? I feel that it would be kind of ridiculous considering I'm still just a kid. I want to start at 18 with some wholesale deals, but I'm just so worried about how others would perceive me! When (age) did you start Btw?
When do you think I should start attending these live meetings?
Thank you! This is great advice. I'm the kind of person that when I see a presentation I want to know the data behind it and that there has been real work put in. It helps me trust the source which helps me trust the numbers. Experience and connections are so important!
Great post. Item #3 is how I got my start. Making real estate/investing your life through consistent conversation with family & friends is a way to garner interest & perceived experience. Enough so that when I found my first solid deal I was able to raise the money from family/friends by showing them the numbers backed by timely research. They knew I had been dedicated for months seeking out the right deal, so the trust was established.
Awesome post! Totally agree with doing your own deals before seeking OPM.
I rented out the spare rooms in my primary residence to save up enough for a down payment on my first rental. After that I used a HELOC on my primary to acquire more properties.
Now I have deals under my belt and a lot more experience. I now have absolute confidence that I can make money for myself while paying interest on private money. I've got my first private lender, and although it's only for a small amount ($20k), it's a good start :)
Shawn, thank you for adding the tip about signature lines of credit. My partner and I have been considering getting a couple unsecured loans close to the time of our first flip. It sounds like we might be better off with starting a line of credit now in hopes of getting the limit up by the time we are ready to buy.
Thank you for sharing.
Nice post Wendell De Guzman to answer your question, I got my money for my first deal by doing what you mentioned, I found a great deal and just kept talking about it excitedly and it just so happened that the money found me and the private lender approached me. I was able to talk to confidently and effectively about the deal and was able to negotiate very favorable terms with the lender without really trying. I think that was the thing, it's not like I was out directly asking for the money, but more like telling people about my business as a real estate broker and how the market was doing great, and how I would pick up almost anything I can get my hands in in this market, etc; lo and behold, the lender then offered to finance the deal I was indirectly trying to finance. Thanks for the post!
Great post! Thanks @Wendell De Guzman! It's great to be able to hear advice from more experienced investors.
Wendell,
Thanks-a-million for sharing! I am currently searching for deals and was worried that if I found a deal and got it under contract would I be able to find the money to close the deal. Your insight and the information you have provided will help me to make wiser decisions, as well as help me to network and connect with potential investors.
Great post. Money for deals seems to be the most elusive area for new investors ,myself included. I like the suggestion to get your financial systems in place from the beginning. Working on that now and searching currently for great deals in my area. J Scott are you limiting your deals to any particular area?
@Wendell De Guzman and all others for that matter, thanks for the post. In general, the principles for getting started in REI always seem to be same or similar. Of course, there are slight variations/emphasis depending on the investors view. However, regardless of the REinvestors view, philosophy, region or experience, a timeless principle is the same and that is (in the revised words from the 1989 Kevin Costner 'Field of Dreams' movie)..."If you build the REI marketing machine, the money will come."
I just read the post and the better saying would be..."If you build a great deal finding marketing machine, the money will come."
Great thread going here. Just starting to do something is going to get you ahead of 90% of the other guys. I just closed a deal yesterday with someone starting on their first flip - activity is the most critical step and the step least taken
Hey Wendell - Great info. I needed this as a refresher.
This is invaluable advise and much appreciated.!!
Thanks..
Wendell De Guzman Thanks. It's just always good to know you're doing the right things by reading post like these. One of my first kinda big deals is going to be a partnership with a vet. I'm bring cash and credit to the game. Next time I'll have the experience to do it myself.
Originally posted by @Shawn Holsapple:
Good info from all!
Don't forget, if you still have a W2 job and decent credit, most banks will give you a signature line of credit. This may only be $5k for starters but you can take it out every month for a couple days and put it back in [the interest will only a be a few dollars]. Then after 4-6 months ask for an increase. Your good history should make the bank comfortable in approving the increase. Keep doing this for a year or so & you can easily have $20k-$30k available. This is how I bought my first rental.
Also, when you get those credit card offers to give you a zero percent balance transfer, you can simply write yourself [or LLC] a check for the full amount of the line available on the card and use that money for free during the promotion period [usually 12-24 months]. NOTE: this takes self control, do NOT go to vegas or shopping with the cash!
I bought my second rental like this. I used the CC money for the down payment on a duplex with seller financing. I had enough left to complete the rehab as well.
You may end up with cash in your pocket, BUT your credit score takes a huge hit when you max a credit card out. Further, when your introductory period is over, your interest rate will go up. If you miss a payment by just one day, the introductory rate may be rescinded. Vegas or shopping is the least of the things that could go wrong with this, including screwing up your future credit worthiness, short term and long term.
You are right about being organized it makes a world of a difference.
Great comments Shawn!
I like your ideas in how to get that extra cash to the game.
@Chanté Owens , @Mike Baker , @Frank Dimino , @Rob Rice, @Zaher Ali thank you guys for your kind words. You're all very welcome. The more sharing of knowledge and wisdom we do here at BP, the better for all of us real estate investors.