So I was having another discussion with a friend of mine yesterday. He is my potential lender and has money to invest but is skiddish about jumping in. I told him that with his backing and my drive, knowledge and willpower we can make a good bit of money. His famous line is "If things go south all you would lose is time and effort, I would lose my total investment!" I told him that its my reputation on the line as an investor and also that we would analyze the properties before jumping in. What else can I say or do to convince him to take the plunge with me???
Specialist · San Antonio, TX · Member since 2012 · 865 posts · 351 votes
6y
@David James another thought is take your 5k and do so marketing to produce some quality leads that would be and a home run. If you get an out of the park deal someone WILL partner with you. The someone probably needs to be a seasoned investor. So the blind is not leading the blind. Your closer than you think.
P.S if you post the numbers of the 3 deals you spoke off you will get some feedback. It may or may not be what you want to hear, but it should help get you from point A to point B.
So I was having another discussion with a friend of mine yesterday. He is my potential lender and has money to invest but is skiddish about jumping in. I told him that with his backing and my drive, knowledge and willpower we can make a good bit of money. His famous line is "If things go south all you would lose is time and effort, I would lose my total investment!" I told him that its my reputation on the line as an investor and also that we would analyze the properties before jumping in. What else can I say or do to convince him to take the plunge with me???
David,
I understand your lender sentiment. There is a problem then with how you set up your deal.
I set up my deals so that my LENDERS will still make money even if my deals go south.
For example, I set up my deal so that my lender gets a first mortgage lien on the property. Not only that, but I buy my properties with significant discount to value. So worst case scenario, they take the property and sell it at a discount to get their money back.
Here's an example of one of my deals a few years ago:
- Acquisition + renovation + other costs = $423,400
(it's a 48-unit apartment building)
My lender lent me $385,000 at 11% and 2 points. He got a first mortgage lien on the property.
The value of the building once it's financially performing is at least $1.2 MILLION
Worst case scenario, if I screwed it up, he can sell the building in a hurry and get his money back plus more. There is an $800K upside!
But what happened was this:
I turned around and increased the occupancy of the building and reduced its expenses. I sold it 6 years later for $1,695,000 (higher than what I was expecting).
The lender was quite happy and me and my partner got ourselves our first MILLION dollar profit deal.
If you structure your deals so that even in the worst case scenario your lender makes money, you will have no problem borrowing private money!
Contractor · Oxford, MA · Member since 2018 · 807 posts · 745 votes
6y
If your friend didn't even want to look at the 3 you picked, there is nothing you can do. He doesn't want to invest no matter what you show him. You'll either need to find another friend with cash or the ability to take a loan against their house or save more to get a HML. I have personally tried to take the tire kicking "investor" horse to water but no matter what, they still won't drink. Then when you pull it off and make a profit, they'll complain that they should have done it, why didn't you convince them and they want in on your next deal. The problem with that is the one they invest in might be the one that breaks even or loses a few grand and you'll be the worst person in history and they knew they shouldn't have trusted you.
I'm curious as to how this started. Like did he say he wanted to invest in real estate? I ask because you said he didn't want to look at properties. From the outside looking in, it sounds like you're bugging your friend because you know he has money. Not saying that's what is happening. But it's what the post sounds like. He is absolutely taking all the risk in the scenario you laid out. Who cares about reputation? Businesses fail all the time. It's hardly a stain on reputation. Except with the particular person who loaned you the money. My advice: Take your 5k invest it in something other than real estate, double it 2 or 3 times. Then if you still want to get into real etstate you'll have some funds to work with.
Real Estate Agent · Reston, VA · Member since 2017 · 295 posts · 163 votes
6y
Your lender friend is right to be skeptical. I think proof is in the pudding or however that saying goes.
you sound like you have been investing for a while, pull your numbers from your closed deals where you made or are making money. Yes, show him the money!!!!
So I was having another discussion with a friend of mine yesterday. He is my potential lender and has money to invest but is skiddish(sic) about jumping in. I told him that with his backing and my drive, knowledge and willpower we can make a good bit of money. His famous line is "If things go south all you would lose is time and effort, I would lose my total investment!" I told him that its my reputation on the line as an investor and also that we would analyze the properties before jumping in. What else can I say or do to convince him to take the plunge with me???
Were I in a position to lend to you and that's all you brought to the table, I would hesitate, also.
You and your lender BOTH need to get educated, at the very least. You'll then have a better understanding of REI as well as how to put deals together to protect the (private) lender.
Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
6y
@David James HML are the same as your friend, they want to see you have skin in the game. Unless you have some money, skills, something of tangible value with a proven track record, it's going to be tough to get funding.