You will need approximately the same amount of capital with a private lender as you would with a bank. The advantage to private lending is often the speed of loan approvals and the fact that they can work with stated income rather than just W2 earnings. The 3 things you need are credit, cash and collateral. With banks, you usually need all three. With private lenders if you are light in one of those areas, but strong in the other areas, you can still get approved.
Pretty much every person I have mentored asks that same question and what I tell each of them is pretty much the same and along these lines.
You need 4 basic things to get started as a real estate investor and they are: Money, Time, Credit and Knowledge.
The money and the credit don't necessarily need to come from you but you need to have the time to dedicate to getting started and the primary thing you need to focus on in the beginning is obtaining all of the Knowledge you can.
Pick your REI niche, retail flips, turn key rentals, etc., and then get as much knowledge on that strategy as possible, by whatever means necessary and possible. YOU have to understand the way a good deal will work from start to finish. You need to understand it as well as you can and as closely as if you had done dozens of deals yourself as possible.
You have to develop high levels of conviction that this is the business for you and that your deals are a win for everyone and then be able to intelligently explain all of the details of a potential deal to your would be investor. You have to be able inspire enthusiasm and belief that the deal will work out as you say and explain what is in it for the investor and how you will protect that investment the best as possible.
If you do not understand exactly how the numbers break down, where those numbers come from, why that neighborhood or market is a good choice, how long you expect it to take and explain why, offer proper collateralization of the investment and be able to answer a number of other basic questions that will come up, you'll have a tough time getting someone to invest in you. Yes, I said you. Of course they will be investing in the deal but people are the makers or breakers of deals first. People first have to know, like and trust you, without that, it doesn't matter how pretty the deal looks.
So focus on Knowledge first. And in tandem, focus on adding value to and growing your network. Like all of us, when I first started I had never done a deal but I made it my mission to raise private money. I was able to do this by focusing on Knowledge first and also using my "relationship leverage" and working in my colleagues anecdotes and stories from their own REI flips and experiences. This allowed me to leverage the experience of others in my network to build the confidence my potential investor had in me even further.
Applying this led me to close my first private money investor who gave me $230k for my first deal, $280k for my second deal and $180k for my third deal all within 45 days.
I have done every single one of my deals with "private money."
I then switched markets and was doing the same type of flips only needing $80k-$160k. I now offer all my investors a very conservative first lien position lien in the $30-$50k. This has allowed me to open the door to many more potential private investors.
As an example, if the investment is $30k and the property will sell for more than $60k, that is very solid collateralization of that loan and that first lien position and promissory note will give that investor a good degree of confidence in the deal so long as you presented yourself well and they trust that you will be able to perform.
I hope that helped.
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