Talking to potential private lenders

8 Replies

Hey everyone,

I'm very new to REI and spend a good amount of time reading and learning as I am still a ways away from doing my first deal (A multi-unit owner occupied buy and hold). I'm finishing up college in spring 2016 and plan on making an investment shortly after, but my summer job for the past few years (and currently) is at a yacht club where I basically help people with their boats and make small talk. Over the years I have built some relationships here and am looking to ask some of the members of the yacht club to invest with me. I am 20 years old and most of the members are above 40, I have good standing with them but feel a little uncomfortable breaking the ice in terms of talking money. How should I approach them? What kinds of questions should I ask? Lastly, what is the process of paying back their investment with interest and how does that payment process work?

Thanks!

You don't have a deal. If you approach potential investors before you know what you want and what you can offer the most likely result is that you will alienate them.

I am far from being an expert, but I think you should take the conversation more into what it is they invest in. Do they despise RE? Do they like lending short term / long term / equity investing? What sort of returns are they after in their investments? Figure out what they are after, then figure out if you can add value with the deals you might be able to bring.

Medium logoBryan O., Note Capital | http://www.notecapital.us

Hello and do you need to find a what ever home you are trying to invest n first or would it be good to find investors first n what if your credit not good what options does i have with that. 

what is the best investors should we be looking for if you want to buy n fix up n sell. 

@Blake Dowe I suggest the "who do you know" approach. When talking with one of your friends from the club you would simply say "who do you know who might be interested in .......... (whatever you are going to do, partner on a deal, be interested in earning 10% on my project, etc.) "  as this usually stimulates good conversation without you seeming too overbearing. 

@Jeff Rabinowitz is right though you need to have a specific plan in order to do this, maybe "I am going to buy a foreclosure for $50,000 and put about $30,000 in it where the resell average is $130,000. Who do you know, or do you know anyone who might be interested in being my private lender and earning 10% when the house sells?"  

This is a fairly simplified example but I think it illustrates the point.

Good luck, and yes leverage your relationships to create win-win scenarios.

@Blake Dowe You have to find someone that subscribes to the same investing ideology that you have. I would talk to the successful folks at the yacht club that you have a good rapport with and find out which ones have made their money in real estate. Ask them how they found success in real estate and get specifics on their investment strategy. 

Let's say one of the folks from the yacht club tells you they only buy houses that they can pick up for 65% ARV on the west side of town. Ask them, if you were to find a property like that would they be willing to partner with you on the deal. That is the quick way of doing it. However, if you have time, I'd recommend going the route that I went if possible.

I found my business partner because I adopted them as a mentor. They had a high net  worth and owned 200+ properties at the time.  I told them that I wanted to learn everything I could from them. I would buy them lunch, ask what books they read, how they built their fortune and volunteer to help out for free on any upcoming projects. Meanwhile, I was building credibility with them by showing a strong work ethic and that I grasped the concepts they were teaching me. When I happened to mention a good deal that I came across, they offered to partner with me...and the rest is history. 

A few sandwiches, reading a few recommended books,  and a genuine interest in investing led me to developing a great friendship, mentor and business partner. 

I'll be rooting for you here in Orlando, Fl Blake! Keep us posted on your progress!

Medium virtuoso logo print ready reference whiteJeff Joachim, Virtuoso Investment Realty | [email protected] | 407.205.9966 | http://www.VirtuosoInvestments.com

I would search for hard money lenders and find out about what their programs are. If you do a quick Google search for "hard money lenders Maine" I'm sure you'll find tons. I've always thought it's a lot easier to do business with someone local who knows your market better and may be able to bend a little for you (as opposed to national or multi state lenders). At first glance the interest rate looks very high but when you do the math you can actually see that you'll make more money this way and have a higher ROI. You'll likely put less down and not have to give your investors 30-50% of the profit.

If you want to live in your apartment building, why not get an FHA loan for up to a 4 unit building? It's only 3.5% down and a low interest rate. Also, if you can find a multi-unit out in the country (I'm thinking Oxford county, but it would be a terrible commute to your job) you can get RD financing for 0 down and a low interest rate. Most hard money lenders charge 12% interest plus points, so it's only a good deal for flippers, not buy and hold.

An extra piece of advise: make sure you have an emergency fund!  I would rather put less down on the property and have a cushion in the bank.  Many investors lost their buildings a few years ago when oil spiked and they couldn't afford it.  Pipes burst, tenants moved out, mold set in, and the buildings were torn down.  Don't let this be you!