Letter to Private Mortgage Lenders? Thoughts?

36 Replies

Hey guys,

I have come across a couple lists of high net worth people who have been lenders on private mortgages in the local county and I am considering sending them a letter seeking REI loans. I have read all the posts about sending letters to strangers asking for money but I am not asking them to INVEST in anything. Rather, I am seeking private LOANS for rental properties. So, please—no lectures on SEC regs!

For those of you who actually lend on long term private mortgages (not short term Flip hard money lending), can you give some thoughts on the letter below? Is it too cheesy? Should it include more? Can you help give some pointers on what would make it more effective? It might yield a zero response rate and I am ok with that…just trying a new avenue for the experience. Plus, if it works, it will be right here in the open so other BP members might be able to use it for their own purposes.

January 18, 2013

Name Address

Dear :

I came across your name in the xxxxx county public records as someone who is a local property investor. Either that or, you’re a private lender who loans on properties…

I am writing to you to discuss some possible ways that we can work together. I, too, am a property investor here in the area, and I’m always looking for other “serious players” with whom to network, exchange ideas and resources, and ultimately, with whom to create a long-term, mutually beneficial relationship.

Specifically, I am seeking private money lenders who are looking for better returns than they are getting in their savings accounts, CDs, money market, or from their retirement fund. The returns of 9%-11% (negotiable) would be for first-position private mortgages on cash-flowing multi-family properties which are secured by real estate and are fully insured. Even the payments to you will be deducted straight from my bank account. No waiting for a check each month! Terms are negotiable.

Thanks,

I look forward to meeting you!

Yours truly,

XXXXXXX

P.S. Oh, and by the way, if you want to talk sooner, you may always reach me on my direct line at
XXXXXXXXXX, or you can email me at XXXXXXXXXXXXX. Thanks! It’ll be great to talk with you!

Although I don't lend long term private money, when I get letters like this it screams newbie-I've-never-done-a-deal-but-am-trying-to-sound-like-I-have. So I add them into my marketing database. But I don't call them with an offer to lend money.

Most private lenders come from a relationship, not a letter, but if you're going to try direct mail, at least outline your experience so that you don't sound as if you've never done a deal.

PS - there is nothing wrong with being new, it's just that this letter sounds as if you are new but trying to sound experienced.

I agree with Ann. While I'm not a big time lender -- just a few loans per year -- I'd probably never consider lending to someone who sent me a letter out of the blue.

Try to build relationships with some of these people -- invite them to lunch, see if they attend local REIA meetings and see if you can hook up with them, etc. Once you have a more personal relationship, that's the time to be asking for money.

Just my opinion...

Good point Michael, and again, glad to see you're out... :)

Scrap the letter idea, look them up, arrange to meet them, if they use an office go there, if not take them out for lunch, then hit them up face to face.

Letters go to file 13 and I rarely ever go to file 13 to find business opportunities. In fact, never.

Borrowing private or HML money is a personal thing, it's just not done in the mail that way. :)

If I got that letter from you, I would call you - provided you added your experience like Ann said. Even if you said you didn't have any experience, I would want to see what deals you had in the works and get on your to-call list when you had one that would meet my criteria in the future.

I would welcome also a pm if you had something that made sense, but I think everyone on here would like that, regardless if they had cash-on-hand or not.

Thanks @Marc Donovan Good to know there might be some response from such a letter. ha!

Honestly, I know a ton of lenders through the local REIA, but they all only lend on short term flips. They must like going for the quick buck, which is rather surprising to me. I have asked around to learn who lends on mortgages… but few people seem to know anyone who lends for buy and hold. So, I figured I would try the mailer route and reach out to some people who may.

I am working with a realtor who analyzes the local mls and identifies the highest performing multi-family properties (highest cash on cash returns, highest CAP rates, etc.) in my area. I intend to acquire some of the better ones from his list and have a bit of money to contribute, but I would like to use some private lenders to stretch my dollars further as down payments (or just covering closing costs) and acquire several of these high performing properties.

So, maybe the better question to ask on this thread is: what are reasonable terms to ask for from private mortgage lenders?

If I were to send mailers and suggest 10 year mortgages at 10%...would that seem reasonable enough to get a response? Or what about 12%? 15 years at 12%? I have never done a private money mortgage so I don’t really know what would attract such lenders to work with me as far as terms, rates, down payments, etc.....

Thanks for the input, btw!

Ken

Brokers tend to want to do the shorter term loans because they make most of their money on the upfront points/fees. Many true private lender would prefer longer term loans because they don't have significant downtime when they money is not performing. Example...if they are lending at 12% short term loans but their funds are only employed 9 months of the year, they would have the same returns if they had a longer term loan at 8%, and it would have been less hassle.

Also I have noticed that higher returns can actually make you sound risky. I offer 8% to 12% depending on property type/ltv.

@Gene Hacker You made an interesting point. The question is where to find the true private lenders who prefer longer term loans.

When you say you offer 8% to 12% depending on property tpe or ltv, can you specify all the conditions for making the determination on which way you go? Are you the borrower, or are you the lender?

What ltv for 8%? How much of a down payment? Who pays closing costs? Appraisals?
What ltv for 9%? How much of a down payment? Who pays closing costs? What length of time?
What ltv for 10%? How much of a down payment? Who pays closing costs? What length of time?
What ltv for 11%? How much of a down payment? Who pays closing costs? What length of time?
What ltv for 12%? How much of a down payment? Is this for 100% financing? What length of time?

Thanks!

Kenneth,

The terms are all up for negotiation.

If I have had investors that only feel safe with really low LTV (under 50%) then I might suggest a lower interest rate.

A typical loan, 65% ltv, might be 10%

12% is usually aimed at 2nd notes.

True private money investors are just everyday people that understand (possibly after you explain to them) that they can get higher returns than what they are currently getting with savings bonds or savings accounts and they understand that it is secured by real estate. Usually people you know, family, friends, neighbors, coworkers, etc...

Hard money brokers (which love to call themselves private money lenders") are guys that make their fees by brokering funds...either money from private individuals or institutions. Again they make much of their money from the upfront fees and points. Many true private money lenders do not charge fees or points. There are private money lenders who lend only their own funds that get the same high fees and interest. But most people that advertise "private money loans" are usually brokering opm.

Kenneth, true private money loans will not have appraisals, not have loan fees, and any other costs like wire fees, escrow, title is to be paid for by borrower. Of course everything is negotiable.

Like Gene stated, many hard money lenders now like to use the "private money" term, it is just a marketing ploy, they still are hard money lenders if they are taking points, fees, etc and using OPM.

As far as your letter, I feel you will get a poor response for many of the reasons others mentioned, but I do agree with enough consistency, you will get some response. With that said, to improve the letter, scratch the "better returns then they are getting in savings, etc" if they have already loaned on RE, which they have due to your research, they are already on board with the advantage, why reiterate something they already know! Makes you sound newbie and salesmanish (just made up a new word).

Also, do not place any % example returns, leave that out.
Then do what Ann stated, add in your previous deals so they can research you before they call or email you back. If you have no such experience, then obvious,y you can't lie.

All good comments so far.

I don't think the letter will be very effective. What tends to be effective is talking about what you do.

People are always asking "what's new?" So tell them. You are doing real estate and you are very excited about what is happening. Yadda Yadda Yadda . . . Then add something like "Gosh the deals and the profits I am seeing are just unbelievable. If only I had more money." Say that enough times and someone will say "Well gee, how much money do you need?" Talk this up whenever you are around friends, family, associates or business colleagues.

If you do want to market to your list, I would call them and offer to take them to lunch, you'd like to know more about what they do. See that is a different approach. Instead of talking about you - here is what I want, or what I can offer, or what I am trying to sell you on, You are talking about them.

Most people don't want to be sold but they do like talking about themselves.

Lastly I can't help but comment because there is so much misinformation.

but I am not asking them to INVEST in anything. Rather, I am seeking private LOANS for rental properties. So, please—no lectures on SEC regs!

A loan is an investment. It is also a security based on the definition in the securities act of 1933. Many states, including mine Maryland, have laws defining a mortgage as a security. I am not saying you should not use private money, however you should be aware there is some risk involved from a legal standpoint.

Good luck and tell us about your successes. - Ned

@Kenneth E. , can you clarify as to whether you are looking for first lien money or second lien money for downpayment?

Hopefully, first lien money, as second lien money is undoable unless the lender is totally naive.

Whether mail works in an email, instant messaging, texting, skyping world I don't know - even my 87 year old father in law uses email/texting exclusively.

That being said, I actually think the basics of your letter are quite good. However, it has been my experience that when selling or soliciting for anything requiring a major investment, medium size advertising does not work. You need to either go very short - just headlines really - and have additional information ready either when they call - or more likely when they go to your online link, for a video presentation or an extensive website. Or go long, with an extremely detailed 2-4 page letter laying everything out. As you know you are not looking for the greatest number of responses, you are looking for one or two potential lenders with real money to lend, comfort with real estate security and realistic expectations.

Good luck and let us know how it turns out.

I would take out the term "serious players". I think this looks a little unprofessional and would appeal to a younger crowd, but not the main target of people with cash to lend.

Let us know what kind of response you get.

I agree with Rob K, above. Also, I think your letter would be better received if you included more about real estate experience and track record.

Something along the lines of:

"I bought and sold $X amount of real estate last year at an average profit of $X. I'm looking to expand into [insert some market or numerical goal you want to reach] and am inviting private money lenders to exchange ideas and resources... "

That could help qualify you as an experienced investor and might help you stand out from everyone else who is seeking money from this serious players.

Let us know, I'm interested in your results.

Originally posted by Kenneth E.:
The @ feature doesnt work from my phone..... :)
Nor does it from the Ipad, kind of a bummer, perhaps that can be fixed some day.

Well, thanks all! That is some great feedback.

@Ned Carey As I stated before, I do know hard money lenders personally but none of them are private mortgage lenders, nor do any of them seem to know anyone who lends on private mortgages. So, it is difficult to talk to lenders when I haven’t met any of them personally. I understand that anyone I know could potentially be a lender, however, I have more than one list of private lenders/high net worth people now but I don’t know any of them personally. All I have is their name and address…no phone numbers to call them and ask them to lunch. That is the reason I am considering sending this letter.

@Don Konipol I am specifically talking about first position mortgages…though I would be interested in second position mortgage lenders too. :) That was great advice and I had debated making the letter shorter….or even longer and sending along a summarized version of my investing resume (which is short, honesty) along with the terms I am proposing and how their money would be protected (first position, reasonable ltv, insurance, automatic monthly payments deducted directly from my checking account, pre-signed deed in escrow so foreclosure proceedings could be avoided in the event of default, etc.). However, I never considered directing them to a website or online video—that is something I will need to think about.

Rob K thanks. Ill take out the serious players portion.

@Glenn Espinosa Thanks for the quote; I may just insert something like that, however, my experience is minimal and may not be ideal since it would be more likely to show how inexperienced I am. Ill have to give that some consideration.

@Will Barnard Thanks again for the point about comparing the rates against CDs…since many of the people on the list are already lenders and aready are aware.

Thanks all. This has been a productive and helpful thread.

Ken

Originally posted by Kenneth E.:
All I have is their name and address…no phone numbers to call them and ask them to lunch. That is the reason I am considering sending this letter.

Well you can look up the numbers. The ability to find people and their phone numbers is a valuable skill in this business. I do mailers to find sellers but I find I have much more success when I track down an owner's phone number and call them.

Good Luck - Ned

I do know there are a few online sites that do people searches. With a membership fee, you can type in a name and location and get additional info like Phone Numbers. I'm sure Ned has some other ideas as well.

Kenneth,

Why are you needing a private mortgage over a conventional product?

Any investor would like to know the risk involved with lending you money. My first question reading your letter is, what is keeping you from getting a long term conventional mortgage?

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