Pitching to a private lender. Before a deal??

Question

Hello BP, With covid-19 and social distancing affecting construction projects HML's have lowered LTV and increased down payments and some have slowed lending on anything greater than minor rehab projects.  I have been looking to move to private lending for a while now as I feel some Hard money rates leave no room for error and not enough "meat on the bone" which cuts into my bottom line. I want to present myself to an investor I know of with a very impressive portfolio. I'm torn between waiting to lock in a deal under contract or presenting what my company can offer this person prior to any deals. This way we can negotiate rates and terms ahead of time to factor into my deal analysis in the future. How should I present this offer? I will obviously introduce prior deals I've structured over the years but are there any other ways to add more value to my presentation other than just my portfolio? Thanks folks!

Anthony Dadlani · Answer

@Nick Dallaire

I think lining upcapital in a relationship with a private investor prior to finding deals is better. In that scenario you have your money partner lined up so you know exactly what to hunt for.￼

Best of luck in all your endeavors.

Nick Dallaire · Answer

@Kenneth Garrett I have known them for 5 years. They own the company I worked for 5 years in Boston, MA. Not too close to them since its a pretty big gas utility company with over 1,500 employees. Some of my anxiety might come from starting out 9 years ago when I was 21 and not being taken seriously. I've got skin in the game now I think I might just be overthinking the situation a bit.

Kenneth Garrett · Answer

@Nick Dallaire

Approaching private investors takes networking ability especially if you don’t know them.  It’s about relationship building.  Take it slow.  If you both understand teaming up is a great strategy for both of you then move ahead.  Certainly your experience is a great benefit.  I have always tried to get to know someone first unless I was recommended by someone and then you get direct to the point.  I did have one of my private investors bail out of an investment 48 hours before the closing.  I contacted some people in my network who referred me to a private investor they new.  We talked a few times the next day and I explained the situation, my experience with previous projects and he funded it.  It was pretty stressful to keep the deal together, but it all worked out in end.

Nick Dallaire · Answer

Great advice Alan, thank you. I have a decent idea of the types of deals will catch their eye judging from there past transactions so I'm eager to potentially team up and get things moving in 2020. I have never approached anyone without a deal under contract so its good to hear opinions from another point of view on the situation.

Alan Nelson · Answer

As a HML, I appreciate meeting someone to get to know the person to see if there is a "fit" in terms of a person's business philosophy, ethics, reputation, experience, and types of projects they are looking to do.  When there is not a deal to discuss, the conversation is, indeed, shorter (perhaps over a coffee or a short call), and it usually ends with "let me know when you have a potential deal."

Since you have experience in the industry (vs someone who hasn't done a deal yet), a conversation without "presenting an offer" makes total sense.  First, you have earned the "right" with your experience to engage in some "industry talk".  More importantly, you will be able to discuss what the other person is looking for and what they think about this market and their appetite for different types of deals.  You will get an idea for their risk tolerance.  By learning about what THEY are looking for, you will (1) establish credibility, (2) be in a much better position to determine if that person is the right fit for you, and (3) craft an arrangement that has the best chance for long-term success.