How do you approach a private lender?

Question

Let's assume you have a short list of potential private lenders whom you know personally, but you don't necessarily know if they are interested in private real estate lending. What are the best ways to approach them about lending?

Shiloh Lundahl · Answer

When it comes to raising private money you need to be careful that you don’t break any securities laws. In other words. If you don’t do it right and the deal goes bad, you can get sued or you can go to jail. Understand the difference between a debt investment and an equity investment. If you are trying to pool several investors together on a single deal and you are. It doing it according to securities law then that is where you tend to get in trouble the most. What we do to avoid that is we have someone give us a loan and we then create a promissory note and record a deed of trust on one of our properties. That is how we keep it clean.

Crystal Smith · Answer

We approach private lenders with a package that lays out the merits of a deal, the cost to acquire, the cost to renovate (if required), the cash flow breakdown, the structure of the deal along with the Return on Investment for the investor.  All in writing w/ data to support the analysis.  You should know the specifics of the deal like the back of your hand.  No overselling. Let the investor take the package, sit with it, then you follow up to answer any questions.

Shiloh Lundahl · Answer

@Tyler Rowley most of my private money lenders have come from BiggerPockets and my meetups. I’ve raised well over a million dollars among over 50 private money lenders and only 4 of them knew me prior to lending to me.

The reason I am explaining this is because I went to people I knew who had money first and I tried to convince them that it would be a good idea to invest with me. I came across As needy and like they would be doing me a huge service or favor to lend to me. It didn’t work and no one wanted to lend to me. It wasn’t until I started having success to where people wanted to start lending to me so that they could be a part of that success and they could earn some money on their money and possibly learn about the process at the same time.

So, in other words, I would encourage you to look beyond the people you know right now to find private money lenders. There is much more money out there in the hands of people you don’t know personally than the people you do know personally. But the key to finding private money is having success. So go out there and get some success and once you have enough of that, private money is much easier to attract.

Matt B. · Answer

If you personally know them, I'd just prepare what you're going to say and then give them a call or discuss it the next time you see them. If you can tell them things like:- Where you are buying & why- investment strategy (referencing contractors or other 3rd parties that may be)- Time line in which you  expect to pay them back Then they most likely would be open to the idea and discussing it with you further. Remember, the worst they can say is "no"

Tyler Rowley · Answer

@Shiloh Lundahl: very helpful advice about proven success leading to more opportunities. That’s why I bought my first deal by myself, to at least show that I’m in the game and being successful.

What’s the best place to find private lenders you don’t know personally?

Do you get better rates with friends? What rates should I expect with private money?

Crystal Smith · Answer

We approach private lenders with a package that lays out the merits of a deal, the cost to acquire, the cost to renovate (if required), the cash flow breakdown, the structure of the deal along with the Return on Investment for the investor.  All in writing w/ data to support the analysis.  You should know the specifics of the deal like the back of your hand.  No overselling. Let the investor take the package, sit with it, then you follow up to answer any questions.

Alexander Felice · Answer

write up a business plan and send it to them, get feedback, iterate.

How do you approach a private lender?

Most Popular Reply