Finding SDIRA investors for note deals is like chasing ghosts

Finding SDIRA investors for note deals is like chasing ghosts

Specialist · Member since 2018 · 41 posts · 16 votes

So where are all of these self-directed IRA investors that supposedly want to fund note deals? Over the last three to four months, I've attended just about every REI event and meet-up under the sun in my city (yes, including the Quest events), even traveling to attend some meet-ups and events in a few other cities, and all of them have been a dead end. If 100 people show up to these things, 1 guy will actually be an account holder with money, while the other 99 people are all looking for money. And that right there is how they've all played out. The "just attend an REI event and get to know people answer" is bunk here. I've exhausted that avenue, and it's a mostly dry well.

I have enough cash to comfortably fund one deal, but not five or six, which is what I hear you need to get started. My family and most people in my network have less money than I do, so asking them obviously isn’t going to work, either.

I keep seeing people say, “Oh, I just closed 10 note deals using investors in the last week,” and I’m like WTF, how...

What's the real answer as to where everyone is finding these SDIRA investors, because REI events and six degrees in your network clearly aren't going to cut it?

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Investor · Kingston, WA · Member since 2008 · 1k+ posts · 1k+ votes
7y

I would say patience and persistence is the key along with constant networking. I've spent the past five years or so building my network of potential investors by creating a local meetup group of interested parties and getting on webinars with self-directed ira companies and providing free education to their clients.

What I found is that first of all of course you have to be competent and knowledgeable about the area in which you are investing and offering your potential investor to participate with you. The second key factor I found is that as you develop a rapport with potential partners they learn to know like and trust you -- and that's just as important as knowing that you are competent and knowledgeable note investor. 

It doesn't matter to me whether my potential money partner is using self-directed IRA funds or personal funds, what's important is that they understand the risk and reward offered in the deal.

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  • Investor · Kingston, WA · Member since 2008 · 1k+ posts · 1k+ votes
    7y

    I would say patience and persistence is the key along with constant networking. I've spent the past five years or so building my network of potential investors by creating a local meetup group of interested parties and getting on webinars with self-directed ira companies and providing free education to their clients.

    What I found is that first of all of course you have to be competent and knowledgeable about the area in which you are investing and offering your potential investor to participate with you. The second key factor I found is that as you develop a rapport with potential partners they learn to know like and trust you -- and that's just as important as knowing that you are competent and knowledgeable note investor. 

    It doesn't matter to me whether my potential money partner is using self-directed IRA funds or personal funds, what's important is that they understand the risk and reward offered in the deal.

  • Bryan HartlenPro Member
    Investor · Phoenix, AZ · Member since 2018 · 313 posts · 157 votes
    7y

    @Gordon F., I agree with @Bob Malecki (sorry can't figure out how to reference people).  

    It does take time to build up a pool of investors that have funds... one of the best ways to do that is to show people how they can get control of their IRA or 401k and invest. Where are you located? Do you have a SD401k/IRA expert that you could partner with to show people how it's done?

  • Investor · Parker, CO · Member since 2014 · 42 posts · 44 votes
    7y

    @Gordon F.   I agree with @Bob Malecki  as well providing very good advice building a network, rapport and trust with potential investors over time.  

    As someone who invests through SDIRA I love the long terms aspect of note investing collecting monthly payments for the next 10, 20, 30 years... Another factor to consider is timing, I recently had a borrower refinance a performing loan so it is paid off and provided a significant boost to the ROI but will now need to start my search for a new investment.

    Since this is my IRA account, do far more due diligence on notes and potential JV partners than I do selecting which stock or index fund to invest in. Typically I this would require 3-6 month vetting process with multiple interactions references and past experiences.

    This is significant work involved getting to the point where someone would close "10 deals using investors in one week" and it can be discouraging comparing ones perceived progress to someone else.  It would be like comparing Picasso doing a sketch of someone in 10 minutes creating a master piece.. but in practice it took him a lifetime of work to acquire the skills to do that.    

  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    7y

    @Gordon F.

    It takes time and experience. Look at it through another lens- if your not experienced or have not done a lot of deals - why would an investor lend to you vs someone who has done 100 deals ? (Not being a jerk but your dealing with peoples retirement / it’s like asking would you fly with a pilot who has flown once or 1000x - - which is safer ?

    You also need to have a differentiator. Why you over someone else

    If it was easy everyone would be doing it.

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  • Specialist · Member since 2018 · 41 posts · 16 votes
    7y

    This is all great advice, and I have no illusions about the time it takes to build relationships.  But something isn’t adding up here.  I’m on these email lists of note businesses, and every day, I get emails about these dudes who literally started up a whole five minutes ago closing eleventy billion deals since they started.  I’m like WTF.   There are people on this board in this forum who are as new as I am who are supposedly closing double digit numbers of deals with investors. THAT’s what I’m talking about.  So what’s the real story here, because what I’ve experienced plus what you guys are saying here doesn’t add up to the daily emails I see... Are these people lying?  If not, then how are they doing it so quickly?  Is there some magic pool of investors who hand out their money like it’s candy that I’m missing here??

  • Investor · Fort Worth, TX · Member since 2016 · 41 posts · 48 votes
    7y
    @Gordon F. I have an investor that doesn't care to learn notes. He kept calling me about a note deal to JV. Last month he said "Brady, I'm investing in you". I held back the tears but that's what you need in your life, wealthy people that believe in you. I have another partner that's not been treated well in another note deal, but they never act concerned about our project. #1. Share your journey on social media and email. #2. Change your circle to busy professionals. Relationships are more important than the deal. 1 relationship last thru 100 deals. 1 deal only last for 1 deal. #3 Marketing materials that explain the deal matter. check out @jillian sidoti about #privatemoneyrockstar and @dan zitofski about real estate in general. Check them both out on FB. Please share your favorite source to learn about raising private capital for notes.
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y

    @Gordon F.  @Chris Seveney  chris and I were just chatting on another thread.. he got two home runs this week.

    but he said they were 5k each.. with significant upside.. so if you did not know the back story that those two deals were only 10k.. and a guy said I closed 2 this week you get frustrated.. I get that.

    I have been in and around notes and HML virtually all my life my dad borrowed HML in the 60s for his developments..

    I ran 2 HML companies that had 35 and 50 million under management respectively and one was all private investors the 50 million.. but guess what I took over for the owner who had no succession plan or kids.. and he was the one my dad borrowed from.. so he knew since I was 7 or 8 years old.. I then went and apprenticed with him for 3 years.. which included daily windshield appraisals and a nice lunch LOL.. but he was at it 50 years to build that clientele.

    So going it on your own with limited experience or no experience and no real warm market to tap into.. is very tough very.

    Now when I am a guest speaker at REIAs all over the west coast.. first thing I ask Is show of hands how man have their real estate license.. about 60 % of the room raises their hands.. next thing I ask is how many are private lenders.. about 70% of the room raises their hands.. so it could be were your going to your meetings.. there are far more money on the coasts east and west than in many other markets.. and sub markets. there just is.. so you have to go to where the money is.. not to meet ups full of beginners.. or wholesalers that's a waste of time.

    Chris and @Bob Malecki always talk about the note events in Dallas I think and in Vegas that's were you find those with money .. and those usually cost a grand or so.. plus you have to fly there feed yourself and get a hotel room etc.

    But this is a slow LOOOOONG process to raise investor capital.. and experience matters. hands down.

  • Investor · Raleigh, NC · Member since 2013 · 49 posts · 55 votes
    7y
    You can use county records to find owners of secondary properties owned through their IRA. Mail to those clients about your business model.
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    7y

    @Natasha Hunter

    Also just because someone is closing deals doesn't mean they are doing good. It's where are they in 12-24 months from now. I get to see a lot of times what the winning bid is and I shake my head knowing they will either not make money or make very little. I bid $2500 on a note with a P&I payment of $100. Why because after servicing and escrow I would get $700 a year. The winning bid was $20,000 because someone blindly bid 80% of the UPB and if they are happy at it taking 30 years to get their investment back great / most are not and I am seeing a lot of that.

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  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    7y

    @Gordon F.

    “I have enough cash to comfortably fund one deal, but not five or six, which is what I hear you need to get started. “

    I don’t know where you heard that, but everybody I’ve met in 40 years in real estate started with 1 deal, not 5 or 6.

    I’m known on this forum for being blunt, so I will tell you your problem straight out. You are looking to raise capital before you have the knowledge and experience to successfully invest that capital.

    A real estate education that lays a foundation for success doesn’t start with guru seminars, workshops or mentoring programs. It starts with a couple of real estate principles and foundation courses, offered by many colleges, and real estate associations.

    Private Mortgage Financing Partners, LLC
  • Investor · Keller, TX · Member since 2015 · 81 posts · 22 votes
    7y

    I would also like to offer another perspective. I have had $28k doing nothing for 2years.

    1. I am not comfortable handing any money over to people who have not been in a space for very long. I am dubious of all the ‘rockstars’ who made money in the last ten years on the back of printing presses and all the markets rising as they have done. 

    2. I am at best a sophisticated investor, not a ‘SEC fancy’ earning 300k with 1m in investments. I lot of the investment houses ignore me as I am too much hassle to qualify.

    3. If they will deal with you, then you are offered a much lower return on what essentially a high risk investment that can turn on a whim. 

    4. Most investments have a minimum of $50k share. So immediately glossed over for the ‘better’ investors who don’t bring SEC attention and have ‘enough’ money. 

    5. SDIra money requires more paperwork. 

    So right now I wait, it is not a lot of money, but all I have in this sdira and as I have lost a lot of money in my past, I am wary of all these “experts” who have been lucky on one deal. At some point there is going to be a correction and the market will be in my favour again. 

  • Investor · Fort Worth, TX · Member since 2016 · 41 posts · 48 votes
    7y
    @Gary Baker I'm in your back yard in Fort Worth. You don't have to be accredited to joint venture just sophisticated which you clearly are. But getting into TX real estate with $35k limits options. That's why I've focused on IN, OH, and MI. $35k on Sub2 deals in DFW works.
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Natasha Hunter:
    You can use county records to find owners of secondary properties owned through their IRA. Mail to those clients about your business model.

    we have been getting direct mail for our notes since the 60s.. very common approach some of the bigger players have telemarking arms also.   the note yellow letters are just like wholesalers letters..   ya know..   Get cash now..  don't stress about payments.  tired of dealing with borrowers..  Need money now for XYZ  it works I have found some nice note buyers who direct mailed me. 

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Gary Baker:

    I would also like to offer another perspective. I have had $28k doing nothing for 2years.

    1. I am not comfortable handing any money over to people who have not been in a space for very long. I am dubious of all the ‘rockstars’ who made money in the last ten years on the back of printing presses and all the markets rising as they have done. 

    2. I am at best a sophisticated investor, not a ‘SEC fancy’ earning 300k with 1m in investments. I lot of the investment houses ignore me as I am too much hassle to qualify.

    3. If they will deal with you, then you are offered a much lower return on what essentially a high risk investment that can turn on a whim. 

    4. Most investments have a minimum of $50k share. So immediately glossed over for the ‘better’ investors who don’t bring SEC attention and have ‘enough’ money. 

    5. SDIra money requires more paperwork. 

    So right now I wait, it is not a lot of money, but all I have in this sdira and as I have lost a lot of money in my past, I am wary of all these “experts” who have been lucky on one deal. At some point there is going to be a correction and the market will be in my favour again. 

     just put those funds in  a publicly traded vehicle like a reit or index funds and forget about it..  taking on risk for such a small difference in POTENTIAL return does not make sense in my mind.

  • Daniel DietzPro Member
    Rental Property Investor · Reedsburg, WI · Member since 2011 · 1k+ posts · 857 votes
    7y

    I think @Don Konipol hit the nail on the head. With that said, I do NOT do Notes, but plan to far in the future when I don't want to do rentals any more.

    I DO use 'other peoples money' for rentals. My two partners and I put our own funds, both cash and retirement accounts, together for the down payments on the first 20 units we bought. Had them going for 5-10 years with great success - under 2% vacancy, 6% cash on cash, nice mild appreciation, outstanding tenant references as to our responsiveness, etc.... We HAD A RECORD. But we were 'out of cash'. 

    We THEN did a Private Loan on a unit we had paid off and used it for a down payment on a 4 unit. Then with that same Private Lender we just did a deal on another 4 plex where he brought 100% of the down payment, we will do all of the work, and split things 50-50. 

    Where did we find him? He is a long time friend/acquaintance who knew we were looking for 'partners' as I would often mention that to him, as @Brandon Turner teaches in the Podcasts, as "If you ever know someone who would like to partner, tell them to call me'. 

    As far as how to find them, I think it IS just about networking, build up a 'resume' for yourself, and PERSISTENCE. A couple of years ago when I first wanted to find partners I made a list of about 50-60 potential people - friends, relative, business contacts and past customers (I am in constructions, and we do a ton of work at peoples second/vacation homes). I 'numbered' my list with a 1-5 score of who might be most likely to be interested/capable and stared to make contact with the '1s' in the order I would like to partner with people. Of my first three calls, two were interested, one is the partner mentioned above, and one had no interest. 

    I really do think it comes down to persistent 'networking', which is as easy as telling everyone what you do. Just over the Christmas break I saw a person on my list, a "3". As we were talking about how life was going (we only see each other a couple times a year) I updated him on my 'day business' and mentions that we just added some rental units by using a Private Money Partner and just a few details. He made a point of stopping by before he left town to say 'if you would have me as a partner, I would love to invest with you'. I had simply mentioned it to 'plant the seed'... THAT seed sprouted pretty fast! :-)

    Dan Dietz

  • Investor · Boca Raton, FL · Member since 2012 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Don Konipol:

    @Gordon F.

    “I have enough cash to comfortably fund one deal, but not five or six, which is what I hear you need to get started. “

    I don’t know where you heard that, but everybody I’ve met in 40 years in real estate started with 1 deal, not 5 or 6.

    I’m known on this forum for being blunt, so I will tell you your problem straight out. You are looking to raise capital before you have the knowledge and experience to successfully invest that capital.

    A real estate education that lays a foundation for success doesn’t start with guru seminars, workshops or mentoring programs. It starts with a couple of real estate principles and foundation courses, offered by many colleges, and real estate associations.

    Couldn't have said it any better myself.  I've always said you should do AT LEAST 10 note deals in this risky business using your own funds before using other's money, but I realize that is not practical for many.

    There's no better way to learn than to get your hands dirty and do a deal yourself with your own funds.  So get into that 1st deal with whatever funds you have, learn as you go and create a case study to demonstrate your knowledge to others.   You want investors contacting YOU, not you pursuing them.  Once you establish yourself an expert (or one with considerably more knowledge than the investor) only then will they want work with you.   

  • Investor · Keller, TX · Member since 2015 · 81 posts · 22 votes
    7y

    @Jay Hinrichs 

    Thanks for the answer Jay. Honestly, if I wanted 2-3% off a tracker there are better stock market options available. REITS scare me because they tend to rise and fall more wildly than the stock market. I am also trying to play catch up as the stock market has kicked me more times than I care to think about, it appears that it is going to do it to me again.

  • Investor · Parker, CO · Member since 2014 · 42 posts · 44 votes
    7y

    @Gary Baker I feel your pain with lower amount to invest in IRA accounts and being kicked by stock market... For some accounts such as Roth which have contribution limits its difficult to build up enough to purchase notes. Some strategies for these accounts is to 1. find performing 2nds which can be found at lower price point and still provide a nice return. 2. combine IRA accounts together for investment 3. invest in partials and take over the payment stream for the next 60 payments, in case of borrower default the note owner will take responsibility back to get it reperforming.

    Although there is no way around the significant paperwork involved and combing account method doubles the paper work.  

  • Investor · Parker, CO · Member since 2014 · 42 posts · 44 votes
    7y

    @Gordon F.

    Advice by @Chad U. and @Don Konipol is sound and should be contemplated.   You have to start somewhere and its always with the first one and having risked your own money and been successful several times over.   

    Each person experience and circumstances are different and in general not a good practice to compare perceived progress with others that have started out as a "Rockstar" as we don't know the background information or how accurate it is.  If it is true they are doing 10+deals in matter of weeks after returning from a weekend training with investors funds,  I find it quite unsettling that many people are investing with them with no experience and will eventually encounter problems.  

  • Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes
    7y

    @Gordon F. already some great advice here posted by many others (including some great players in the note space so you should definitely heed it). Just a couple other thoughts:

    There are a number of people with money to put to work who wander these forums. They may not post, but don't be surprised if they put feelers out to some of the respondents here who have proven themselves to be knowledgeable and experienced. When you're looking for money, it (literally) pays to be the one bringing the answers than questions.

    Secondly, I see all the emails too, but you're discounting what those people have built. They may be new in the note space, but note what @Daniel Dietz said above as an example. He might have money from lenders on his very first note deal because he has a track record of success in other related industries and he's built a network from them. If @Jay Hinrichs says he's looking for money to buy his first ballet studio in Siberia he could probably get it funded tomorrow. Prove your worth and people will come.

  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    7y

    “If @Jay Hinrichs says he's looking for money to buy his first ballet studio in Siberia he could probably get it funded tomorrow. “

    He could!!  Well put

    Private Mortgage Financing Partners, LLC
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Don Konipol:

    “If @Jay Hinrichs says he's looking for money to buy his first ballet studio in Siberia he could probably get it funded tomorrow. “

    He could!!  Well put

    two funny .. not with my two left feet I wont. !!!   some of this depends on the cycle we are in as well. trying to raise money in 09 to 2012 was nearly impossible ( at least for me).. as things have gotten better its gotten easier.  However much of what we do comes from bank financing.  And that is something I have spent 3 decades growing.. from my very first 100k line of credit to buy timber.. 

    And experience is the name of the game and having a banker who knows your character and trust you.. this is huge its not done at big banks but local community banks where the president and head credit officers are also the owners or major stock holders.. its relationships with those folks that will get you over the top. 

    its a progression.. Granted in rental game it can go quicker.. but when your looking for facilites to buy notes or to make new originations these are not easy to get .. but there are plenty of companies that have them.. however when U look at the principals they are not beginners by any stretch. 

    Although with larger multi family this seems to be more available to those with marginal experience IE they can bring in a partner .. 

  • Specialist · Member since 2018 · 41 posts · 16 votes
    7y
    Originally posted by @Jay Hinrichs:
    Originally posted by @Don Konipol:

    “If @Jay Hinrichs says he's looking for money to buy his first ballet studio in Siberia he could probably get it funded tomorrow. “

    He could!!  Well put

    two funny .. not with my two left feet I wont. !!!   some of this depends on the cycle we are in as well. trying to raise money in 09 to 2012 was nearly impossible ( at least for me).. as things have gotten better its gotten easier.  However much of what we do comes from bank financing.  And that is something I have spent 3 decades growing.. from my very first 100k line of credit to buy timber.. 

    And experience is the name of the game and having a banker who knows your character and trust you.. this is huge its not done at big banks but local community banks where the president and head credit officers are also the owners or major stock holders.. its relationships with those folks that will get you over the top. 

    its a progression.. Granted in rental game it can go quicker.. but when your looking for facilites to buy notes or to make new originations these are not easy to get .. but there are plenty of companies that have them.. however when U look at the principals they are not beginners by any stretch. 

    Although with larger multi family this seems to be more available to those with marginal experience IE they can bring in a partner .. 

    So this is an interesting post.  I have a good real estate friend of mine who's been buying notes since the early to mid 70's.  He's actually a real estate attorney and through pure serendipity, he fell into notes investing.  Nonetheless, when I asked him where he got his money from for investing, he said he had a facility with a local bank.  He also said it was way easier back then to get that sort of thing versus today, but he noted that it's most important, regardless of cycle, to be bankable.  It sort of sounds like you might have done the same thing, and I think that's really interesting.  Of course, he was practicing law for a long time before that ever happened, but just as importantly -- and to your point -- he built a relationship with his local banker.  

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y

    @Gordon F.  also Gordon keep in mind the average SIDRA has less than 200k in it.. 

    so if your going after SIDRA money its going to be slow drip the 50 to 100k at a time.

    which is dog tough to scale.  

    our bank LOC's were 5 million.. and we had 6 different banks that we had those with.

    Keep in mind though they are almost always written on 1 year roll overs so 1 point every 12 months and the right to call the loan annually.. this is the back bone to the larger HML many have credit lines in the 20 to 100 mil range.. that's when you make money in the lending business..

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