How to approach private investors (not family)

Investor · Surprise, AZ · Member since 2018 · 156 posts · 110 votes

So people always say go to REI meetings, meet people and talk to them. I am doing that, however how do you approach a private investor? What do you say? Hey I'm a newbie can you fund my project (when I get one)?

Being funny, but I am not shy but I'm also not so aggressive either. When you do network with people how is the conversation going down?

What are some approaches I could use to get a private investor on board with me, what do I say? Thanks in advance for any ideas...

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Nathan GesnerBusiness Member

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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

@Account Closed I've never done it and am an introvert myself. I think a good way to approach it would be to talk about it during every opportunity.

When you get past the introductions and start talking with other investors, let them know you are in need of help funding your investments. Maybe they can refer you or give you suggestions. Or maybe they will surprise you and offer to help directly.

I was speaking with someone a few months back that is an investor. I had no idea he had money available to lend or any interest in doing so. I mentioned I found a good property to buy but didn't have the funds for it at the time and he immediately said, "If you need money, I'm happy to loan it to you!"

Tell people what you need. Show them you have value. Someone will respond.

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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
7y
If you do not have that much experience then there can be a perceived HIGHER RISK to investing with you in the investors mind. For that they might only want to invest a tiny amount and see how it goes, want much higher returns than what very seasoned investors offer to invest with them, or both.
Do you have case studies and returns?
Look at it from an investors point of view. If they can go with a seasoned investor with a long track record of success and get great returns then why would they go with a maybe more unproven investor?
Looking at your website I did not see any case studies etc. Look at J Scott's 123flip.com He has a book that might be helpful. There are no videos on your site. People are looking at lot's of videos today on the cell phones.
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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
7y
@Account Closed I've never done it and am an introvert myself. I think a good way to approach it would be to talk about it during every opportunity.
When you get past the introductions and start talking with other investors, let them know you are in need of help funding your investments. Maybe they can refer you or give you suggestions. Or maybe they will surprise you and offer to help directly.
I was speaking with someone a few months back that is an investor. I had no idea he had money available to lend or any interest in doing so. I mentioned I found a good property to buy but didn't have the funds for it at the time and he immediately said, "If you need money, I'm happy to loan it to you!"
Tell people what you need. Show them you have value. Someone will respond.
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Investor · Surprise, AZ · Member since 2018 · 156 posts · 110 votes
7y
@Joel Owens, yes, I guess I did things backwards in that regard. I don't have anything yet to show investors, I'm new to this but hoping to develop my site more with those deals that I can show potential investors in the future.
I get it, I'm new and a huge risk...however, there has to be something I can say when I meet potential investors to get them interested in what I am doing. I will take a look at J Scott's 123flip.com as you suggest. Thank you for the input! :)
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Investor · Surprise, AZ · Member since 2018 · 156 posts · 110 votes
7y
@Nathan Gesner, thank you, always helpful in your advice!
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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
7y
Ultimately if new you will likely have to give away a high percentage to the investor to start while you get experience. Then as your track record and experience grows you then enter the pool of other experienced operators that want to get a better percentage of the profit or you do not take the investor on.
It's kind of like in the beginning people go hard money type rates. Then as they get experienced and build capital and a network they tend to not want that anymore as they have access to better capital that is cheaper and they keep more profit.
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Sam Shueh
Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
7y
Borrow by getting a notes from a company. You must have very good credit score, must have some money for down payments for flip. To co-invest it is always someone you know well and there is already a mutual trust.

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Matt Berklacy
Rental Property Investor | Realtor · Jacksonville FL | Savannah Ga |Raleigh NC · Member since 2017 · 467 posts · 161 votes
7y
you can focus on finding a deal, get it under contract then go to local rei and do a presentation about it and take offers...N Va has a good one...I think with amazon coming you'll have more new investors flocking....
you should get funding takers...
if you come down here to NE Florida Jax Rei with your deal, if its a deal, and present it, someone will fund it..or even chase you down in the parking lot and beg you to take their money..possibly.
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Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
7y
@Aninze A. When I start doing private lending, I will want to see 35-50 percent equity post rehab and interest rate of 8-10 percent. Probably would do interest only payments with balloon payment at 5 years. Obviously this wouldn’t be a loan for flippers, but long term debt.
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James MasottiPro Member
Rental Property Investor · Washington Township, NJ · Member since 2015 · 1k+ posts · 976 votes
7y
Originally posted by @Caleb Heimsoth:
@Aninze A. When I start doing private lending, I will want to see 35-50 percent equity post rehab and interest rate of 8-10 percent. Probably would do interest only payments with balloon payment at 5 years. Obviously this wouldn’t be a loan for flippers, but long term debt.
I'm curious what use case you've come across for this sort private lending arrangement? I would think someone having 35-50% equity should pretty easily be able to get a loan from a financial institution with much better terms than you're presenting here. Just curious as it's not an arrangement I'm as familiar with.
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Dennis Dahlberg
Phoenix, AZ · Member since 2017 · 93 posts · 105 votes
7y
I suggest that if you know an investor, ask them what the like too see..
I need to have the home under contract.. until then your just a dreamer and as a lender I don’t get excited till They see the deal.
The investor will look at the property and see if you can make any money.
They will see if you have any skin in the game, your experience and credit picture..
Pictures really help.
With this information a investor should be able to tell you yes/no very quickly.
Don’t be afraid to ask. I get asked all the time and I’m not offended by the question.
Plus danger beware..never pay any money up front................these are scammers
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Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
7y
Originally posted by @James Masotti:

Originally posted by @Caleb Heimsoth:
@Aninze A. When I start doing private lending, I will want to see 35-50 percent equity post rehab and interest rate of 8-10 percent. Probably would do interest only payments with balloon payment at 5 years. Obviously this wouldn’t be a loan for flippers, but long term debt.
I'm curious what use case you've come across for this sort private lending arrangement? I would think someone having 35-50% equity should pretty easily be able to get a loan from a financial institution with much better terms than you're presenting here. Just curious as it's not an arrangement I'm as familiar with.
The people who would agree to this as a borrower are those who have too many rentals to qualify for conventional financing. If you own dozens of rentals, that’s the case. Then over time you either sell or refinance to pay me off.
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James MasottiPro Member
Rental Property Investor · Washington Township, NJ · Member since 2015 · 1k+ posts · 976 votes
7y
Originally posted by @Caleb Heimsoth:

Originally posted by @James Masotti:
Originally posted by @Caleb Heimsoth:
@Aninze A. When I start doing private lending, I will want to see 35-50 percent equity post rehab and interest rate of 8-10 percent. Probably would do interest only payments with balloon payment at 5 years. Obviously this wouldn’t be a loan for flippers, but long term debt.
I'm curious what use case you've come across for this sort private lending arrangement? I would think someone having 35-50% equity should pretty easily be able to get a loan from a financial institution with much better terms than you're presenting here. Just curious as it's not an arrangement I'm as familiar with.
The people who would agree to this as a borrower are those who have too many rentals to qualify for conventional financing. If you own dozens of rentals, that’s the case. Then over time you either sell or refinance to pay me off.
So this is basically someone who, for some reason, is investing as them self, and only dealing with a Fannie/Freddie lender rather than investing as an entity and going through a commercial/portfolio lender? Do you deal with many of these types of folks? I know a lot of people aren't aware of investing as an entity or commercial/portfolio lender but I would think by the time someone is sophisticated enough to consider private money that they would have discovered this switch in structure and financing strategy.
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Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
7y
Originally posted by @James Masotti:

Originally posted by @Caleb Heimsoth:
Originally posted by @James Masotti:

Originally posted by @Caleb Heimsoth:
@Aninze A. When I start doing private lending, I will want to see 35-50 percent equity post rehab and interest rate of 8-10 percent. Probably would do interest only payments with balloon payment at 5 years. Obviously this wouldn’t be a loan for flippers, but long term debt.
I'm curious what use case you've come across for this sort private lending arrangement? I would think someone having 35-50% equity should pretty easily be able to get a loan from a financial institution with much better terms than you're presenting here. Just curious as it's not an arrangement I'm as familiar with.
The people who would agree to this as a borrower are those who have too many rentals to qualify for conventional financing. If you own dozens of rentals, that’s the case. Then over time you either sell or refinance to pay me off.
So this is basically someone who, for some reason, is investing as them self, and only dealing with a Fannie/Freddie lender rather than investing as an entity and going through a commercial/portfolio lender? Do you deal with many of these types of folks? I know a lot of people aren't aware of investing as an entity or commercial/portfolio lender but I would think by the time someone is sophisticated enough to consider private money that they would have discovered this switch in structure and financing strategy.
I haven’t done any private lending yet. I am still researching it and these are some of the terms I’ve come across and think sound good to me. If I did private lending I would do it as an entity.
Not sure I understand the first question. Keep in mind if these are renovated, 35-50 percent of equity doesn’t necessarily mean it’d that amount of their own money.
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James Galla
Attorney · Akron, OH · Member since 2016 · 535 posts · 389 votes
7y
@Aninze A., I'm receptive to pretty much anyone putting something in front of me, unless it is a classic Nigerian scammer asking for two dozen iTunes gift cards. By that token, I think many other investors are open to the idea as well. The benefit in being receptive is getting a first look at the deals that slide across your table, especially when other people pull the legwork. That being said, an investor should be skeptical of a deal or partnership where one of the partners doesn't put forth cash or credit. Namely, the issue is lack of experience and a question of what you really bring to the table and whether the investor wants to tie themselves down to you, someone they might not know, for a very long time. If all you are doing is plugging properties into the BiggerPockets calculators, I wouldn't call that worthwhile for an equity interest. Moreover, you bring the burden of needing an education which would take the investors time away. You can overcome these problems by offering up skills, whether they be rehab skills, tax skills, legal skills, etc. So, when you market yourself to an investor, the conversation is not "I'm an amateur and need a mentor," but rather, "I'm someone that can add value to your portfolio and the deal I'm proposing is not a burden to you." Also keep in mind that you don't have to partner on a deal with an investor to extract value from them. You could see if they will show you how their investments work, or perhaps they could let you shadow them over a rehab project. I in on the cake would be creating a custom packet when presenting a possible deal and associated agreements for a property.
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John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
7y
Once you own a few free and clear it is easy to refi out to purchase more. Try Conventus. I just did two cash out refis with them and got decent terms. I do know their rates have gone up some but I was able to get 7% before they increased them.
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Investor · Surprise, AZ · Member since 2018 · 156 posts · 110 votes
7y
@Joel Owens, yes, I completely expect to give over a large percentage of profit on my first deals. I'm good with that too. Even looking at HML, the rates are higher because I'm new, again, I'm okay with that. Gotta start somewhere. I know it will get better as I gain more experience.
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Investor · Surprise, AZ · Member since 2018 · 156 posts · 110 votes
7y
@Sam Shueh, please expound on Notes. I have been doing a little research in this regard as well, but not from a company. I have great personal credit, that is not an issue (all scores 800 or close to it). I have some funds, just not 20% or 30%, then I still would need capital for the repairs, etc.
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Investor · Surprise, AZ · Member since 2018 · 156 posts · 110 votes
7y
@Matt Berklacy, that is a good idea as well. I have been to a couple of REI meetings in NOVA (Capital City REIA) is one. Met a couple of folks but most seem to concentrate in Baltimore (even though it's a NOVA REIA). Go figure. Looking into some others I can attend for other REIA's.
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Investor · Surprise, AZ · Member since 2018 · 156 posts · 110 votes
7y
@Caleb Heimsoth, I see. Yes, like I said, I fully expect to give up a large percentage of profit in the beginning. But for a hold property, is that what the terms are usually, 5 year interest only and a balloon payment? You would get the same percentage of equity after I refinanced or paid the balloon? Am I understanding that correctly?
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Investor · Surprise, AZ · Member since 2018 · 156 posts · 110 votes
7y
@Dennis Dahlberg, I understand that it would be nice to have a property to show an investor. Me being so new, I don't think I am ready to just go out there and snap up a property and then not be able to get anything funded. I'm asking these questions now because I don't know any investors! :) Trying to get to know some and see what I can do to get this party started.
But those are good suggestions and I will definitely take them into account!
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Investor · Surprise, AZ · Member since 2018 · 156 posts · 110 votes
7y
@James Galla, Thanks, yes, I agree. I will have skin in the game, have great credit, little experience, but I'm not really looking for mentor so to speak. But the idea of shadowing someone might be a better fit for me. I am skilled in many areas. While I am not an investor with a tone of experience, I have owned more than one home in my day and have been pretty good at doing things such as painting, tiling, yardwork, etc. I can use many power tools, good at putting things together, crazy organized, blah, blah...so I can bring some value to someone!
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Matthew Perry
Developer · Boston, MA · Member since 2017 · 125 posts · 137 votes
7y
I agree with sentiment that investors care about what you bring to the table. What is it that you can do? An investor by definition is looking to invest in something, or even someone. The first piece of advice is to find the project. Now granted this is just my personal opinion, but there is a new trend out there of raising the money and then the project , but to me at least that seems backwards. If you find a great project that can generate a quality level of cash flow there will be a good number of investors who will happily take that deal, because you have solved a problem for them in that they do not have a project to invest in and by bringing a project to them you have solved a problem and in return showed what you can bring to the table. I agree with the those who have said go to meetups, investor meetings, wherever the decision makers are is where you want to ultimately end up. A great skill in this business to know is who is looking for a project, and to know when to use that to your advantage. The last thing you want is to have a great project in front of you, but nobody around you is lending, having been there I can tell you that is a hopeless feeling. Real estate is a contact sport, so do not be afraid to go out there and just start saying hi, I am ___________, what are you looking for right now?
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Investor · Surprise, AZ · Member since 2018 · 156 posts · 110 votes
7y
@John Thedford, I was looking more at private lenders, not HML's. I have a couple of good reputable HML's lined up already, just looking for other alternatives as far as private individuals go and how better meet and network with them.
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Matthew G.
Specialist · Pasadena, CA · Member since 2017 · 133 posts · 86 votes
7y
@Account Closed, I would recommend that you find an experienced flipper and try to arrange a joint venture with them. You will still be doing all the work of finding the property and rehabbing it, but if you have questions or issues they can help you through it. Having that experienced flipper working with you will ease a private investors mind.
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Investor · Surprise, AZ · Member since 2018 · 156 posts · 110 votes
7y
@Matthew Perry, yes, that is what I have been doing, going to the meetups, seminars, etc. I guess I am just not approaching it correctly and/or asking the right questions. That's exactly what I DON'T want to do is get a property then have no one to fund it!
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