How To Approach A Potential Private Lender.

3 Replies

hey everyone, my partner and I found a good deal but are currently in the process of closing on another property. With this other property we are thin on money for other investments. We do however have a couple people in mind that we think might be interested in private lending. My question to you all is do you have any good strategies when approaching a potential private lender? What has worked for you? We want to be professional and try not to make it sound like we are simply asking for money, but rather offering an opportunity to the lender. Any helps / tips would be appreciated! Thanks in advance.

If you want to sell the lender then ask yourself what are you offering? As a HML myself, I don't typically look at my loans as much as "opportunities" but more strictly on safety. I get tons of people wanting money, but won't lend to most because they often have no money to put in the deal.

John Thedford, Real Estate Agent in FL (#BK3098153)
239-200-5600

You dont want to "sell" anything, especially if the people are family and friends. You want to let them know that YOU have a great opportunity and you need some help. They can help you by lending some much needed money to fund the deal and the rehab. Let them know that they will be protected with a mortgage or deed of trust or whatever you use in your state. Let them know that if you do not pay, they can foreclose on you, but that has never happened before.

Just lay it all on the line. The main thing is that THEY are helping YOU, NOT the other way around. In return for their help, you will give them a higher than average return on their money, maybe 10%. It is much higher than anything they can get at a bank or money market fund. 

Prepare a comprehensive Proforma. Include not only financial data about the property, but include community information that shows the area to be solid. Have a written estimate for the rehab. Include comps that show you LTV will be no more than say, 65%. In other words, show the prospective lender that you know what you are doing. I never ask anyone to lend me money. The word lending has a negative connotation of possible loss. But, people do like to "invest". Therefore, I ask them if they would like to invest in my project. I present it as a mutually beneficial business dealing in which we both win. By the way, I have many owner financed and privately finance properties in my portfolio. I own three family with owner financing at 2% (the previous owner really wanted out!) and several between 5-6%.

Good luck!

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