Working with Private Money

Our experience with private money has been one that is built around people we know: Friends, Family or even Acquaintances. Anyone we know or come in contact that has some money in the bank or invested. This could be money in the stock market, money in the bank, money from a 401k from a company they are no longer with, etc. There are many different options for where this money can come from. The main reason we focus on people we know or have had some contact with is there is a little bit of credibility there. You’re a least a real person not some scam that is blasting them. 

First mention in the next time you're together or when you chat next. Keep it causal and show your enthusiasm for investing. Excitement is contagious energy and that goes a long way to creating interest. After the initial mention, send an email, letter or note card in the mail. I recommend always contacting people 3 times for the best result. If it's someone you don't know as well, you'll have to do more. You sent a letter, now send a post card or drop off some flyers at the office, and finally call them. You have to show that you are a real person before someone is going to get too excited about contacting you. One letter can come off as a Nigerian Bank Scam. I recommend setting up a time to sit down with them and discuss the type of deals you are finding and a deal or two you’ve completed…. This will build up that credibility even further. 

Now that you have a meeting, I recommend having a packet of information to give to them – again greater credibility. The packet that we put together is 3 pages. First page is a Executive Summary of the Deal. What is your strategy for the investment (buy and hold with a refinance or a rehab with a sale) and the terms of the agreement (Interest rate along with the length of the loan) – how are they going to get paid. The second page is a marketing sheet usually of a past deal you’ve done – picture of a home, the price you locked it up at, repairs that are needed, ARV (after repair value), and comparables to support it. This shows what you are capable of in a visual way. The third page is an example of the numbers of the deal from the previous page (shows the profit from that deal whether it was a rehab or buy and hold). The profitability builds confidence that their money will be secure. Now you may ask why use a past deal. If you have a current one great, but this is like a stock prospectus it shows what you’ve been able to do and proves how you can build their money.

Now the actual paperwork to get the deal done, I use a Promissory Note. A Promissory Note will spell out the terms of the agreement – similar to the executive summary, but with have the specific dollar amounts and the dates for the agreement. If it is a new relationship and they want a better guarantee on their money you can put a lien (mortgage) on the property. You title company or attorney can help you with all of these items. I try not to do a lien, because if I can use their money for a full year I can often do several deals instead of just one and the liens can slow that process a bit.

Hope this explains our strategy! Best of Success! ~Andrea 

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