Two Magic Words to Cash in on Foreclosures: Private Money

The cat has been out of the bag for some time now.

Surprise – we’re in the midst of what many experts call a “foreclosure crisis.” (thanks talking media heads). It’s as if some people are just waking up to the fact that the house down the street from them just sold at auction. For real estate investors, agents, home builders, contractors, brokers –anybody in the industry – the foreclosure headlines are old news. What is NOT old news, however, is the shortage of people picking up on this as a great opportunity to build tremendous wealth.

Buy High, Sell Higher?

A few years ago, “buy high, sell higher” seemed to be the marching tune of real estate investors everywhere. Buy a property for X, leverage it up, sell it for X-plus. With easy mortgage money falling like a monsoon, this model worked – until it didn’t work any more. The sun has set on the “buy high and sell higher” approach.

Buy Low, Sell High

The age old saying “buy low, sell high” is holding true (always has). And there aren’t too many better ways to do this than buying bargain foreclosure properties. Bank owned, HUD owned, hedge fund owned…you name it. Deals abound in just about every market across the country. As long as you know how to identify good properties with the right numbers, you can make a killing in foreclosures right now. But, there is a catch…

The “Catch”

To snag bargain deals – deals that leave you with multiple exit strategies and big profits – you need to be flashing the currency that breaches all language, cultural and business barriers…CASH.

Cash is king.

It has been said many times, but it is truer today than ever before. Cheap and easy mortgage money is gone. Lines of credit have evaporated like water in the Sahara. Hard money lenders have headed for the hills. Getting to first base with foreclosures and making real money is going to take some cheddar. Banks, asset managers, REO agents and hedge fund managers all know that financing-contingent offers are about as good as the paper they are written on. Toilet paper for the next camping trip.

This begs the question…

How Do I Get the Money to Cash in?

Fortunately, there is a financing source that isn’t run by a bunch of greedy Wall Street bankers and Washington D.C bureaucrats.

Private Money.

Private money is the single best source of financing you could ever have for your real estate investing business. If you do it right, you can raise hundreds of thousands or even millions in private capital in a relatively short time and wave goodbye to all of your competitors who are standing in line at the bank with their hats in hand.

Private money gives you firepower. It gives you flexibility. When you have private money the sky is the limit for your wealth and cash flow. You can do deals when you want on your terms. Think about it:

Want to buy and flip houses? Private money will allow you to make cash offers, rehab quickly and sell for top dollar.
Want to acquire multi-family apartment buildings? Private money can be used to pay cash for the entire purchase or for the equity and reserve component combined with commercial or HUD financing.
Want to buy & hold for cash flow? Private money partners can be the best answer for maximizing cash flow without worrying about re-financing, penalties, escrows and other hassles.

Who’s Going to Invest with Me?

Private money investors are people who invest money into your business in exchange for a return on investment. They aren’t in the business of lending or investing money like hard money lenders are. Usually, they are regular people with some cash and other investments who want good returns. Most are sick and tired of having their nest-egg pillaged by stock market whims or suffering the paltry interest rates offered by banks and insurance companies.

Most people have never heard of investing in real estate with their passive investments. The only thing they know is the stock market or bank CDs. Countless investors are held hostage by lack of choices and they often don’t know they could achieve better diversification and long term results by allocating a chunk of their portfolio to you. You have something of tremendous value to offer a private investor.

The Time to Start? Yesterday.

There’s an old axiom that farmers use: “the time to make hay is when the sun is shining.”

You should start laying the groundwork to raise private funding quickly – probably yesterday.

Why?

While the foreclosure boom is still in full swing, it won’t last forever. Even though real estate investing will always be one of the best ways to build wealth and passive cash flow, why pass up on the chance to scoop up tremendous bargains? If you were a company that made widgets and the price of a key component went down by 50%, wouldn’t it make sense to stock up and boost your profit margins?

When you started investing in real estate, you probably had a big money goal. Now, I’ll tell you what you can do with that goal:

Double it.
Triple it.

Start raising private money and I guarantee the results will surprise you. The power of using Other People’s Money to magnify your wealth and profits can be yours. And, it’s the single best way to cash in on the foreclosure boom.

Photo: dan4th

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.