5 Tips to Obtain Private Financing (Or How I Bought My First Post-Bankruptcy Rental)

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When I first saw this house online, I loved the area and feeling like there was something more to the house than just it being a rental home. It was an amazing opportunity to get back into the business I loved — the business I had so massively failed at.  

You see, I lost nearly a million dollars worth of real estate. And in grand fashion: through foreclosure and law suits and attorneys and bankruptcy. It was grand. It was also terrible.

I knew where I wanted to buy, what kind of price point I needed and what kind of general rents were in the area. It was a gold mine of opportunity. However, having just gotten out of a bankruptcy and without much savings, we weren’t exactly your optimal buyer.  

As a matter of fact, we wouldn’t be able to get a credit card with a $500 or $1,000 credit limit on it for nearly 5 years. At least without paying more in fees than we would have in the actual credit amount. So we needed someone who would lend to us with private or hard money and understand our situation, see the potential in the houses, the potential in us — and invest in us.

Before talking about the house, I want to explain something.

Related: You Haven’t Learned Anything Until You’ve Changed Your Behavior

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Learning to Hear “No”

Think about when you were a kid and you were selling something for your sports team, choir or whatever. And you had this chocolate bar to sell that was only $2, and it was the best-tasting candy bar you have ever had.  

Or maybe it was the closest candy to you, and that was satisfactory enough. Either way, you had to sell it. You wanted the blah blah blah toy or la la la thingy they would give you if you sold some awesome number of candy bars. And there was the one kid in the class whose parents had a lot of money, and that kid always won selling the most candy bars and didn’t really have to work at it.

In the end, you had only one job: to sell. And really, to sell yourself.

The people in the end were most likely NOT buying those candy bars because they loved a $2 chocolate bar; they were buying them because they believed in you, your story and your goal. But those experiences as a kid help form our resolve to be persistent, to be tenacious — and to not be afraid of other people telling us “no.” 

I experienced that firsthand working to find properties to purchase — and the hardest of all, finding someone to finance them.

It took me 27 times. 26 people in varying degrees had said “no.” Some attorney friends, some friends who were wealthy. Or others who already had properties. Others who were big time investors, and my numbers were just too small, or the deal wasn’t a flip. Or they just didn’t want to. No matter what, I heard “no” a lot.

But it only takes one “yes.” And eventually, with 40-50% cash down — and a high interest rate — I found my “yes.” And I found my property. And I had my first property since owning and then losing nearly a million dollars worth of real estate.

5 Keys to Obtaining Private Financing

1. Have Cash

Yes, yes, yes…I know people keep referring to “no money down” purchases and all that. I know. I’ve bought those, too. But listen, if things go wrong, if you need to fix something that breaks or drop $1400 on a tree service (we just did that on a flip we are doing) — basically what I’m saying is that things happen.

Besides, there are not many lenders out there who are going to put up funds to finance you without you having “skin in the game” or you having a lot more experience. In other words, don’t ask for someone else to put their money into a deal unless you have money to put into it too.

I have found that as I have more cash, I also have more opportunities. The guys with cash are the ones that can get into deals first. They can move the fastest, and they can garner the best deals.

Related: Using High Interest Private Financing is Still Better Than Cash

2. Practice Your Elevator Pitch Down

If you are trying to explain to someone who are you asking to financing you, and you keep stumbling on why it would be a good idea for them to invest with you, it’s probably not going to happen!

You have to know the properties you’re going after. That market. The kind of ROI you are getting.

3. Nail Down Your Exit Strategy

When dealing with specifics on a JV or private financing, I have never had an investor who didn’t ask when and how soon they get their initial investment back. Never. Make sure you CLEARLY explain how they are getting their money back — through a sale, a refinance or lease option.  

Whatever it is, you have to have a plan A. And probably a plan B.

4. Add a Personal Touch

What makes you YOU? For me, it was my story — I told it to everyone I met with.  

I wanted them to understand that I had a hunger to be successful and to achieve my goal of owning a large portfolio of rental properties. And because I had a setback in my business, I learned a lot, from how I structure the debt to how much leverage I tolerate to the amount of reserves we keep for each property. And I wanted it bad…and I wasn’t going away.

5. Express How Badly You Want It

If you want it badly enough, you will do what you have to do.

Does that mean sell your really nice car and buy a more modest one? Does it mean stop eating out for 6-12 months? Or getting a 2nd job? Or living on a tighter budget? Yes. It does.

If you are only willing to say you want to be in real estate, but not sacrifice your time, your funds or your lifestyle now, you might not be able to get past a few deals. But if you hunger for it, you wake up thinking about it, and you keep after it, you will achieve your goals.

I ended up purchasing the house for around $20k several years ago now. We paid half down and paid for the make ready out-of-pocket.  

It was just recently appraised for $60k — and we were able to take all of our cash out of that deal to move on to another one. It rents for $800 monthly, with the same tenants in it since we bought it. We jumped back in because we believed in our model; it made sense, and therefore we were able to have others who believed in it as well.

I encourage you to ask yourself, what are you truly willing to sacrifice? And what does the vision of your business in the future look like, so you truly have a clear picture of what you are working towards?

Let me know your thoughts in the comments below!

About Author

Nathan Brooks

Nathan Brooks is a dad, husband, worship leader, and real estate investor in the Kansas City market. Foodie. Coffee addict. Crossfit junkie.

15 Comments

  1. You just made me a wealthy individual. The infinite return model is not discussed often enough and its concept at Edgar for me started.

    Thank you again for an over-achiever centric post.

    I’m gearing up for my third cash-out refi for all my capital back. It’s an amazing and addictive feeling.

  2. Frankie Woods on

    Nathan, nice break down. I really liked key #2. I always struggle when talking to others about the benefits of real estate even though I know the numbers in and out. I’ve never been a “talker”. I have to nail this down!

  3. This was an excellent read for me. I started doing residential re Habs in 2000 and lost em all. I am currently trying to get back into the game after an extended period of financial and personal hardship. This is exactly what I needed to read. Much success to you. I will indeed doubled own on my own efforts to pursue deals!!!

  4. So true on the learn to love NO and have a healthy fear of YES .
    On past history my local bankers have had a higher degree of faith in my abilities to cover debt than I sometimes think is good for me. Are they missing that I am broke more than comfortable. I am really over budget on getting a place into rent worthy condition and two banks ask me if I need more money. Don’t they know that I played my last ace to make a late payment ?
    So I run into some folks at the bargain grocery market who are looking for a place to rent and as it turns out my standards are way higher than people expect. I really think my standards are more costly than they should be and really happy that I am a compulsive eavesdropper. I would have called it luck in the past but I want to take this one on never say die.

  5. Pavlos Kasselouris

    Nice article Nathan! I started reading all your blog post starting for #1, just so I get a better grasp how you reach the point you are today with your business.

    The question I wanted to ask is, are there any regulations we have to abide when soliciting private money?

  6. Nathan Brooks

    Hi Pavlos … thanks so much for taking the time to read all those posts! It’s been really amazing to continue watching our business grow. We definitely deal directly with our attorney on the private financing, and just make sure you set those expectations/LTV/timelines/mortgages etc with your lenders. Lots of options, just make sure you are transparent and clear with how they fund deals, get paid their returns, and how they get their money back.

    Good luck!

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