Private lenders are everywhere.
A recent study by the U.S. Department of Labor and Training showed that 22% of American workers have at least $100,000 in their retirement fund. With 154 million workers in America, that means more than 30 million Americans have more than $100,000 in their retirement account, being shaken around by the stock market or collecting low fixed returns from CDs, annuities, savings accounts, or other conservative investments.
These individuals are in your grocery line, at your church, part of your local civic club, in your family. Anyone with a good chunk of money tied up in IRAs, savings accounts, or under a mattress could be a private lender.
However, not just any rich person is ideal to work with. You’ll want to find individuals who are easy to work with and understand that there is risk. You don’t want to borrow Grandma’s last dollar.
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One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.
How to Recognize Lenders
But how do you recognize these lenders? It’s true, they don’t wear a sign around their necks. Instead, you must let them come to you. Follow this simple three-step process:
- Go to where private lenders might be.
- Build your brand.
Of course, this is easier said than done, so let me expound on it. First, you must go to where private lenders might be. This means getting out there and networking. Attend your local real estate club. Hang out in the BiggerPockets Forums. Attend civic events in your area. Next, talk about what you do. Don’t brag, but simply let your passion for real estate shine through.
And third, don’t be afraid to ask people if they would consider private lending. This is the most crucial part of the entire process, so let’s focus on “the ask.”
Drum Up Interest in Casual Conversation
I previously shared a strategy I like to use: “When talking with people about your business, it’s a good idea to say something like, ‘So, if you know anyone who’s interested in lending on deals like this and working with me, definitely give them my number.’ This opens up the conversation so they can say, ‘You know, I might actually be interested in something like that’ or ‘I know a guy who very well might be interested.’ Either way, the seed has been planted, and you didn’t come across as begging for money—and you may just find some really valuable clients.”
Of course, when you are just starting out and don’t have a brand to build, this can be challenging. You may need to develop that brand first, through partnerships, doing small deals with hard money, or by just becoming the most knowledgeable guy or gal in the room.
[This article is an excerpt from The Book on Rental Property Investing.]
What strategies have worked for you when raising private money?