At a formal one-on-one meeting, you’ll be able to much more easily explain the benefits and inner workings of your business. I recommend creating an information packet about what your company is and what you are offering. This is not a time to skimp on quality, so if your design skills aren’t strong enough for you to create a nice-looking informational packet, hire someone to do it for you through a site such as eLance.com or oDesk.com.
Your informational packet should include the following:
- Your business name/contact information
- Your business mission/goals
- A description of how your business operates
- An explanation of how you use private money to fund deals
- Your track record, including photos
- Referrals from others you’ve worked with
- Expectations for both parties in the deal
- Anything else you can include to strengthen your position
Put all this information in a nice binder and simply walk through it with your potential lender. Let them know up front that lending relationships are relationships, and the point of your conversation is to see if you might be a good match, not to pitch something or pressure them into anything.
How to Analyze a Real Estate Deal
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Learn About Your Potential Lender & Their Possible Objections
As much as this discussion is their opportunity to learn about your business, it is also a time for you to learn about their goals, expectations, and personality. Is the individual a nervous person who will be calling you every day for an update? Is the potential lender domineering and A-type, looking to push you around? Or will this person make a great lender with whom you can work multiple deals? Find out!
Your potential lender will also likely have numerous objections to lending you money, so you can either wait until these potential concerns come up or address them proactively. I’d recommend facing objections before they come up and including responses to them in your informational packet.
After all, your potential lender may be thinking of those objections but never mention them to you—and will just simply disappear. By confronting those concerns up front, you can open up the conversation and enter more productive dialogues. Although the individual may have any number of concerns, the most common tend to be the following:
- What if the deal flops?
- What if the economy changes?
- What if you go bankrupt?
A Script You Can Use to Address Their Concerns
These are probably the most important questions you can answer for a potential lender. After all, they’ve heard the stories of real estate investments that crash and burn. No one wants to crash and burn. Therefore, you’ll need to carefully explain the different ways and reasons their investment would be secure. For example, I might say the following to address most of these concerns:
“As you know, these are ‘investments’ that we’re talking about, so there is no guarantee of success. There is risk involved with any kind of investment, but as our successful track record testifies, the way we invest in real estate seeks to minimize the risk at every turn.
“Most importantly, we offer a first lien position on any property we lend on, which means if I end up being a thug and break any of the terms in our agreement, you could foreclose on me and take the property.
“Also, because of this lien, you will get all your money back, plus interest, before I ever see a dime. I only make money if you make money. Additionally, we will sign a promissory note that clearly and legally spells out all the terms and conditions of our arrangement.
“Finally we only invest in amazing real estate deals that we will have significant equity in right off the bat, so we are protected against a drop in the economy. Because we buy only good deals, there is significant monthly cash flow following conservative estimates, and we set aside money each month for future expenses.
“All these factors help limit risk and ensure that your investment is as solid as possible.”
By confronting potential objections up front, you are better able to help your prospective lender feel comfortable with you and your company. I also think walking the potential lender through all the numbers on a particular deal is a wise move. Show them a printout of an analysis you’ve done, indicating the cash flow and return on investment you expect. Demonstrate that you’ve done your homework, and you will build the trust needed to make a great lending partnership. If you don’t have a spreadsheet, I recommend trying out the BiggerPockets suite of analysis tools, which al-
low you to look at the potential profit, income, expenses, and other aspects of any real estate flip or rental property. These calculators also give you the ability to print out professional-looking reports to share with partners, lenders, and others. To learn more, visit http://www.BiggerPockets.com/calc.
[This article is an excerpt from Brandon Turner’s The Book on Investing in Real Estate with No (or Low) Money Down.]
How do you prepare for a meeting with a private money lender? What specific lines do you use to ease their concerns?
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