Getting financed for my first deal

[Zack Jackman]

Hi my name is Zack Jackman and I am a newbie from Troutdale/Portland Oregon. I have been learning all that I can here on bigger pockets and I know there is much much more that I can learn, and I am excited to do so. Right now I am stuck though, on getting financed for my first deal.

I have looked at a lot of strategies for getting financed with low or no money down, I even read The Book on Investing in Real Estate with No (and Low) Money Down, which I enjoyed immensely but one thing it doesn't talk about or at least something I didn't get from it, is how to approach investors, how to approach a seller about a lease option or seller financing, even how to approach a bank. (i.e. what to say how to get in contact with them)

I everything I have seen and read just says call them up and ask them, or in the case of investors let them come to you. I have talked to a few people who after just a casual conversation with what I have been doing lately, and bringing up all the research I've been doing and how I really am looking into real estate investment they have showed some interest in getting involved, mostly by saying things like "I would love to get into that too" "I could see myself investing in something like that" . 

I know once I go through this once and know a guideline, I'll have way more confidence and be able to do it again. 

A little more details about my specific situation, I am 23 with a fair credit score (not great), I am trying to save money but working in a low paying job (that I really do love) just doesn't allow me to save much, even though I budget very well. I have 2-3 people who have showed interest in investing, and am working on slipping my newfound passion for it into more conversations with others. What I am really interested in is Buy and Hold rentals, it just resonates very well with how I think, and how I want to structure my future. I feel like I have a grasp on how to do the math on a deal (I have found a few pretty promising ones) and I analyze at least 3 a day, I love the rental property calculator here on biggerpockets, but most I have to do by hand.  

Long story short this is my question, How do I approach someone about getting financed be it the;

• Seller
• a Potential Investor
• a Bank

What do I say to them to instill their confidence in me, how do I explain how I know I can do this (besides just showing them the numbers)

Thank you so much for reading and I look forward to any responses. 

[Art G.]

You MUST read this book, The Wealthy Code by George Antone. It changed my life and will change yours too. It is the single most important book you will ever read in real estate. It explains deal structure in a very simple way (the new words make it complex at first, but easy once you absorb them) and it shows you how to structure any business deal to maximize profit and minimize risk. The book is short and sweet. You will learn that you NEVER 100% finance a deal. You will learn what an equity partner is and why that is the correct decision for you. Also, you will learn how to analyze deals and present the numbers in a way that partners and banks will be asking you. Have you worked out your: NOI, Cap Rate, Loan Constant, Spread, ROI, BRE, DCR and ascertained volatility? Are those results within acceptable ranges? After you read this book, you will answer those without hesitation.

When you come to them with the deal numbers already worked out, you show them its a good deal and that you are competent. This is your TRUE core foundation for investing.

As to your main concern how to ask... WOW! You are already doing the correct method that few people learn to do!!!!! NEVER ask for the money.  It is an immediate turn off, and you just lost them as an investor.  You do not ask individuals or banks for money. I will explain the approach to each.

Banks care about the guarantee to get returns and their money back and most of all the security of their money.  When you read the above book, you will know how to present a deal to a bank.  You do not ask them for money. You approach them with a business venture with investor math to back it up. Thus showing them this is a good investment for them too.  Then, you will tell the bank, I am seeking funding for the venture I have laid out to you. What rates and terms are available? That is strength, that is confidence.

Now as to explaining why you did the correct approach to the individuals.  Any time you directly ask for money or for them to invest, you instantly create withdrawal in the listener.  Imagine someone walking up to you and saying, "Hey I have a great investment opportunity for you! Let me tell you all about how much money you will make! All I need is ___thousands of your dollars." Unless you are truly gullible, then you cannot help but want to get away.  

Which transitions into the next point, always vet your investors. You have to grill them, ask tough questions, put them on the spot. How many investments have they done?  What level of experience do they have with real estate? Do you understand that I will do everything in my power to protect our venture but there is no guarantee with any deal?  If any potential asks you about a guarantee, your response is always, this is not the deal for you.  You may be eager to get funding, but it is not worth it to have someone without experience that is calling you all the time and stressing you out about details.

So how do you ask for money? You don't! You do exactly as you were doing. You discuss deals you are working on. You talk about the investor math you will learn in that book. You talk about structuring deals to protect your partners. (Any real investor will only want to hear that anyway, they do not want to hear about how much money they will make, they only want to hear: is my money being protected, will I get it back, what level of risk, then what are the returns.) When you talk in front of someone about the solid deals you are structuring and do not invite them. It instantly makes them feel the need to be included. Which is why those people you did that to responded as they did! You made them want to join. I call it the club mentality, like a night club with people waiting outside, it makes you need to be a part of that scene.  Any person with money, after hearing your knowledge on the subject will want to get in on the action.  When they do ask, you say, "Possibly... I will need to learn more about you first. My deals aren't for everyone. Let me organize the numbers and get back to you with questions. I can meet you next ____"  You just told them what is going to happen, not asked for their permission. 

As to your final query... and to summarize the involvement and resulting partnership discussed above, you will learn in that book how to create an equity partner. By doing this you shift risk away from you, create less risk in the deal structure, earn more profits, and can repeat this process infinitely. An equity partner works like this, I hear about your deal and want to invest, you offer me 50% ownership in exchange for me putting up the down payment. When we sell the land, I get down back and we split the remaining profits 50/50. The profits from rents are split 50/50 as we they come in. You acquire the loan, they put in the down. The benefit to you is that you got a deal with no money in the game, the benefit to them is you brought them a deal. They are often to busy with their own job to educate and hunt down deals. So why in the world would you give away 50% of your deal? Let's say you have $50k in the bank, that gets you into two deals. You get the two deals. Now you have zero in the bank. Third deals comes, can you get it? What about the 4-20th deals that come after? By getting an equity partner, you can do as many deals as you can find investors for. 100% of 2 deals and all your money at risk? Or 50% of 100 deals or more and your money is not at risk? Then when you go to the bank as mentioned above, in your explanation of the structure, you show them you have an equity partner that has this much down payment, the BRE, DCR, Spread, and ROI are these ____ numbers. You have run scenarios and found this structure results in the least risk with maximum profits.

The entire time, you never asked one person for money. Good luck, you got natural skills. Keep at it. Read that book, you will do great.

Oh and btw, I do all the math too, I have the calculators but prefer doing it myself ;)