What materials to include in packet for private lenders?

Question

So I'm trying to raise private money and have been looking at what other investors/friends in my area have been including in their info packets to private lenders and wanted to get more input if you have experience.  Thanks in advance!

Found one example I really liked that a guy actually got bound (just spiral at staples), looked professional and I think that's the model I'm going to pursue (I'm kinda anal at making things look professional).  Fyi, I am using this money to purchase properties and lease option them.  Imagine there could be the occasional need for rehab/flip $ but that's not a main goal...ummm, have you ever dealt w/ contractors in FL???  Ha, def not a goal!

So far, items I was going to include (may not be in exact order):

- catchy intro page (peak their interest w/o being too cheesy salesy)

- stats/graphs that a friend gave on stock market returns

- article or 2 on my current market conditions (great market, etc)

- letter to them from me (my skills and what I bring to the deal, etc)

- my resume of RE experience and list of investor courses completed

- sample deal

- faqs - one guy had these and I thought it was good...putting questions they may have in a laid out faq section to address major questions a lender could have and alleviate any concerns

- info on self-directed IRAs (maybe brochure/card from a local company here)

Any other ideas?  This is quite extensive I know, but I do like the professional look and I think that is something that could help in my situation since I have not gotten hard or private money for any deals.  It's establishing credibility by giving detailed info on many aspects so they can have comfort in my skill level or maybe it has so much info and is presented so professionally that they don't even question my experience and lack of past deals.

Again, thanks for reading and any help you can offer!  Thought writing this could even help some newbies w/ ideas too.

Jeff S. · Answer

This is the obvious question, Ron.  Good for you.

I’ve never thought it was a good idea for those who are new to the business to borrow from those new to lending.  It’s the blind leading the blind.

My suggestion would be to approach some larger, more professional, hard money lenders.  You’ll likely pay more, but a good lender will also help and educate you.  They will evaluate your deals and provide guidance.  You’ll learn their criteria and be forced to discipline yourself.  A lending attorney will likely have vetted their paperwork and processes and you learn those too.  You’ll also save time and minimize the risk of deals falling through due to the non-performance or cold feet of a first-time private lender.

The time to search for private money is after you’ve done several deals, understand the processes, and have the true credibility that comes from experience and personal relationships.

Jeff

Ellis San Jose · Answer

@David Beard

@Josh Thomas

You are correct in your conclusion that one size does not fit all.

Those are 2 distinctly different audiences & there are actually multiple subgroups to make matters even more complex.

I was a stockbroker/financial planner for many years before I became a full-time real estate investor/landlord.  I have had many conversations with a wide variety of personality types, investors and newbies.

What I suspect you are referring to is what I call the "Conversion Conversation".

Ex.

Saver to Investor

CD's to Bonds

Bonds to Mutual Funds

Mutual Funds to Portfolio Managers etc.

Just know that it takes much more energy to move a stationary object.

You need to do a very good listener ( not a presenter or educator) to truly find out more about your potential lender(s).  Build a detailed profile & step into their shoes.

When I first started, the powerpoint & pretty bound books with colorful graphs & charts, more often than not were there for me not the prospect.

I erroneously believed in my head that " I will bludgeon them with so much logic they won't be able to say no".

I want to give you some substance:

Always ask for permission.

You need to check for interest first.  I would ask them to have coffee or even just a phone call to get their opinion on something.  Most of them were older than me, so I genuinely wanted to get their wisdom & perspective.

DON'T BRING A PRESENTATION TO COFFEE OR PITCH ON THE PHONE. YUK IKKY SALESMAN TACTIC.

When we  met for Part II, the presentation was something they could take home. I also included a pamphlet created by the State of California on "What you need to know about Trust Deed Investing" . Third party resource material will be perceived as more credible than your sales material.

The powerpoint if you insist to use it was very Brief & Simplified

Use key words they use that are important to them.

Safety, Diversification, Protection, Retirement, Low Stress.

Hopefully this helps

Jeff S. · Answer

You’re kidding yourself Josh, if you think a anyone is going to loan you money because of a catchy intro page and binding at Staples.  Stats, graphs, and market conditions are just fluff.  Why would this convince someone to loan to you? It’s almost a cliché on this site anymore, but money like this is loaned on relationships, not on your ability to bind a document.

You indicated in your profile that you have some experience.  Why don’t you take potential lenders to lunch?  Drive with them and show them some of your prior deals.  Discuss the numbers with them and provide some confidence that you’re in this for the long haul, know what you’re doing, and worthy of a loan.  Do it again at dinner.  You don’t have to become best friends. The point is to get to know, like, and trust each other. An article on market conditions won’t do that.

Can the investor packet.  Better to spend that time looking for deals.

Jeff

J Scott · Answer

Do you have relevant experience and a track record?

If so, the data from your past projects and data to support your market demographics (acquisition availability, buyer demographics, etc) should be enough to convince business people who are looking to invest.  As someone who has been involved in lending involving everything from small real estate loans to angel investing to venture capital, my experience is that the past success of the principals is the biggest determining factor when it comes to the likelihood of future success.

If you're going after non-business people (mom and pop investors, perhaps literally), a slick presentation isn't going to be very meaningful.  In that case, a frank discussion is probably more beneficial than anything related to data, past performance, etc.

And, if you don't have a track record, then it's probably best to disclose this upfront and flat-out ask the potential lender what information you could provide that would lend credibility to request for money.

Just my $.02...

Account Closed · Answer

Duh @Jeff S , if anyone's in this business and doesn't know that it's about relationships and the people, then they're in the wrong business...be it homeowners, lenders, other investors, etc.   I have relationships w/ a lot of potential private lenders out of state that I used to work with and this concept of private lending and even involvement in real estate is completely new to them.  And they are corporate folks that like a professional presentation - I have had preliminary conversations w/ them already and know this.  Plus it won't hurt my image to have it on hand here when I meet a new potential lender - it was impressive when this guy pulled this out.  I appreciate it if you were trying to help, but the help I was looking for was ideas for useful materials to include in a packet, not to tell me I am creating a bunch of fluff and kidding myself.  You're wrong if you don't think what I plan to put together won't be helpful.  I love the help on here, but don't like it when people have no idea who they're talking to or their experience...be it in this industry or others.

Ann Bellamy · Answer

You are presumably looking for private people who are not in the hard money lending business, but who understand something about real estate rehabbing, etc.  The more they understand, the less fluff is appropriate.

It's very nice for a new lender to see a spiral bound presentation, but as a lender who looks at multiple deals per day, if you try to get me to look at a paper presentation, I'm simply going to feel that you are wasting my time.   yes, knowing and trusting is great, but  I establish relationships through my networking events, and through successful loans.  Not through a pretty presentation.  If by chance I did take time to look at a spiral bound book (really, who has time for all those pages?), my eye would be seeking very specific information.  When looking at a deal, I look at the following, in this order:

1.  How much skin you are putting in the deal.

2.  The ARV, and the ease of disposition of the property if needed

3.  your plan for the deal, ie what you plan to do to the property, and your exit strategy

4.  Your experience level.

Did I mention that if you can't provide this information electronically, you can't do business with me.  Yes, I spend a great deal of time meeting people in person and forming relationships.  Just attend one of our Black Diamond events and you will see that we put a great deal of time and energy into forming personal and in-person relationships.  But for the deal itself, I don't want to see paper.  I have no time or patience for that.

This is oversimplified, and private lenders you are talking to may not have quite as specific requirements, but I'd take the emphasis off of the flashy paper presentation, and put it on your strengths and what you bring to the table.  And for inexperienced lenders, explain how you secure them:  Mortgage/deed of trust, lenders title insurance, cash down payments, experienced closing attorney or title company.

BTW, this does not hold true with commercial lenders - they want to see a presentation, frequently.

J Scott · Answer

Agreed.  In addition, one of the main purposes of an interest rate determination is to account for the risk of not getting repaid.  New investors are inherently more at risk of not being able to repay the debt, and as such, a higher interest rate is in order.  Many private lenders are sophisticated lenders and don't understand this -- they assume that because the loan is backed by real property, there is no risk.  This isn't the case, and this is the reason hard money lenders need to lend at higher rates -- they are lending to higher-risk borrowers (oftentimes, new investors) and their risk of losing capital is greater than with more experienced investors.

Ron King · Answer

Hello, I am noticing the best answers are coming from those mentioning to lean on the past deals you have completed to persuade pvt ldrs to loan to you, but what if your a newbie without the past deals to use? There must be a way for newbies to get in too, isn't there?

Ellis San Jose · Answer

Excellent advice from Jeff S Na .

4 key elements to raising capital .

Know, like, trust, evidence of success.

Tammy Watanabe · Answer

Thank you all who contributed.  I learned that I should always check bigger pockets anytime I am being "sold" on a great REI product.  We just had Alan Cowgill come to our REI Club and many of us were disheartened with his hard sell approach that ran way over time and did not deliver what he stated he would deliver, due to him just trying to sell to us.  His product is very expensive, so I checked out another guy, but then after reading this post and talking with another REI member realized that I really didn't need this product.  It may come in handy sometime, but I will definitely try the cheaper version and not the 1000K product that Alan was trying to make us think we couldn't do without.

What materials to include in packet for private lenders?

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