How to pull private lenders out of hiding?

Question

Hello all,

I am wanting to start finding private lenders to invest in my real estate deals rather than working with banks and traditional lenders. I know plenty of doctors, attorneys, dentist and other business owners I could pitch the idea of becoming my private lender, but I don't know how to start up the conversation with them. I'm looking for some insight from those that have been down this journey and have overcome this obstacle. Obviously any coaching, networking or any help is definitely appreciated.

Luther Wilson III · Answer

Like most things, it’s a numbers game…  You’re gonna have to present what you’re doing and what you’re looking to do with a lot of people.  After a while you’ll probably be batting them away with a stick.  😉

For most investors, if they can get 8-12% interest backed by discounted or cheap properties then it’s a no-brainer.  The better the deal the easier it’ll be to find a backer.  It’s all all out relationships and operating with integrity   🙂

David Dey and Mitch Stephen are two “gurus” I’d encourage you to learn from when it comes to private money.  Look them up on YouTube and listen to their podcasts as well..  There’s so much free information out there nowadays. Learning the ropes, getting reps in and executing is key, bro!

Alex Breshears · Answer

Hi Austin! You have the million dollar question, and as a private lender myself I can point to a few resources to guide you. First, I would know about private lending inside and out. You need to be able to talk to these dentists, lawyers and doctors about the entire process end to end. What you will do to protect their money, the kind of monthly cash flow they can receive from working with you, how long it will take at each stage, etc etc. So depending on your knowledge of lending in general, and then more specifically private lending, I would start there. At that point you become a knowledge leader in your network, you start talking to people and before you know it you have your first private lender. A friend of mine met his private lender at a Jeep meet up. He pulled him out of some mud pit, and while they were working together to wench the Jeep out, they got to talking. So you really just don't know where the leads will come from. But if you have the knowledge, can talk about it freely, have connections in the market you invest in for attorneys, insurance agent, escrow services, loan servicing, etc, it will go a long way to attracting private capital to your deals!

BiggerPockets happens to have a book about private lending, and while it is written from the point of view of doing the lending, active investors can use it to beef up their knowledge of the process, what lenders are looking for, and what sort of terms may be reasonable and possible. The link to the book is here: https://store.biggerpockets.co...

BiggerPockets happens to have a book about private lending, and while it is written from the point of view of doing the lending, active investors can use it to beef up their knowledge of the process, what lenders are looking for, and what sort of terms may be reasonable and possible. The link to the book is here: https://store.biggerpockets.co...

Account Closed · Answer

It depends on their age & how well you know them but doctors, attorneys, dentists and other business owners have pensions that they can direct the investment to.

You start with saying, "hey Doc I hear that people in your position usually have a pension, do you mind if I ask what kind of return you're getting in this crazy environment"? And let him talk. Then when he stops complaining about how the stock market is doing, tell him that's kinda what you thought.

Then say "I've been doing this interesting real estate thing that's getting me 18% return (or whatever the % is) plus the tax writeoffs. I just wanted to be sure I wasn't wasting my time on it." I'd like your opinion on it.  "By the way, have you ever thought about getting the cashflow from income producing properties and taking the tax writeoffs? I'd bet that would help the old bottom line." Then let him talk.

If he asks you how or if there is a pause, you say, "I do things a little differently than most, I get a triple dip when I buy a property by taking over the seller's mortgage, give them their equity and then I put a buyer in on a lease option. That saves me a whole lot of money up front.

The person I sell to pays me an option fee of 10% so I get $40,000 from him up front on a $400,000 property. Then, I set his payment a few hundred dollars higher than the mortgage payment I make and I get cash flow every month.  He takes care of all repairs and maintenance, I don't get my hands dirty. Then what's great about that is I get the tax write offs on the property on top of everything else, so my taxes are lower and my buyer is paying down the mortgage for me." Since I put maybe $10,000 into the property up front giving the seller his equity and I get $40,000 from the guy I sell to on a lease option I'm ahead of the game to start with and it only gets better. No real estate agents on either end so I save those fees.

Doc, have you got a piece of paper and I'll show you how this works."

(Then once you show him you ask the obvious question)

" Doc, do you want to try one of these? The stock market is set to crash and you can switch & get your investments backed by something tangible that has tax writeoffs & gives you cash flow that you can reinvest."

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This is the Buy "Subject To" and Sell by "Lease Option" approach.

This works better with dentists and businessmen since both are more entrepreneurial. Physicians usually are inclined that they have all of the answers and if they didn't think of it, it can't be a good idea. Attorneys, well it's my humble opinion you never team up or invest with an attorney. (That's a discussion for another day. Yes, I know a lot of attorneys.)

Adam Bartling · Answer

@Austin Ralls "Hey bro, nice red Porsche. Would you like me to buy you one in blue?"

David M. · Answer

@Austin Ralls

Havent done this, but honestly if you already know them, just strike up a conversation.  Part because its my way, but coming on with a hard sell or huge sales pitch is not the way to go.  if you've already friendly with them and they know that you are doing real estate investing that would be a huge plus.  You would have already established your creditibility.  Then, float it to them that you are looking to take investors.

Probably the main thing to work out is how would you structure this?  The finance terms and the legal aspects.

Hope this helps.  Be happy to chat with you to talk it through if you'd like.  Just send me a direct message.  Good luck.

Shiloh Lundahl · Answer

@Austin Ralls We have raised a few million dollars through private money loans.  But I wouldn't say that private money lenders are in hiding.  Most private money lenders don't know that they are private money lenders.  Most private money lenders are just people who have money.

The ways in which we have raised private money was we started a real estate meetup group where we talked about our real estate deals.  Then we let people know that we work with hard money lenders and people who what to learn about real estate who lend to us in second position on our properties and they earn are return of between 8 and 10% on their money.  This is how we were able to raise a couple million dollars in private money.  Now we add that people who invest with us are invited on our investor appreciation retreat in Costa Rica where we have an awesome networking event that we pay for for those who have lent to us 50k or more.

Erik Estrada · Answer

Hey Austin,

Why are you looking for a private loan? Is it to minimize the amount you put down? Or is conventional financing harder to qualify for? There are many creative ways to obtain financing, without having to overpay for a private loan.

How to pull private lenders out of hiding?

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