Sparking interest for Private money lenders - What does it take?

Question

So it’s Friday night, and I’m sitting here searching the BP forums for the knowledge I know should be here. I’ve had some recent success in getting a few residential properties under contract, with 2-3 more ready to go in the near future. The plan is to wholesale where possible (buying ‘at the numbers’), but when taking this route we don’t “know” I’ll be able to find an investor to wholesale the subject property to. So… covering my bases, the plan “B” on the exit strategy is to rehab, and sell for $X ARV. Here’s the rub… the current hard money source I'm using, while providing good rates (8.5 – 10.9, plus a few points), limits even the most experienced rehabber to (2), and mayyybe… (3) properties at one time. This in the end, is throttling me back (which I understand – to an extent…) from putting additional properties under contract. Again… the goal would be to wholesale majority, and rehabbing every 3rd or 4th directly; however, I’d be looking for that bridge to carry me over the ‘from close date on the purchase’ to the ‘close date on the resale’ - buying me a little time to market and sell wholesale. I've read several posts on how to find Hard money lenders (which I’ll continue to do); however, I’d prefer to build a relationship with private money lenders. On this front, I’m fortunate enough to have a few good ideas of the who I’d reach out to as a funding source. Here are my questions (directed specifically to private money lenders, or those who have built successful relationships with such investors): 1.)When you’re approached, for this type of investment, what specifics would you suggest the individual approaching you ask, or provide? 2.)Best ways to structure the deals (again, hopefully a bit more economical than traditional Hard money lender path, and perhaps with less bureaucratic loop holes and paperwork)? 3.)What about approaching investors who haven’t traditionally invested in a Real Estate investor? 4.)What’s your biggest pet peeve, when approached? 5.)What are you most impressed by?Being the “greedy bastard” I am… the idea of sharing 50/50 split of profits is driving me a little nuts. But then again… I simple don’t have the capital I need to make the additional deals happen without the private money. And 100% of nothing is… hmmm… oh yah… nothing. Anyway, bottom line I’m looking for suggestions on how to speak the language of those I’d like to approach about providing private lines of credit. (Full disclosure, I have excellent credit, with ‘fair’ amount of cash reserves).

Steve Smith · Answer

Honesty. Humility. Be able to back up what you are saying by past performance. I know the "Greedy Bastard" comment was a joke, but most people can smell greed a mile a way and tend to steer clear of that. Like you said 100% of nothing is nothing. Approach the investors and be willing to split 50/50 or something equitable for both parties. You will be able to build up your cash reserves faster and eventually you shouldn't need the private investor. Just don't deceive them.......ruining a relationship over money is the last thing you want to do so put everything in writing so there are no misunderstandings.

Michael Seeker · Answer

Hey @Jacques Cyr - I'm no expert on wholesaling, but my understanding is that if you're doing it right you should never hold the property. It sounds like the way you want to wholesale is to buy cheap, do nothing then sell slightly higher (incurring 2x transaction costs). My understanding of wholesaling is that the wholesaler is more of a party to the sale that gets a check at closing, but generally never holds title to the property (except maybe briefly through a double closing).I'm thinking the process you're using or planning to use might need some improvement rather than trying to find additional money to bring into the picture. Just my .02

Wendell De Guzman · Answer

IF you can find really good deals, there's no reason why your hard money lender can fund only 2-3 deals at a time. We have a $2M rehab credit line so we can have 10 $200K projects going on all at the same time. What limits us know is that the deal has to be really good for me to utilize this rehab credit line.

Jacques Cyr · Answer

thanks everyone for the response. Perhaps what I need to learn here's a bit of patients, as well as humility. Hope everyone has a great weekend happy Father's Day.

Hugh Ayles · Answer

I was at a meetup the other day and met a guy who has 5-6 private lender funded rehabs going at the same time. He mentioned cash flow concerns and if I heard him correctly, he sometimes uses funds from property a on property b until property b funds come in. Again,I may have misheard him.I bet that is why your lender caps the number of projects he funds.The risk of comingling funds is if something goes wrong on b, a may get taken down with it.With that being said, build a solid track record that you can share with lenders. Lenders want confidence that they will get their principal back with interest.

Jacques Cyr · Answer

Thanks Michael... appreciate the feedback.Fully agree on "2X closing" aspect. My goal when ever possible is assign at closing, but without a large investor list, etc... it may take a slight bridge to cross the chasm. Finding wholesale buyers, who are ligite, isn't always a straight forward game. Though I ask for earnest money, I'm a cautious person by nature. Just would need funds to finalize initial deal. Can worry about hotaling at a later date. For now, the original question still stands... what does it take to spark interest for private money folks? (Again... thanks for response... do appreciate it).