Confidence-No one will lend you a large sum of money if you don't believe in yourself. You don't need them, they need you. Money sitting in a bank is making nothing compared to what you can make them!
Clarity-Know what your message is and relay it loud and clear. Have a game plan for what you want to get across and stick to it.
Confidence-No one will lend you a large sum of money if you don't believe in yourself. You don't need them, they need you. Money sitting in a bank is making nothing compared to what you can make them!
Clarity-Know what your message is and relay it loud and clear. Have a game plan for what you want to get across and stick to it.
Hi @Lance Cummins - if you have a proven track record of smart investments, and you're not afraid of damaging an important relationship if things go south, I would ask if they know of anybody who would like to invest or lend. If they have an inclination to lend to or invest with you, they will probably say so. If not, you haven't put them into a corner. Good luck!
Have a deal to present. Present the deal or an example of the types of deals you are targeting and your business model showing their return and security. Have an exit strategy for each property and show them how and when they are going to be paid back.
I am assuming that you ran the numbers and it works on paper to be a great deal. Is your family member in residential construction? You can always approach him and ask for his input in renovation costs, if needed for the property. This will also give you added information on the numbers you have for your calculations.
Show him the profit you would make on this. Is it a fix and flip or buy and hold?
Ask how he got started in his business and where he got his financing? Ask if he has any advice for you? Finally ask if he knows anyone who would be interested in helping to finance this deal. Keep talking about the profit potential.
Have a deal to present. Present the deal or an example of the types of deals you are targeting and your business model showing their return and security. Have an exit strategy for each property and show them how and when they are going to be paid back.
Hello @Lance Cummins I know this post is a few months old but, the author of Pitch Anything is Oren Klaff. It's a good read.
First, I agree with @Joe B's general remarks; however, I'm leaning towards using family to fund my first deal in the future as well and I'd like to add some of my thoughts.
I was thinking of opening the conversation with quick greetings and catching up, then getting to the point quickly and presenting a well put together underwriting packet with LOTS of pictures in the back and concise metrics in the front to convey why this deal is good on paper since your construction relative may not have any real estate investment background other than the negative stigma associated with the 2008 crash.
I'm might emphasize the following features of the deal to make the family member feel as at ease as possible EARLY in the conversation in order to get them to lower their defenses caused by previously mentioned stigma to be open to hearing the rest of your pitch:
- Compare your suggested rate (8%-10%) to average return in the stock market (8%) then to a 10 yr CD or 10 yr Treasury Note which have (1-2% and 2.15% respectively).
- Have THEM hold the title, physically, if possible.
- How & When they get their money back? Explain that after 5-10 years, the equity built into the house would be sufficient to obtain conventional financing and get their money out.
- Offer to fly them down over a weekend to view the subject property if they want.
- Make their funding the loan contingent on receiving an appraised "As Complete" value that's higher than the loan amount. Explain that most appraisals give an "As Is" value, but since you're doing renovations, you believe that the property will sell at a much higher value that will be validated by an outside professional before they part with their money.
- Anything else you can think of.
These conditions are highly derivative of typical conditions that my bank would require after approving but before funding a loan. As a result, they put your investor in a the safest possible position and put them at ease at least a little bit. Also, I'm going to ask that my investor put down 100% of the purchase+repairs+holding costs.
Suggest it be funded by a self directed IRA, which you can help set up so the whole thing will be pre-tax.
Most importantly, tell them how much money they'll be making as a result of this deal. They're probably not finance masters so telling them they're going to make 10% won't have near the impact of saying they'll actually make $58,581 over that time. (Assumes $100,000 at 10% over 10 yrs.)
I feel like @Brandon Turner's book How to Buy Real Estate with No (and Low) Money Down would have some valuable info regarding this specific topic.
Wow, I ended up using this replay to brainstorm how to fund my first deal in the future so thanks for asking the question!
I would start by asking them if they have funded someone before or considered doing it.
Ask for any recommendations they may have who can provide you with private capital. If there is interest, they will ask if they can provide the funds themselves.