Just Starting Out - How do I obtain Private Money?

Question

Hi all,

I'd really like to start investing in rental properties. I'm reading through Brandons book about investing with little or no money down, but in the Private Money section all the advice is geared towards someone who is already established when pitching to potential private funding investors. He talks about creating an elevator pitch, using a binder, etc. I don't have any deals done yet, so how do I even begin to pitch or network myself as a "business" to gain private funding? I think where I'm at both professionally and financially, finding private funding makes the most sense, but I'm not sure where to even start.

I'm looking to find a property that we can live in for a year and then rent out, or a multiunit where I can live in one unit and rent the other(s). For my family, this would make the most sense right now to jump into it. Any suggestions would be greatly appreciated. Thanks!

Jay Hinrichs · Answer

@Clint Miller question is do you have any down payment ?  and how is your credit.

if you have a little bit of money IE the 3.5% it takes to get a FHA loan then just go that route you need a job and credit as well.

if you cant qualify for a FHA loan there  are not going to be any private lenders going to do anything with you in any capacity... remember those books are just ideas and maybe someone gets lucky but its not the norm by any means.. they are selling dreams.. @Ben Leybovich  Ben has a nice program he sells its worth it to spend a little money on your education.. Real Estate contrary to all this hype is NOT easy if you do not have the basic tools to transact business.. IE some cash  credit and capacity. your to big of a risk.. if you have none of those then its friends and family its charity to get you started

Ben Leybovich · Answer

You are not getting private money for anything you're going to live in - too much Dodd/Frank nonsense for anyone to want to play on that with you. So, if this is your plan, then you're done before you start :(

Account Closed · Answer

@Jay Hinrichs Thanks for the recommendation to @Ben Leybovich about his program.

Don Konipol · Answer

Clint, while your options are severely limited, two options are available to you,especially if you have some money saved.

1. Purchase a property which the seller owns free and clear and convince the seller to carry back a loan

2. Purchase a property in which the seller owes about what the property is worth and purchase it "subject to" the existing mortgage.

You would probably have a better shot at success by finding a for sale by owner situation rather than a property listed by a broker.

Prior to the passing of the Dodd Frank Act and the creation of the Consumer Finance Protection Bureau, some hard money loans and some private mortgage financing was available for people intending to live in the property they were purchasing.  The above two mentioned government interventions in the market killed those type loans.

Even for investment, hard money and private lenders want to see

A. Borrower have their personal capital invested in the property

B. Borrower have some money in reserve to weather tough times

C. Borrower have some knowledge and experience in real estate investing

I think your best bet is to find a seller where you can do either 1 or 2 above and honestly explain your situation, where you are financially now, and what you are trying to accomplish.  Sellers aren't always convinced by slick, polished "pitches", investors who claim to be there to "help" them, billboards telling them that the company buys ugly houses, or computer generated offers at 85% of market value.  Sometimes an old fashion one on one meeting with an honest question and answer can work.

Carli B. Shabazz · Answer

I'm just starting out as well but in this situation, I would probably see if anyone is offering seller financing on a multifamily property in which they would be nice enough to allow you to occupy one of the units. Blessings come in many forms. I'm always hopeful.

John Chin · Answer

@Clint Miller, lots of good advice above. Start chronicling your deals (photos, video, seller testimonials, etc.) to build a portfolio to sell experience. In the meantime, I'd suggest teaming up with an experienced investor (for a profit-kicker on your next few deals) to simply leverage their experience as part of your team for that deal and to include them in your underwriting package (your lender pitch). It's similar to having an informal advisory board member for your company...for credibility, until you have some from your own history.

@Jay Hinrichs, I just emailed you a juicy one!

Tanya Warner · Answer

Clint the advice is correct in terms of your self-employment history. You definitely will not qualify for FHA or conventional financing; however, if you were employed in the same industry prior to starting your business you MAY.. be able to get a loan from a hard money lender. Of course, the interest rate may be high but you can refinance after 6months or so. You should probably try to get a multi-family or duplex so that you can live in one and rent out the other for two years. After 2yrs, you can use the rental cash flow as income which will help to offset your debt-to-income ratio. Search for hard money lenders in your area.

Brian Gibbons · Answer

See a FHA lender

Get a good job or 2 jobs

Save 3%

Look at multi loans

Live in 1, rent out the other

Look into duplexes first

Learn landlord tenant law

Good luck!

@Carli B. Shabazz

Clint Miller · Answer

Side note - I'm fully aware that real estate is not easy. Never said that...

Clint Miller · Answer

Like I mentioned before, I don't technically qualify for a conventional mortgage because I'm newly self employed. Even though I'm making more money than I've ever made in my life and my credit score is excellent - I don't qualify until I have 2 years of self employment income to show for it. I've been told over and over again by professionals that I am able to obtain private funding for a live-in situation, so all of this is news to me. But that is is why I'm here: to learn.

We don't want to throw money down the toilet for the next year on over priced rent (Nashville area) when we could purchase a home that needs some rehab help and build equity as we live there by fixing it up and that we can eventually use as a rental property after a year or so. If private money is not an option, what options do I have? None?

Just Starting Out - How do I obtain Private Money?

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