Private Investors | How did you found yours??

Question

Hello! I just got the book "How to Invest" and am about halfway through it. I plan to get the "How to Invest with no money down" book when I've finished this one but I'm just curious if anyone's willing to share how they found their private investor(s) and anything positive or negative they learned in the process!

Jon K. · Answer

I can't shut up about real estate investing. Call it an obsession at this point, but everyone in my life knows that I'm doing it. Over time, some friends and family expressed an interest or a willingness to lend money to me. So as new deals came up, I presented the opportunity to them in a way that let them know there was zero obligation and that I had plan B, C and D lined up if they didn't feel comfortable. I also showed them the numbers so that they knew that they were protected by some equity. So far two have taken me up on it (one of them twice) and it's worked out great for all involved.

I made sure to make sure they were protected and treated like any other lender in the arrangement. We put the rates and terms into a signed contract, had a deed of trust recorded on the property and I named them as the lender on my insurance. I also personally guaranteed the loan in the contracts.

Hope this helps.

I made sure to make sure they were protected and treated like any other lender in the arrangement. We put the rates and terms into a signed contract, had a deed of trust recorded on the property and I named them as the lender on my insurance. I also personally guaranteed the loan in the contracts.

Hope this helps.

Johnny Kang · Answer

@Manda Gouvion

I was lucky enough that, the 1st person I met who was in RE (not an agent) was willing to work with me and she had a wide sphere of people she knew, who had done business with her over the years and trusted her emphatically and were willing to be private investors. (I guess she saw that I was willing to do the grunt work, with no promises of any compensation; I just wanted to learn).

All the transactions were basically done on a handshake (now, we did form LLCs, put them on the Operating Agreement), but it was more of a formality, rather than the deal consummator. Obviously the deal had to make sense to the ppl involved, but the main thing is, private money is 100% based on relationship & trust.

One thing I would stay clear of is taking money from people who are not in the industry. Some deals take longer than expected and if they're not in the game, they get anxious and start hounding you; yes, rightly so, but at this point, unless someone knows what's involved in working on a deal from having done deals themselves, or at least have a business mindset, where they know they're taking on a calculated risk, I would not allow them to be even be part of the deal.

So meet people, see how you can bring value, don't think about what you'll get out of the situation because the people you want to connect with are the ones with the experience, knowledge & money.

Jon K. · Answer

Correct, it's just a contract between individuals. What goes into it matters of course, and I'm not a lawyer, but it wasn't really a complicated arrangement so I felt comfortable with it and so did my lenders.

To be clear, I wasn't exactly seeking out private investors. I think it's important to have many financing options and to keep that list fresh as you go so that when you have an opportunity you have several ways to pay for it and have options. I do still have a relationship with the HML and have used them on two deals so far. I've used private money on 3. I've used my own cash on 2. The rest I've financed with traditional banks.

I saw later in this thread you said you felt bad asking people for money. There are some things to keep in mind here. Personal advice of course, you do you. I wouldn't feel comfortable taking money from any friends or family without either a proven track record or without being absolutely certain in your numbers. Hopefully whomever you're borrowing from is savvy enough to do their due diligence on the opportunity as well.

That being said, if you check those boxes and everyone is happy, remember that you're not asking them for a favor. It is an opportunity for them. If you have a good deal, especially with experience, money is generally easy to get so you don't NEED private money. I pay my private lenders less than I pay my HML, but not much less. They're getting a great return on their money and it's secured by the property. I've always been of the mind if I'm paying someone well to borrow money, it might as well be friends & family first.

Daniel Dietz · Answer

What @Jon Kessler said, almost word for word ;-)

Dan Dietz

Tucker Cummings · Answer

I would encourage you to not think of this as you asking for money. Instead, start thinking of this as an opportunity and you’re gauging interest on who wants to be a part of the opportunity. It’s a business “transaction” not a “favor.”

A favor is one directional “hey I’ll help you out, here’s some money.”

A transaction is “hey here’s my money to do your deal. In exchange I’d like X points and Y interest.”

Jon K. · Answer

Probably not the smartest way to do it but I kind of wrote it myself. I took a contract that I had signed with a hard money lender in the past and just rewrote it in plain English. I am not a realtor nor am I an agent.

Chris Levarek · Answer

@Manda Gouvion Credibility and transparency. As someone mentioned you talk about what you are doing to your circle of friends/family and network. You are open and honest. This is the transparency factor.

For the credibility factor, you solicit the help of experts in the field of property management, attorney's, cpa's, etc. You add that layer of security and credibility by working with experts.

I took this first action step and ensured I had a solid Joint Venture agreement, Promissory Note and even a Deed of Trust on my first property with a private lender. All created with the help of a legal attorney experienced in these ventures. Made all the difference.

Manda Gouvion · Answer

@Johnny Kang wow... I'm not one to believe in fate but dang! That's an inspiring story.

@Dana C. My dilemma is asking people for money. If there's one thing I've learned the hard way numerous times it's debt and family or friends don't mix. I think my best route is to find a community and find someone to invest with me that's already in the real estate world. I've reached out to two people I know yesterday but haven't heard back yet. I'm hoping to attend some local events and start making connections that way!

Johnny Kang · Answer

@Manda Gouvion

Actually, it was by accident. I was in finance at that time and wanted to find a desk space to rent instead of commuting to Manhattan everyday, so I found 3 possible places on Craigslist I wanted to go see. The first 2 were either too small, too expensive for the type of office, etc., and thought the last one would be a dud too, so I actually threw out the phone # in the trash.

I thought for a sec and said "Eh, what da heck, might as well call them. It's just 1 more # to call."

From that 1 phone call, I've made close to $500,000 and we've just opened up a shipping store in Manhattan in November where the business runs without me needing to be there and we're expanding, when so many people have been laid off, businesses that have been around for years closed down in a matter of a few months and people are trying to figure out what to do for money.

Private Investors | How did you found yours??

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