Private Money for First Deal

[Chad Lockman]

I am seeking private financing in order to close my first deal primarily because I want the money at my disposal to move fast. I have excellent credit and have been reading and trying to learn all I can on BP. I am looking to purchase a HUD property priced way below market value with the intent to lease/option to a qualified tenant/buyer. I would like to defer payment on the loan until tenant/buyer exercises option to purchase (3 yr option). I have a flyer put together, and am looking primarily at older, retired folks with cash not working for them currently. It would be great to have someone review my flyer and offer advice on what else to include or what to remove.

After securing the property, I would search for a qualified lease/option candidate.  I would be really happy to lease/option to a young person or family who may not necessarily qualify for a mortgage at the moment.  This was my own situation a few years ago when getting out of the military and moving across the country to look at a 1-2 year wait at my new job before being able to qualify for a loan.  It would have been very helpful if I had came across a deal like the one I am attempting to put together.  

From everything I have seen/read on lease/option deals, they sound like a win/win for all parties involved.  This property would have a great deal of equity upon purchase even w/o repairs/upgrades (requires only cosmetics as far as I can tell).  I live in the same subdivision as this property and know it to be a nice area with great schools.  I believe that a home inspector turning up some crazy issue is the only thing that could ruin this for me.  However, this house has been on the market for some time and price has dropped dramatically.  This concerns me.  

I am just looking for some non-judgemental pointers such as what info to be sure to include when propositioning a potential lender.  Also, I want to make sure that I am checking into everything needed to mitigate risk i.e. title, parcel, tax history, other public documents.

If anyone has some time and is interested in seeing the details, please PM me and I will send the details.

[James Ihssen]

Chad, 

I would take a look.  I have learned that private money folks want three questions answered, whether they directly ask them or not. 

How much do I have to give up?  How much will I get back?  What happens if I do not get it back?

Answer those questions for them and you will be one step ahead.  Also, I am not being judgmental, but most investors want to see someone with experience under their belt.  Not to say you cannot get it done, but experience goes a long way towards attracting private money.  

I get that this can be a potential catch 22, but that is a hurdle that most first time investors face.  You could consider a partnership of some sort with an experienced investor.

Also, it helps to have a specific deal lined up.  Without a deal in place, it is hard to even offer specific money terms to a potential investor. 

In your case I would suggest meeting with them, and not asking them directly for money but establish a relationship and ask "Can I call you to present an opportunity when I have something in place?" Also, ask them how they would feel about making x% on their money, but do not offer your max so that you have room for negotiation and sweetening.  Also, even if they say yes by the time you have called them their interest may have waned a bit so when you reach out again you can say "With this deal I can offer x+1%"  This will pique their interest again. 

Another approach is to give them more than they ask for in terms of percentage.  The bottom line and most important thing is that you need to Deliver Results.  Imagine if you could call your private investor and present a check to him and tell him "Here is your principal plus x+2%" because the deal went so well!

I guarantee they will turn around and give you that cash right back to reinvest!! The goal is to build long term relationships that are mutually beneficial.

These examples are geared more towards shorter term private money, which is a lot less risky than your potential lease option approach requiring a potential term of 3 years or more.  Basically the private money lender is taking on the potential landlording risk.  

More risk should be more reward but honestly I have never considered this approach (using private money for lease option deals).  Not to detract you or be judgmental, but finding a seller offering owner financing may be a more viable means to execute lease option deals.

Hopefully these tips you can find useful going forward.

Good luck!!

James Ihssen