Locating Private Lenders for Your Deals

As a real estate investor every deal that you do needs money! True fact! The question is, whose money is it going to be? If you have the resources then you can fund your own projects (purchases and/or rehabs), however if you want to gain leverage then using other people’s money becomes a factor in the equation.

Mixing other people’s money in with yours to purchase (and if needed, rehab) properties creates a larger bucket of cash to work with. More cash to work with can mean more projects for your business, more revenue, more profit, more volume and perhaps additional benefits. Without question the use of other people’s money as leverage can change the look, feel and operation of your real estate investing business.

Before we touch base on ideas to locate private lenders, let’s first determine what we will classify as a private lender. While some hard money or rehab lenders see themselves as a private lender because they may not be what’s referred to as an institutional lender or a bank, they are not what we will classify as a private lender in this post. True, they typically are working with capital in their bank accounts that is at their discretion to deploy/invest, however typically that capital has been raised by either family & friends or via syndication with limited partners. We will address the private lender in this post as an individual, not a company of fund.

To locate a private lender, you have to try to place yourself in their shoes. Where do they hang out? What would catch their eye or make them curious. The thing is, private lenders come in more than one form. They could be someone who is already familiar with the real estate business, such as a retired real estate investor, a real estate attorney, settlement agent or even a realtor. If that is the case, then locating them becomes much easier.

People that are tied to or retired from the real estate industry hang out at real estate related functions and activities, both in-person and online. Functions like networking events, property closings, open houses, Facebook Groups, LinkedIn Groups, Real Estate Investor Online Forums, etc.

More times than not settlement agents and real estate attorneys are either part time private lenders or they network with them. So, getting to know these settlement agents and attorneys can be a foot in the door to private loans, secured by real estate for your business.

Think about it, the majority of real estate investor settlements that takes place has a loan tied to them. The settlement agent/closing attorney sees the documents from those lenders (some may be private lenders) and communicates with them. Hence, they establish a list of private lending sources and if you are utilizing their settlement services, they may feel compelled to introduce you, as you will use their closing services for your privately funded purchases. A win-win.

Spending time in online groups and forums tied to real estate investing can be productive in locating private lenders. If you locate them via these outlets, they likely are already familiar with the use of their money for other’s transactions so educating them on just what a private lender does normally isn’t needed. Reading posts or posting yourself online can be the beginning of sourcing private lenders.

Beyond the real estate tied resources, sometimes you can create a private lender from someone not familiar with the term or the workings of it. These people may be people within your circle already such as your doctor, dentist, co-workers, boss (although that might be touchy), work out buddies or even neighbor. Depending on what dollar amount you may need for a transaction, there could be existing contacts that might be candidates for private lending.

Good earners and good savers make good candidates for a private lender. Why? They have the cash and like earning a return on it. Many medically related careers pay attractive salaries which is why we mention doctors and dentists, but I have met nurses that were private lenders also. Gyms are a resource for people that introduce structure in their lives and sometimes in their finances, so you may locate a private lender while getting into shape. I have seen real estate investors wear a T-shirt that states their business (We Buy Houses) at the gym with their contact info on it. That alone can strike up a conversation.

Some savers use self-directed retirement accounts to earn returns on their savings. Investing in real estate is a natural fit for these investors as when the cash leaves their self-directed account, it is replaced with a mortgage & promissory note for the same amount. These self-directed accounts are managed by custodians licensed to do so. Some of those custodian companies will have meet & greet events, either in-person or online and supply the opportunity to connect their account holders with potential investing opportunities. You can do an online search for the various self-directed retirement account custodians and see which ones offer these meet & greet events, then attend and state what you seek. Since investments like stocks do not come with any collateral, real estate lending that has a mortgage on the property as collateral begins to look appealing.

Lastly, a great way of locating private lenders is via an existing private lender. In other words, once you have gained your first one, and faithfully pay them on time and pay them off as agreed, they will talk about it to others within their network, and you may be contacted by their contacts/friends/family/etc. to put their money to work too.

In summary – do not discount anyone out, as a private lender can come in many forms, and actively display your business to everyone, ie: wear it on your shirt, carry business cards, plaster it on a magnet on your vehicle. Expose and engage what you do and what you need to do more of it…….money!

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