5 Reason to Have a Pipeline of Private Money Investors

Pipe⋅line - noun, verb

"a route, channel, or process along which something passes or is provided at a steady rate; means, system, or flow"

This definition of pipeline should really help you hone your private money goals. As I've written before, there are two approaches to getting private money for your real estate investments:

•find deal, then find private money
•find private money, then find deal

I'm firmly in the second camp, for the basic reason that I'd rather build a pipeline versus carry buckets. Here are 5 reasons to adopt this approach to private funding:

1.    You need 'dry powder'
2.    Negotiate from a position of strength
3.    Better acquisition prices
4.    No-leverage
5.    Growth springboard

With the overall goal of helping you build some real wealth in a hurry, let's look at each one in more detail.

1. Dry Powder
As a soldier back in the old days, when guns were still somewhat new on the scene, you had to take great care to keep your gunpowder dry, lest you not have it in good quality when needed (like when someone was shooting at you). Having lots of dry powder meant You had the ability to fire your gun many times.

When you build a pipeline of private mortgage lenders or private equity investors to fund your house or apartment purchases, you effectively have a keg of dry powder that you can deploy in shooting the best real estate deals. If you don't have any dry powder, you can't pull the trigger when a deal comes that you have to move quickly on. When you're in scramble mode for private money, deals slip through your fingers.

2. Negotiate from a Position of Strength
A pipeline of private money means that you have confidence in making bold offers. It also means you don't have to reach for marginal deals. Making offers when you're on unsure financial footing or reaching for marginal deals because you can't come up with the equity or cash to close the deals with the fattest profits means you can lose out.

3. Better Acquisition Prices
The "cash buyer" discount of having a private money pipeline is a tremendous competitive advantage. For instance, investing in distressed residential properties (such as foreclosures and short sales), will bring you the best profits when you pay all cash and really crush the bank on price. Banks really don't want to take a bath unless the buyer can close fast, put down a large earnest money deposit and there is no worry about another mortgage company or bank approving the deal (and playing the waiting game).

On the commercial and apartment investing side, paying cash for distressed assets is going to give you a big discount in this market and, in some cases, may be the only way that you can buy because commercial lending has all but dried up for many of the deals. And, the lenders that will finance these properties want such onerous terms that you're better off paying cash in most cases.

4. No Leverage
Leverage got the real estate industry into a world of hurt over the past few years. Leverage is basically the amount of funds borrowed versus the equity position. There was  a big debt binge from the late 1990's to 2006. Now,  we're actually going through a 'de-leveraging' in the financial markets, less and less debt is being issued - which means less and less is available to finance real estate deals. Cash is king now.
A private money pipeline means that you won't have to overleverage yourself to buy your real estate investments. Even a private mortgage loan (being borrowed funds) is 10 times better than bank financing and gives you a great amount of flexibility and latitude.

5. Growth Springboard
Private money is like growth steroids for your real estate investing business. You can do more deals, bigger deals and make massive profits when private investors back your deals. Take a look at your company bank account right now...what does it say? $5,000? $50,000? $500,000?

What if it had $5,000,000 or more?

Cash is growth fuel. Your business will grow by leaps and bounds as more private money pours in.