TIPS FOR INVESTORS LOOKING FOR PRIVATE MONEY LENDERS

As an experienced investor myself in the Houston area, I have met and dealt with my fair share of private lenders and had good relationships with quite a few. As I recently became a lender myself and looking to grow that portion of my business, I am a bit surprised by the way some borrowers interact with potential lenders. Not that the borrowers mean anything wrong, simply that they don’t realize that part of what they say might be a put off for the lender.

Hence, I have decided to present a few tips for ‘’Do’s ‘’ and ‘’ Don’t s‘’ when interacting with private lenders. These are common observation that I came about with my own experience and discussing with other large private lenders.

• 1.Do’s’ with private lenders

Tip #1

Present your track record first before anything. A simple spreadsheet with number of deals done by type, flip, rental or new construction, that you can send will make a big difference.

Tip #2

Know your liquidity, most real estate investors failures are due because of lack of capital (i.e. the investor runs out of money). You would be amazed by how many borrowers don’t know how much money they have in the bank. It is great to have many deals going on but if you don’t know what your liquidity is, the lender will be left wandering if you are not overextended.

Tip #3

Everybody knows you want to know the terms of borrowing, but ask for it smoothly, once you have established rapport and shown some track record / credibility, you can ask: ‘It might be early in the conversation, but what would be your terms based on my experience’.

• 2.‘Don’ts’ with private lenders

Tip #1
Don’t ask for terms or how much money the lender has within the first few minutes. This is an immediate put off for the lender. Would you ask someone the color of their underwear? Probably not so don’t ask too intimate financial questions either.

Tip #2

If you have some experience and already have a rolodex of lenders, that is great, congratulations but don’t appear arrogant. I remember a borrower saying: ‘well I have Joe at X% then Bob at Y% and then I may finally call John at Z% if I have maxed out Joe and Bob’. The truth of the matter is that you never have enough money source. Although Joe may have lend you at a low rate before, his situation may have changed and he cannot lend you anymore or your next deal might not be the type of properties he likes to lend on. Don’t shut the door to a new lender.

Tip#3

Refer the lender, if you know another good borrower that has financing needs, refer the private lender.

The quality of your referrals will reflect on the image the lender has of you. (so don’t send dubious referrals).

Referring quality people to the lender will make him more likely to lend you on your next deal.