Originally posted by @Joe Bertolino:
Have a deal to present. Present the deal or an example of the types of deals you are targeting and your business model showing their return and security. Have an exit strategy for each property and show them how and when they are going to be paid back.
Hello @Lance Cummins I know this post is a few months old but, the author of Pitch Anything is Oren Klaff. It's a good read.
First, I agree with @Joe B's general remarks; however, I'm leaning towards using family to fund my first deal in the future as well and I'd like to add some of my thoughts.
I was thinking of opening the conversation with quick greetings and catching up, then getting to the point quickly and presenting a well put together underwriting packet with LOTS of pictures in the back and concise metrics in the front to convey why this deal is good on paper since your construction relative may not have any real estate investment background other than the negative stigma associated with the 2008 crash.
I'm might emphasize the following features of the deal to make the family member feel as at ease as possible EARLY in the conversation in order to get them to lower their defenses caused by previously mentioned stigma to be open to hearing the rest of your pitch:
- Compare your suggested rate (8%-10%) to average return in the stock market (8%) then to a 10 yr CD or 10 yr Treasury Note which have (1-2% and 2.15% respectively).
- Have THEM hold the title, physically, if possible.
- How & When they get their money back? Explain that after 5-10 years, the equity built into the house would be sufficient to obtain conventional financing and get their money out.
- Offer to fly them down over a weekend to view the subject property if they want.
- Make their funding the loan contingent on receiving an appraised "As Complete" value that's higher than the loan amount. Explain that most appraisals give an "As Is" value, but since you're doing renovations, you believe that the property will sell at a much higher value that will be validated by an outside professional before they part with their money.
- Anything else you can think of.
These conditions are highly derivative of typical conditions that my bank would require after approving but before funding a loan. As a result, they put your investor in a the safest possible position and put them at ease at least a little bit.
Also, I'm going to ask that my investor put down 100% of the purchase+repairs+holding costs.
Suggest it be funded by a self directed IRA, which you can help set up so the whole thing will be pre-tax.
Most importantly, tell them how much money they'll be making as a result of this deal. They're probably not finance masters so telling them they're going to make 10% won't have near the impact of saying they'll actually make $58,581 over that time. (Assumes $100,000 at 10% over 10 yrs.)
I feel like @Brandon Turner's book How to Buy Real Estate with No (and Low) Money Down would have some valuable info regarding this specific topic.
Wow, I ended up using this replay to brainstorm how to fund my first deal in the future so thanks for asking the question!
Run all this by your lawyer etc, etc.
