Private Money is quite honestly the “Holy Grail” of real estate investment capital. There are a number of ways to creatively fund your real estate deals, whether owner financing, hard money…or just your good ol’ fashioned mortgage. But those funding sources can only take you so far, and don’t always fit into every deal. Some sellers don’t have the ability or desire to owner finance, hard money loans are very short term and charge astronomical points and interest, and even people with great credit can only have a few mortgages at a time. The funding source with the greatest flexibility, which in turn allows for the greatest opportunities, is private money. And that’s why everyone wants it.
I’m asked all the time if I will give out my contacts for private money, and my answer is always a resounding “NO”...and for a very simple reason. As I explained in my last blog post (“How Do You Find Private Money for Your Real Estate Deals”) private money lenders are “relationship” investors. They’re not necessarily investing in a piece of real estate, but rather in me as a person, because they “know, like, and trust” me…and that trust is not transferrable to another party.
If you search “how to get private money” on the internet, there are a plethora of self-proclaimed “gurus” who are dispensing advice on the topic. Many of the so-called “experts” continue to recycle the same old worn-out ideas that Carlton Sheets and Robert Allen were pitching in the 1980’s, encouraging their students to hold luncheons with high net worth individuals. Trust me, trying to “pitch” a room full of strangers to give you their money is an idea doomed from the start, and a perfect recipe for failure.
Those who know what they’re talking about will emphasize the role of building relationships first, and letting the private money discussion flow out of a conversation that develops naturally, without being forced. However, when the big moment does arrive, and the door is open to make your presentation…here are a few tips to make sure you don’t blow your big opportunity.
1.) Practice Your Speech – It may sound cheesy, but I would recommend looking at yourself in the mirror, and practicing what you’re going to
say. Unless you are just an incredibly gifted, quick-on-your-feet speaker, don’t think you can just “wing it”. You’re asking a person to put their hard earned money at risk, so you’d better come across as confident and well-spoken, or you can kiss that money goodbye.
2.) Create a Success Binder – Private money is much easier to secure when you have a compelling story to tell. If you’ve never done a real estate deal in your life, it’s obviously going to be more difficult to convince someone that your business is the right place to stash their cash. It’s a good idea to joint venture with an experienced investor first, in order to get a couple deals under your belt. Then you can create a binder with before and after pictures of your renovations, along with the length of time for each project and the overall profit numbers.
3.) Calm their Fears – The SECOND question in every investor’s mind is how much money they will make. The first question in their head is always, “Will I get my money back?” Make sure you explain to them how they will be protected against financial loss, such as the fact that their investment is secured with a note & mortgage, and that the LTV’s will never be over X%.
4.) K.I.S.S. – Keep it Simple Stupid – A success binder is one thing, but don’t go overboard with a bunch of graphs, diagrams, and real estate lingo that the i
nvestor won’t understand. You certainly want to be armed with information and data if the investor asks additional questions, but if you overwhelm them with too much, too fast...they will undoubtedly back away from the deal. If a person either a.) gets too many choices b.) gets confused by the information, or c.) doesn’t understand something, they have a built-in defense mechanism that causes their lips to form the word…”Nooooo.”
5.) Chillax – My kid’s favorite new word is “Chillax”, which is a combination of the words “Chill” and “Relax”. It may be a goofy word, but it’s terrific advice when it comes to making your private money presentation. There’s no room for fear at the table with you, and if you come across as nervous or unsure of yourself, the money-man will smell it and squash the investment. Be prepared, know your stuff...then take a deep breath and let it rip.
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