Many people have been asking me on our social media, blog and in our member sites how I can get all my deals funded with private money and NEVER use any of my own cash or credit. The first thing I tell them is that they must know what the investment alternatives are in today’s market.
The stock market has been up and down for what seems like forever, and you need to know that it’s averaging about an 8% net return. In real estate, when a private lender lends me money, we can pay them 12% interest or 15% of my profit, whichever is higher. You need to be able to tell your potential private lender what options they have and why your investment is the best.
Once you know what the current return on other investments are, you can start following this simple 12 Step Process to have private lenders begging you to use their money on your next project.
1. Create your own Project 100: make a list of 100 prospective private lenders or referrals starting with family ranging all the way to the guy who makes your coffee at Starbucks in the morning. Don’t count anyone out, everyone has the same goal – to save money and invest it wisely. Your goal is to become the top of mind reference for everyone you know so they will
* Buy from you
* Sell to you
* Refer deals to you
* Refer investors to you
* Cheerlead for you
* Loan to you
* Invest with you
2. Make a second list: this time, write down all the places you can go to meet potential investors and partners – from the obvious places like your local REIA Club meetings to the not so obvious places like the gym or local grocery store.
* REI Clubs
* Chamber of Commerce
* Kiwani’s
* Fraternal Organizations
* Social Groups
* BNI
* Marketing & Real Estate Meet-Ups
* Golf Courses/Country Clubs
* Boating
* Open Houses
* Real Estate Agent Meetings
* Home Owner Association Meetings
3. Tell Everyone What You Do in a Cool Way: you have to be able to tell everyone in your family, all your friends and anyone you can come across on a regular basis what you do in a cool way. Nine times out of ten, they will be interested and have questions for you to learn more about the opportunities you offer. You must create your “Private Money Partner Elevator Pitch“.
4. Create your money magnet pitch book & marketing collateral: get a three-ring binder and fill it important documents you’ll need to share with a potential private lender such as:
* Example mortgage
* Example note
* Executive Summary
* Private Placement Memo (PPM)
5. Develop a system for tracking your private lenders: invest in a CRM database. I use Infusionsoft, but you can also use Google docs or an Excel spreadsheet if you can’t afford to pay for a service.
6. Send out a monthly physical mailer: remember, marketing is sales in print and your overall goal is to be everyone’s top of mine real estate reference. Sending a monthly reminder mailer will help with this.
7. Email “Deal of the Week”: we send out a Funding Opportunity email every Monday to our network to showcase our newest funding opportunities and what we’re working on.
8. Follow-up with a phone call: 4-6 days after the physical mailer hits the addresses.
9. Set up an appointment: face-to-face appointments are crucial to this business. Set your meetings at a local coffee shop or sit in the bar of a high-end restaurant for happy hour, depending on what time of day you’re meeting.
10. 10. Hold Money Magnet Meetings: this is education based selling. Walk your potential private lender through your Money Magnet pitch book you created and ask them at the end, “Do you know anyone who might be interested in learning more about this?”
This is the Exclusion Mentality and leaves them thinking, “what about me?”
11. Follow up: this usually includes answering any FAQ’s your potential private lender may have.
12. Gain commitment: once you gain their trust, you can start the rollover process of the IRA, locate a good deal and make offers and have a real estate agent craft a sample note and mortgage with your name on it so they can see what the paperwork will shape up to look like.
If you have done your homework, understand the investment options and know your market, you should have no problem pitching your real estate investment options to potential private lenders.
Case Study – 1966 Marwell Avenue
This completely remodeled larger ranch in Hudson, Ohio has over a half acre private lot with woods behind it, an open floor plan with a beautifully remodeled kitchen and 2 full baths. All new windows, roof, doors, furnace, flooring, lighting, and paint throughout the house. Huge full basement finished with a 25 x 25 rec room and 2 larger bedrooms. The exterior has also been remodeled with new cement patio, driveway, and sidewalk.
The numbers for this property look like this…
Purchase Price: $65,000
Renovations: $55,000
All in for: $120,000
Private Money: $122,000
Sold for: $215,000
Gross Profit: $80,000
Final Net Profit: $55,000
Private Lender Profits: 12% interest/approximately $13,000
Invisible Banks
After seeing the numbers on the Marwell case study above, where else can someone invest their money and make a $13,000 profit in less than a year?! If you want to be a serious real estate investor, you need to know how to follow these 12 Steps so you can have investors knocking at your door, begging to fund your deals.
Be Daring,
Josh