(NOTE: What it's like to write a $1,000,000 check for a sweet piece of undervalued real estate … even if your bank account is overdrawn and you owe the local lawn boy $20? This special report shows you step-by-step.)
Hey Moguls, Chris Seder back with Part 2 of this terrific lesson about getting private money.
In Part 1, we talked about what you need to do before you can even reach out to private lenders, which involves building your credibility (I gave you several solid ways to do that), and making sure you are prepared to answer private lenders concerns and objections. Make sure you check out that lesson, it’s loaded with tons of helpful, actionable info.
Today, I want to cover my favorite places to find private lenders, and then we’ll go over some really important legal stuff you need to know about how and when you are legally allowed to acquire private funds. (And by the way, you do need an attorney’s help for that stuff.)
Here we go…
Where Are Private Lenders Hiding?
Most private lenders are actually hiding in plain sight...
The very best place to find them is by going through all of your contacts, business relationships, professional services you use (dentists, doctors, etc.) and start talking to people.
Make a list of 50 to 100 people you know. Even people who you might think would never be able to lend to you might have some crazy amount of money stashed away in a CD, Mutual Fund or even an old pension.
Heck, someone you know could have hundreds of thousands stashed in their mattress.
You just never know… I was talking to a friend of mine about the topic of private lending, and he told me a story that blew my mind!
His grandma actually had more than $100,000 sitting in her savings account doing nothing. He said his grandma was the most frugal person in the world, lived only off of a small income from a retail job she had been working for 20-plus years, and anything extra went into her savings.
But she was not doing anything with it except earning less than 1% in a savings account. Lame!
This is a prime example of someone who does not trust conventional investments but might be willing to lend the money to a trusted friend or family member. Think about how many people are out there right now doing the same thing as this lady and not earning much of a return at all… that, friends, is your opportunity.
My second favorite place to find private lenders is actually other real estate investors in my area. Right now, with the market going crazy and deals getting harder and harder to find for some investors, there are a lot of people out there looking for deals or even just a piece of the pie.
So…
Really get out there and start networking with every real estate investor in your area and ask lots of questions about private lending and whether they’d be willing to partner with you on deals.
For example: You find the deal, manage the rehab process and you pay them either 12% interest on their money or give them 15% to 25% of the deal. Negotiate something that works for both you.
Legal Stuff You and Your Attorney Should Know
If you're trying to raise any kind of private money, you need to learn some of the state and federal laws in regard to what you can and cannot do.
Remember, I am not a lawyer, and this lesson is for information purposes based on my experiences. Always make sure you know what you're doing and have a good attorney guiding you. No one wants an SEC knock on their door.
When raising private money, we always use what is called the ‘3 Touch or 30 Day Rule.’ When talking to a potential private lender, you cannot offer them an investment opportunity (deal to fund), if you have not made contact with them 3 times and/or known them for 30 days.
Also, you need to be weary of crossing state lines when raising private money. You cannot cross state lines unless you have your business registered with the SEC.
So, you’ve gotta contact a solid SEC attorney (not a local probate attorney) to make sure everything you do is in compliance with the law! If you raise private money incorrectly or advertise incorrectly, you could face the wrath of some scary people. Seriously.
Breaking it Down
Look, the #1 key that I have found with raising private money is to just start talking to people.
Ask everyone you know:
“Hey, I am doing rehab projects right now and currently looking for anyone who is looking to earn some extra money by lending to us on some upcoming projects, do you know anyone that might be interested?”
You’ve also gotta network with other investors, too.
And, remember to check with your SEC attorney to make sure that you are compliant based on your state’s laws and regulations.
Really, though, all you have to do is begin to talk to people about what you are currently doing and what your plans for the future are. Now go get some private lenders!
Talk to Me
Got any more questions about private lending? Hit me up in the comments section below.
Create a list of everyone you can think of who you currently have a relationship with – personally and professionally.
Start talking to those people – simply use that phrase I gave above to begin the process of asking people about private money.
Start networking and taking successful real estate investors out to lunch and ask them about private lending and their view on it.
Find a good SEC attorney who can help make sure you are compliant for your state.
Chris Seder
is a full time real estate investor from Billings MT (yes, Montana has houses), with over 5 years of real estate investing experience. He has grown his own rehabbing business from doing 1 deal in a year to doing over 10 deals consistently. Christopher's father has been Rehabbing and Buying rentals since the early 1980's and has helped Christopher grow his business into a power house in Montana. Christopher specializes in rehabbing, wholesaling and is a Marketing Machine. His knowledge of marketing and creating marketing systems for his business has allowed him to develop several cutting edge marketing campaigns that he has launched across the country. Because of the remote location he lives in (middle of Nowhere MT), Christopher has focused a lot of effort on Virtual Wholesaling, while still rehabbing 10 to 15 houses a year locally. Christopher currently does 2 to 5 virtual wholesale deals a month while enjoying life with his wife and their dogs. Christopher is an author, speaker and real estate investing coach.