I get dozens of emails every day from people and students asking questions about private money.
So today, yours truly, Patrick Riddle, is going to answer some of the ones I get asked over and over again…
1. What is private money?
Private money is cash that is lent to you (the investor) from an individual, rather than being invested traditionally through stocks, bonds, mutual funds, etc.
Whether it's someone who frequently loans privately to investors like you, or simply a friend or family member with some cash on hand who invests their pile of money in you and your deals – when you think about private money, think investment funds from an individual… any individual.
2. Is private money the same as hard money?
Far from it actually, though they are commonly confused with each other.
Hard money lenders finance deals for real estate investors as a business. Often, they lend to investors based on the property, not necessarily based on the person. The hard money lender already has a system in place for lending money to investors and dictates the terms of the deal to you, the investor.
A typical hard money loan has high interest and points and is short term. For instance, I purchased my second deal with a hard money loan. I was charged 15% interest, 5 points (a fee of 5% of the loan balance) and had a term of six months to repay the loan in full.
Expensive?
Yes, but I got the deal done and still made great money.
On the other hand, with private money, you typically dictate the terms of the loan to your private money lender. Based on the deal and your business model, you offer him or her terms that suit your needs and provide a good return for your lender.
For example, a typical private money loan could have 6% to 10% interest, no points and a term that suits your exit strategy.
3. What type of properties can I buy with private money?
The primary niche for my real estate investing business is single-family homes. But, single-family homes are not the only type of property you can buy with private money…
Any great real estate investing deal can be financed with private money – it really doesn't matter if it’s a house, condo, townhouse, mobile home, apartment building, skyscraper or beachfront home.
4. Do I have to do those "lender luncheons" to get private money?
A popular method once taught to get private money is to host a lender luncheon. You would be required to rent a facility, advertise to fill the room and present your private lending program in front of the audience.
While I believe this to be a good strategy for some, hosting a lender luncheon is not a viable strategy for most.
Why?
Well, personally, I find the concept just plain awkward and unnatural.
A huge fear of many people is public speaking. Another huge fear for people is… death! Most people would rather die than speak in front of an audience. Truth.
So even if it were easy to get private money by hosting a lender luncheon, the majority of people wouldn’t do it.
5. What's the best alternative to lender luncheons?
Personally, I've always found it easier to get private money by presenting your investment program to prospects 1-on-1.
I have an excellent, straight-forward PowerPoint presentation I use that lays out what I do, what my typical deals are like and all kinds of reasons (some direct, some strongly implied) as to why I'm such a worthwhile and profitable investment.
This kind of presentation comes off much more real and authentic when given mono-y-mono versus to a whole group of people at once.
Plus, you don’t have to spend money to rent a room at a restaurant or hotel, pay for marketing costs, deal with the anxiety of presenting in front of an audience, etc. Just meet them for a 1-on-1 lunch, or coffee or any old place that suits you.
6. How do you convince someone to lend you private money?
Well, you don’t. (Ha-ha, twist!)
Here's the deal…
If you're going into private money-getting with the idea that it's all about seeing who you can convince, then you're coming from the wrong mindset and you'll definitely have an unnecessarily uphill battle.
Rather than trying to “convince” anyone to lend money to you, a much easier and more effective goal is to simply educate people about your investment opportunities, and see if it happens to be a good fit for them.
And if someone is interested, great. If not...next.
My presentation is designed to paint a vivid picture of the types of deals I do, and why I'm such a worthwhile and profitable investment to make. Rather than me telling them I need their money, it's all about making them want me.
Got more?
Got a private money question that's not on the list? Ask in the comments section below.
Know that private money is cash that is lent to investors from an individual, rather than being invested traditionally through stocks, bonds, mutual funds, etc.
Don’t try to convince lenders to work with you – inform them of opportunities for which you can provide a good return on their investment.
Consider asking your friends and family to be private lenders.
Create a presentation that showcases your deals, experience and potential ROI to present to potential lenders 1-on-1.
Patrick Riddle
has been investing in real estate ever since he got the bug in college at Clemson University and - to his parents dismay - dropped out of college to dive full-time into real estate at the age of 22 with a couple friends/partners from school.
The first few deals were rough for them, mainly using their own cash, credit, and hard money loans. But, soon he found out that was a rough and unsustainable way to build a real estate business.
After "on the job" learning through the school of hard knocks at first, he found the key that helped their company get deals done more quickly, with higher profit, less risk, without having to go to banks or use their own cash.
Fast forward to today, their company has closed over 130 real estate transactions and has put over $6 million in private money into their own transactions.