Approximately seven months after funding my first deal, I learned of an urgent situation via facebook post. What makes this deal different than my last post? This investor is now a trusted partner. How? Present value with opportunity. Exceed lender expectations.
The paragraph below was posted on Facebook in a closed group with over 4,000 members interested in real estate investing. The poster asked for my feedback and gave me permission to share it in a blog post. Here are my comments.
Not all deals go perfectly well. The deal I am going to describe is one I was reluctant to do in the first place. Three things changed my mind. So What went wrong?
When presented with a deal, I want to say yes, but it is much faster and easier to say no. Have you established a relationship? Are you communicating in my preferred method? Is the type of deal a good fit for my current situation? Many factors contribute to deal acceptance; don’t give me a silly reason to reject yours.
This was in 2010, during the last real estate crash. I had never invested this way before. It was a couple months before I actually committed the funds for that first deal. My next deal with this borrower was 14 days later. I have completed dozens of deals since these early ones.
When I consider a loan proposal I evaluate the real estate that secures the loan. You control this part. I also look at my overall plans. This is the part of the equation that you can’t control. I find a situation that is a good fit for me.
This must be an actual deal with contracts and supporting documents. If you do not have the documentation you do not have a deal. You have a dream. Once you have the documents proving you have a deal, do you have research laying out why it is a good deal? Finally, what is your plan for the deal?
Borrowers are evaluated based on the 3 C’s of Credit: Character, Capacity and Capital. Some gurus selling courses on how to find private money say credit doesn’t really matte; you need equity in the deal (collateral for the lender) and you will have no trouble finding money. Not to be too indelicate but that brings up another C—Crap. Here is an explanation of the 3 C’s of credit and how a private lender may use these criteria to evaluate your project, decide whether they will fund it and, if they will fund, how they may structure your deal.
The investors I lend to are a diverse group. I usually have an existing relationship with the investors I fund. I’d like to clarify some terms: Hard Money, Hard Money Lender, Points, Private Money Lender. How do I evaluate a potential loan? My decision is based on three factors: the borrower, the deal, and my plans.
I lend to strengthen a relationship with a fellow investor. That’s right. Lenders want to partner with investors. I have to invest and am not interested in taking chances on the stock market. Why not lend the funds to a real estate investor and form a business alliance? Private money is, primarily, about relationships.
I am a private lender. I am not wealthy. The first deal I funded was for $50,000. That may seem like a lot of money but you probably come into contact with many people every day who have $50,000 and many of them will be happy to lend to you if you find an appropriate deal and present it correctly. Really. This is part 1 of 6.