Is it an Art? Is it a Science? No it’s Fairly Simple! How to Find Investors!Posted on April 5, 2013 by
How to Find Investors – It’s Fairly Simple!
When you’re looking for private money, it is not an art. It’s a fairly simple process.
How to Find Investors – Benefits
The benefits really depend upon the negotiation with you and the lender. Here are a few of the many possible benefits:
- You’re dealing with an individual who can make the decision right then and there, or as close to right then and there as you can.
- You generally pay points for loan origination fees to traditional lenders, with private lenders, whether points are paid or not is a matter of negotiation.
- Traditional lenders require payments on loans; with an IRA it may be possible to arrange a no payment loan.
- If you need a one-year or two-year loan to do a rehab and the investor says “I don’t need the cash flow because it’s in my IRA, I’d rather have the extra one or two percent.” That’s great; you’d rather not make any payments until the house sells.
- You set the terms with the private lender, not the bank.
- Many times, there’s no personal credit required; however, not always.
- There are often no personal guarantees; this varies by lender and negotiation.
- In some cases, you can get dollars upfront for funding expenses.
- That’s not always the case. Many private lenders will say “no money upfront”; still others will say “100% as long as the Loan to Value is 65% or less.”
- Some lenders will require some sort of equity, “skin in the game”, to make a loan. That’s one of the nice things about dealing with private lenders; the terms are completely negotiable between you and the lender.
How to Find Investors – Getting the Conversation Started
Get the conversation started with an introduction letter (reminder: to people you already have a prior existing relationship with) and a personal business profile. Set up a one-on-one appointment and get a commitment if a commitment is available.
Remember: You’re not begging, you’re not selling and you’re not chasing. Keep in mind that most bank accounts are offering ½% interest or less. The right deal can be a win for the investor and the borrower.
Think about what investors want to know. “Am I going to get my money back? Nine percent is great, but what about my $100,000? How do I know that I’m getting that back, because 9% means nothing if I lose $100,000?” A well secured 55% Loan to Value on a piece of real estate that’s a first mortgage at eight or nine percent should be a very attractive investment, provided you make them feel comfortable.
How to Find Investors – Private Money Guidelines
Under the SEC guidelines, you cannot solicit lenders by mail, this is a violation. You need to have a prior relationship with your potential lenders. As a general comment, always to be verified with your professionals, the relationship can be developed over a series of meetings.
How to Find Investors – Keeping the Door Open
Ask your current lenders for referrals. A great time to ask is after you have consistently made on-time payments. Call them up to make sure they received their payment and ask: “How’s everything going? Great, do you know anybody else who would like to get a nice consistent return on their money? Not this week? Well, keep us in mind.”
Send out annual statements of investment performance. It’s like a little statement of facts. Always be professional and put together a great package. This is the minimum information you should include in your package:
- Title insurance
- Fire and liability insurance
- A copy of the note and deed of trust, security deed or the mortgage
The more professional the package, the more your chances of hearing “yes” increase. It should also include pictures and a map of the area. Make it a professional package so that the lender knows they’re dealing with somebody that is thorough. Put yourself in the investor’s shoes. Would you rather deal with somebody that’s thorough or somebody that’s sloppy? Who makes you feel warm and toasty about lending your money?
- Obtaining private loans is a process of gaining the lender’s confidence and proving your ability as a successful investor.
- Many investors believe they are entitled to borrow money. These people usually fail.
- The successful investor is professional and respectful, and provides proof of their ability or background.
Even though you’re offering a heck of a good opportunity, be respectful. Don’t just say “Hey if you have money, stand up”.
The loan to values, the examples, the interest rates, and the reference to points, costs etc. are merely examples. This is not a recommendation of interest rates etc.; this is absolutely for illustration purposes only. You need to consult with the proper professionals when entering into this type of transaction.
American IRA, LLC does not give investment advice. We do offer guidance as to the rules and regulations related to their self-directed accounts and the benefits of different account types so that their clients can take that information to their professionals to discuss the ramifications of various decisions on their individual situation.
For more information, or to explore your options, call American IRA today at 866-7500-IRA (472). We look forward to working with you.