As a real estate investor, cash might come short when you're making heavy investments in real estate. The solution for that is to get your services funded by a secondary source. While other forms of getting financed are mostly too complicated, an easy source of funds can be private money lenders.
What exactly is a private money lender? A private lender is a person who lends money to investors. In return for financing investments, he earns profit in the form of interest after the loan is returned. Private lenders are not associated with any company or agency. They can be approached directly and asked for money without any complicated form-filling finance procedures.
Private money lenders are looked at as an asset in the real estate industry. When your competition gets to find out a lender is willing to invest their money, in no time, that money would be in your competitor's hands. This can happen due to multiple reasons.
If you're a newbie real estate investor, the chances are that you've been having trouble approaching private lenders and losing potential prospects. In this guide, we will talk about the best ways of how to find private money lenders for real estate. But before we move on to our main topic, our beginner real estate agents must understand the importance of private money lenders.
Hard Money Lenders or Private Money Lenders?
So, why should you choose private money lenders? Another option you have is a hard money lender. The difference between both these parties is simple. Hard money lenders are a finance institute, company, or an agency that specializes in lending money. The money that hard money lenders let you borrow comes with a fee, underwriting, and a loan approval process. Hard money lenders charge a lot for lending money, and this affects your profit, of course.
Private money lenders, on the other hand, are more convenient and direct. The process starts with you simply approaching a private money lender and convincing them to lend you money that will reward you both. This process is based on direct communication, consumes less time, and requires no fee (in some cases) or paperwork. All you need is the confidence to approach a private lender and convince them.
Finding Private Money Lenders for Real Estate
After reading the above paragraph, it would be fair to assume that private money lenders are a far better choice than hard money lenders. But how do you approach them? How do you find someone willing to trust you with their hard-earned money? All of your questions are answered below!
1. Look for potential lenders in your social circle.
The first thing to do is a quick brainstorm. Go through all of your contacts and see who fits to be a candidate. It can be anyone in your friends, family, or relatives. Besides, convincing someone you’re close to is way easier than convincing a stranger. There are always wealthy people in everyone’s social circle that can be approached and talked with. The people who know you are more likely to trust you, so when it comes to searching for private lenders, always look for them in your social circle first.
2. Be confident.
Realize that you’re not begging someone for their money. Present this matter as an opportunity for your private lenders. Let them know all the estimated amounts of profit and the return they'll get. Be straightforward and confident. Present yourself in a way that convinces the lender that you are willing to go out there and get it. If you do not believe in yourself, the chances are that your lender will most likely reject your proposal.
3. Present a strong portfolio.
Presenting a strong portfolio is one of the key aspects of convincing. You let the other party know the ins and outs of the deal. Conceal nothing from them. Let them know the risks and the return they should expect from their investment. In case it's a family friend or someone you know, be sure not to sound like you're asking for a favor. Maintain a formal presentation in your business plan and get yourself taken seriously.
4. Make yourself visible.
If your services are not visible to the public, expect no clients either. Use social media to its fullest and get yourself known. If you somehow manage to land a potential moneylender, ask them to let more people know about you. Start your own social media page or blog where you publicize your work and milestones. The more you get yourself out there, the more chances you have of private lenders reaching out to you.
5. Honesty is the key.
A hard-to-swallow pill is that honesty plays a major role in your line of work. If any of your lenders get to find any info you concealed from them about the deal, the trust will shatter completely. Not only will they most likely end dealing with you, but they would also get the word of your dishonesty out there. Always be honest and think of your lender’s money as your own. When making deals, do not hesitate to state your previous mistakes. This would just prove to your lender that you’ve come a long way and are experienced enough to be trusted with money.
Another piece of advice we got for you is to look out for scammers. Thieves pretend to be private lenders and trick newbie real estate agents into thinking they’re interested in lending you money for minimal charges. After you give them this fee, you’ll never hear from them again. Be sure to stay vigilant and don’t fall for their lies!
Private money is a wonderful way to assist you with investing in real estate. Be sure to always present yourself professionally and prove that you're trustworthy. If you try fishing for people's money, the chances are that it would impact your career negatively in the long run. So, become the agent you would trust and look for as a lender. We hope this guide helps you get your real estate investments running with no tension of finances!
ABOUT THE Author
Adam is a real estate investor and serial entrepreneur. With nine years of investing and more then 80 deals, Adam is an expert in everything real estate.