If you want to raise private money for your real estate deals you must know what private lenders look for: Good deals and good borrowers!
Capital can open many doors in the real estate investing business. But many new real estate agents are intimidated at the thought of sitting down with a private money lender and requesting funding. As a result, they delay or postpone meetings, causing their business to suffer.
However, there is no need to be timid when dealing with private money lenders. They want to work with you just as much as you want to work with them. But the thing with most private money lenders is that they are not well-versed in the real estate business.
That’s the reason why before pitching deals to private money lenders, you must first gain their trust by establishing value.
In the beginning, it may seem impossible. Later you will find that there are things you can do that will give you an advantage. If you make the right moves, you will secure funding that will make everyone money.
Best Tips to Build Trust with Private Money Lenders
Have Integrity
Be trustworthy. Do what you promise, and follow through with whatever you promise.
Make sure you’re trustworthy by doing diligent research and looking professional. How you present yourself is as important as what you’ll do with their money.
The most common reason for hesitation is a lack of experience. They don’t know you as a person or real estate investor. The good news is that a good personality and well-thought-out preparation can make up for an agent with no track record. Showing up with a half-hearted plan won’t do much good.
Be Yourself
Real estate is a people business, so you need to find opportunities for light humor in these meetings. After all, real estate is a business involving people. Feel out the respective lender and establish a harmonious working relationship early on. If they leave the session feeling that they know what you are about, they will instinctively trust you.
Most people can see through a canned sales pitch, and most dislike a smarmy salesperson. Just be yourself. If you don’t have much experience, don’t invent it. Be truthful. Get people excited about getting in on the ground floor of a good deal. If you have been doing it for a while, be modest. Nobody likes a braggart. Establishing trust by being yourself can go a long way toward helping your business.
Listen to Find Out Your Lender’s Goals
Real estate investors often succeed by listening. Don’t just think of yourself and your needs. It would help if you also listened to your potential private lenders.
Why are they looking for this? What are their goals? Are they seeking steady income or high rates of return? Are they looking to turn their money quickly? What will make them feel secure? Do they want 70% after repaired value or 70% loan to value? Listen and find out!
Align Your Needs with Your Lender’s Goals
Rather than simply pushing your deal to a prospective private money lender, you ought to determine whether your goals and expectations match the private money lender’s requirement.
As soon as you understand your lender’s needs, you can start looking for a deal that meets both your requirements. You may need to adapt your actions a bit, but that’s OK. If you provide what people want, they’re more likely to do what you want. Imagine how thrilled the lender will be when you locate an excellent deal that fits his requirements.
Collect and Show the Right Documents
If you have never borrowed money from a private lender before, you ought to think about the risks the lender faces. A private money lender, just like a bank, is concerned with repayment and return.
Private money lenders take a closer look at your finances, not just your debt-to-income ratios and proof of income. However, they still need assurances that you can pay their note on cases when the rehab takes longer than expected or encounter other issues. In preparation for your meeting, make sure you have any financial information and current portfolios ready. The more information you have, the better will be your chances of hearing yes from a lender.
Finances aside, private money lenders want to know how and when they can expect to receive their investment back. Give specific examples based on your track record. Even if you don’t, you can demonstrate how you would proceed if you received the funds.
Explain Things in Clear and Simple Language
The most important thing you can do is be prepared to speak the language of any potential contact. Although it may seem obvious, you should think about every possible way the conversation may proceed.
Private money lenders are concerned about returns, but they also want to see how well you stand against other investors. They want to invest in a person who can offer them good value and a return on their investment.
Remember that a confused mind is likely to say no, so don’t spout out all sorts of technical terms. Most new lenders certainly won’t understand and will get turned off or confused.
Instead, keep it simple. Tell them what you do, where their money goes, and when they’ll get paid back. Usually, they only care about that.
Know the Numbers
To come across as a confident investor, you have to convey this confidence. Otherwise, you will appear volatile under pressure, and you will seem like someone who doesn’t deal well under pressure.
You will be asked if you plan on getting deals and how you intend on generating leads. You can also bring a few potential deals to make the meeting more exciting.
Private money lenders need to be your ally. The more lenders trust you, the more freedom you’ll have to act fast and close more deals.
Being confident in your investing abilities will make you trustworthy.
Communication is Key to Any Transactions
Don’t just negotiate a deal, then stop communicating with your lender. Either way, the lender needs assurance that they made the right choice. The only way to do that is through regular communication.
Send them updates and pictures to make sure the money is spent wisely. Keep them informed. It will smooth things out down the road. Most problems are usually a result of a lack of communication.
Prepare the Papers
Paperwork is the way to go in the world of real estate. Be prepared to utilize an experienced closing attorney and draw up the loan and deed documents. Make sure the appropriate documents are correctly recorded in the public records.
Maintain a Good Working Relationship
You should be aware that investors will usually start by lending you a small percentage of what they can. They might also charge you with higher interest rates initially. Trust must be developed. When you follow through, the relationship will grow, and the money available will increase.
Conclusion
Any real estate investor with a solid capital position has an advantage. The best real estate investors possess real estate skills and resources and access to working capital from private money when they need it. Real estate private lenders are helpful in this regard. Moreover, private money loans have relatively easy qualifying terms.
Investing in real estate with private money lenders can help spur more deals and improve your success rate.