A private lender is a person who uses their own financial investment for a return on a real estate transaction.
A private lender can be a friend, a neighbor, a coworker, a family member, or a person you meet in search of investors for real estate deals. The most important thing to remember is that private lenders are not affiliated with institutions that they are someone who is willing to invest their capital for a promising return on investment.
Private lenders are great because they can move on a deal much faster than institutions can and they often don’t have the strict standards that institutions have. Plus, these people can be all around you.
Still, most private lenders are very savvy in one of their own set of criteria for analyzing their money.
Let’s identify five great ways to secure money with private lenders for real estate deals.
#1: Know Your Deal
You need to know the insides and outs of the real estate deal you are seeking investor money for. Most likely, the private investors will have previous experience as real estate investors. This means they will have solid criteria for analyzing deals and you have to prove to be up to snuff as well.
Common questions private lenders may ask, which you should have answers for include:
- What is the expected ROI on my investment?
- What is the timeline to receive my money back?
- How will you ensure you get my money back?
- What risks are involved in this deal?
- What is the ARV – after repair value?
- What is the exit strategy?
#2: Build Your Network
Once you have answered all of these questions that real estate property you are considering, the next thing you need to do is build your winning team.
You should network with:
- Other investors
- Real estate agents
- Property managers
- And other related professionals
All of these professionals make ideal potential investors and referral partners for your real estate deals.
#3: Craft Your Sales Presentation
When you start to get people who are interested in learning more about your opportunity, it will be important for you to have a compelling sales pitch prepared. This sales pitch should include important details such as:
- Company Overview
- Track Record of Past Deals
When discussing your track record of success, you should consider going into detail by showcasing specific property deals that you’ve completed. You should show before and after photos, hard costs, profit numbers, other important information.
The underlying message of the sales pitch should answer the big question of what makes you the best choice for their investment capital.
#4: Choose Your Private Lender
This is where the tables turn and you do the work of analyzing the private lenders who have given the green light to invest with their funds.
It’s important that you understand the:
- Loan terms and interest rate that the private lender is proposing
- Time you have to pay back the loan
- How quickly interest will accrue
- Lend based on house’s current loan value or after-repair value
- Potential fees
- Upfront fees
- Lender’s schedule
#5: Pitch Perfect
When making your pitch, start by focusing you the important numbers of the deal and timeline. Be ready to answer questions for your potential investors to put them at ease. Share your goals and vision with the private lenders to build their interest and excitement about the deal.
All of this will ensure that your private lender hunt will be more successful. With these tips, you’ll find that securing private lenders is not as difficult as it appears.