How Do You Find Private Money for Real Estate Deals?

Posted by on May 16, 2013 in Blog | 10 comments

Ask the Pig

Question:  Do you know of any local private money lenders? 

Keith H. – Navarre, Florida

That’s a great question, Keith…and you probably won’t like my answer.  Yes, I do know of some, but I won’t give you their names.  And to understand my answer, and why I would be so protective of my personal lenders, you have to understand the nature of private money and the difference between it and what is often referred to as “hard money”.

Traditional financing (FHA, VA, conventional) is both “borrower-driven” and “property-driven”, in the fact that both the borrower and the property have to qualify for the loan.  The borrower has to have a good credit score, a sufficient down payment, and a low enough debt-to-income ratio, Money Housewhile the property has to appraise for the contract price, and not have any major repairs or renovations needed.

In contrast to traditional financing, hard money is almost exclusively “property-driven”, which means that the borrowers finances or credit history don’t play as large of a role in the approval process.  The lender uses the value of the property, and the loan-to-value, as the main criteria for approving the loan.  The lender wants to make sure that in the case of default, there would be sufficient equity to foreclose on the property and re-sell it for a profit (or at least get their money back).

In the crash years of 2007-2009, hard money became either non-existent or had more stringent “borrower” qualification rules, however good ol’ fashioned hard money is coming back into the marketplace as the economy improves.  The down side to hard money is that it is very expensive, many times costing 5-10 points (5-10% of the loan amount in fees), as well as 12-15% interest during the life of the loan.  The positive side to hard money is that it is readily available, and can be obtained by those with less-than-stellar credit histories.

Private money, on the other hand, is the absolute holy grail of creative real estate financing because it is neither “property-driven” nor “borrower-driven”, but rather “relationship-driven”.  Private money lenders loan money because they believe in the individuHandshakeal person, and the presentation that they have made in regards to the returns that they can provide based on a track record of successful investing.  That is why I wouldn’t share my private money contacts with another investor, because that particular private money lender is investing in ME, more than he is in a property or credit score, and that trust is not easily transferred to another individual.

If you want private money, you have to go out there and hustle it up.  Yes, there is in fact W-O-R-K involved in becoming successful, and you will have to convince people to buy into your vision.  The quickest and easiest way is to put together a business plan, and present it to those closest to you who have money to invest.  They already know, like, and trust you…and know your character and integrity, so it’s one less barrier you have to overcome.

However, if you are a brand new investor, you may find that it’s a lot easier to just stick with wholesaling, joint venturing with experienced investors, and/or use hard money until you get your proverbial “feet wet”.  You will find that it’s a lot easier to get private money, when you have a story to tell.  Just the other day, I was having lunch with a high net worth individual, and he was asking me questions about my investment business.  By the end of our chat, he had offered me $100,000 to invest in my business, based primarily off my recent successes and “my story”…which you must take the time to build for yourself.

So, there you have it…a crash course in the world of creative real estate financing.  Want to learn more, and get a list of hard money lenders for your real estate deals?  Then join us at next week’s fr.ee workshop, “Flipping Houses in Today’s Market” at the Pensacola Civic Center.  Register now by clicking here!

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10 Responses to “How Do You Find Private Money for Real Estate Deals?”

  1. I’m a local inventor in the Pensacola, FL market and currently own a total of 10 buildings with 13 leases I manange. I’ve been looking to get hooked up with some hard money lenders so I can continue to grow my current business. I work in Yacht sales at MarineMax Pensacola, FL and do Real Estate Investing as a second job. Currently, I own 6 out of my 10 properties fee simple and have an established track record. Hopefully you can direct me in the right direction to meet high wealth individuals and access to hard money. Thanks for the help and great blog.

  2. Penny Feeser says:

    Matt, can you give me a list of your hard money lenders. Don’t know if I will use them, but doesn’t hurt to check with them. Your talk the other night was good. I wish you much success. Looks like you are well on your way. I have been doing this for 35 years and have purchased hundreds and hundreds of houses. Wish I still had your energy. Keep me posted on your real estate ventures. We are always looking for deals and you seem to have the energy to get them done.

    • Hi Penny,
      I am a Pensacola, Fl resident looking for hard money to start flipping property. I am a tenacious, highly motivated young man with a passion for success. I am confident that I can ensure a great return with the right investor. Please let me know if you are available to discuss any possible opportunities.

      Sincerely,
      Chris Tash
      Ctash2828@aol.com

  3. George Conner, Jr says:

    Hi. I am back to REI. I am polishing up my knowledge after a long absence and is in the right place with the right people (P.I.G)to succeed. After the housing market collapsed, I put my head in the sand. Now I am looking for properties to wholesale and hard money lenders that I once had in my REI business; just to get some sales and brochure as you mentioned to show the private lenders. I am more than sure a few have gone belly-up. I don’t have a website. Is one really needed at this time? Thanks very much for starting another REI club. I missed them. Take care. See everyone on the 18th.

  4. Sonia Moody says:

    Hi Matt.I have been to two of your seminars,I am now a member of Pig.I would love to be a flipper but do not know where to start.Please give suggestion.

  5. Murray Marderosian says:

    I have a commercial building and.require an investor. My cell is 850 776 1857. Not a better flip in Pensacola.

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