How to Get Funding with Private Money
A private money loan is a loan between you and another private person. It could be a friend, a family member, or a business partner. The best part? You can structure it however you want as long as everyone agrees. There are no strict rules except the ones you make. But before you jump in, remember that you need to be generous. If you offer fair interest rates and fees, people will want to keep doing business with you. If you mess that up, you will run out of lenders fast.
Private Money vs Hard Money
It is helpful to know the difference here. Private money is usually a short-term loan based on the value of the property. It is quicker to access than a bank loan because there are fewer regulations. Hard money lenders, on the other hand, are professional companies in the business of lending. They use assets like your home as collateral and have more structured rules. Both are useful, but they serve different purposes.
Where to Find Private Lenders
You do not need millions of dollars. Most of the time, you just need enough to cover down payments and closing costs, which is usually between $10,000 and $50,000. There are three main tiers of people to talk to:
- Tier 1: Friends and family. This is your hot audience. These are the people who already know and love you.
- Tier 2: Friends of friends. This is your medium audience. They might not know you personally, but they trust the person who referred you.
- Tier 3: Everyone else. This is your cold audience. You will have to build trust from scratch by showing results.
How to Build a Connection
To find the tier 3 people, you can search public records for mortgages that were not provided by a bank. If you see a name or an LLC, that is a potential private lender. You can also use tools like PropStream or DealMachine to find this info. Once you have a name, reach out and start building a relationship.
Tell everyone what you do. I like to say, “I help people make money investing in real estate.” That is it. Simple and clear. I practice saying it everywhere, from the dentist to the post office. The more people know what you do, the more likely you are to find a deal or a lender.
Show Your Work
Social media is basically social proof. Post your deals with real numbers and before-and-after pictures. People love to see the transformation. You should also create an experience portfolio. This is a professional deck that shows all the deals you have done, including the purchase price, rehab costs, and profit made. It shows that you are a pro and that you get results.
My Own Experience
I have worked with my mother, my grandmother-in-law, and childhood friends. I know it can feel weird to ask people you know for money, but lead with service. You are giving them an opportunity to make more money than they would at a bank. For example, my mother lent me $40,000 for a down payment on eight duplexes, and it was a total win for both of us.
The hardest part about asking for money is usually just thinking about it. Once you are in the conversation, it gets easier. The worst thing that can happen is they say no. Your ego might feel a bit bruised, but you will still be standing. So pull on your deal-making pants and start making those calls.
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