This Financial Freedom Friday, Matt gives you 5 private money tips that will solve your real estate investing money problems for good! Learn how to get meetings with private money lenders, the extremely successful line Matt used (and still uses!) at the end of meetings with lenders, the 3 things going through a private lender’s head when you ask them for money (and how to address them), and much more.
What You Will Learn About Private Money Tips for Creating an Unlimited Source of Funds:
- The definition of private money for real estate investors
- How to connect with people who are unsatisfied with the return on their current investments
- Matt’s 5 rules for dealing with private lenders (and eliminating your money problems for good)
- How Matt got his first private money lender
- What to do if you have never had a successful deal before
- How to get your very first private money lender
- The three things you must establish with a private money lender before they will agree to work with you (and how to do it)
- How to get coffee/lunch appointments with potential lenders
- The extremely successful line Matt used (and still uses) at the end of meetings with potential lenders
- What to do if you owe your private lender money… but lost money on the deal
- How honest to be with your private lenders
- Which should come first: the money or the deal
- How to present your deal proposal to your money lender
- The 3 things going through a lender’s head when you come to them for private money (and how to address them)
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Matt Theriault: Hey all, Matt here, it’s Financial Freedom Friday.
Speaker 1: It’s time for Financial Freedom Friday with Matt Theriault.
Matt: I was thinking of what we were going to talk about today, I stumbled upon an old video the other day, it was yesterday, actually, not too long ago inside the Academy. I’m doing a lot of cleaning up in there, doing a lot of updating and upgrading and just trying to make it a better place to be and a better place to learn. What I’m finding is there is not a whole lot to clean up. I’m in there cleaning up some old links and stuff like that, found some typos. But as far as the message, the message hasn’t really changed.
It’s all the same, it’s really time-honored messages inside the Academy and it’s the way it’s always been, and it seems like it’s the way it’s always going to be. Certainly from five, six years ago when I opened up the Academy, it was about seven, eight years now, when I opened up the Academy. What it is today, I don’t really have anything new to share, so I just thought I’d share this lesson with you from the Epic Pro Academy. Hasn’t seen probably the light of day in six or seven years and the message is just as good today as it was then, and I’m about 30 pounds lighter in this video, too. So I thought I’d show myself in my most favorable light. All right, enjoy, take care.
Okay, so if you can’t get all the money you need from the seller and the buyer nor the tenent were able to close that gap for you, the next place you can look is a place called “private money.” Now, private money is pretty much just that. It is money that can be loaned to you by either a private individual or a private organization. Private money could come from say, a personal relationship that you have, or a family member, or a private company that actually specializes in those types of loans. But for the purpose of this session, I’m really referring almost exclusively to an individual. Someone that you already know or someone that you will meet in your real estate investing journey and to keep your eyes open for the right person, the good candidates.
The best candidates to loan you their private money would consist of just about anybody dissatisfied with the current return on their investments, of which you could offer them a higher return. Now, in the beginning private money was tough for me to access. It was really tough, however, after I learned a few things it became easier and easier and now it’s really easy for me to get. I’m going to let you in on my five rules for dealing with private money lenders. If you follow them, private money will eventually be very, very easy for you to get as well. In fact, if you follow these five rules then money really should never ever be a problem for you again.
But before we go over them, there are some things to do and understand first. If you are brand new to real estate investing and you haven’t completed a successful and profitable real estate transaction yet, no one is going to lend you their private money. They’ll just not, I mean, you may get lucky with someone from the “3 F’s Club,” friends, family and fools, but outside of that no one is going to lend their private funds to an inexperienced real estate investor. So getting some experience under your belt and closing some deals with some of the strategies we’ve discussed up to this point, that’s going to be priority. You’ll want to close some deals, but once you’ve got some deals under your belt, or maybe you’ve already have plenty and you’re not new to real estate investing, but you’ve never used private money before. How do you got about getting that first private money lender?
All right, so there are probably many ways to do this, but this is how I did it. I knew just from my sales background that for someone to do business with me, let alone give me a large amount of money, they’ll first need to like me, trust me, and have confidence in my competence. I believe we’ve discussed that dynamic in a previous lesson, right? I think I remember that somewhere. Just like with the motivated seller, you’ve got to build rapport. They’ve got to like you, trust you, and have confidence in your competence. It’s the same formula, first, to get people to like you, you must first like them, right? Simple. I mean, if you want to be interesting, you must first be interested.
Do you remember how to do that? You just listen to people, stop talking so much, just listen. People like to be listened to and people like people that listen to them. Second, to get people to trust you, remember how to do that? Say what you’re going to do and then do what you say. Very simple, too. Third, to get someone to have confidence in your competence. This is my favorite and it’s probably the easiest. Don’t keep your victories a secret. Let the world know about your successes, but only when they ask about them. Don’t walk around bragging and boasting, that could have the opposite effect. We don’t want that. People ask other people on a daily basis something to the effect of, “How’s it going,” or a simple, “What’s up?” Right? When you hear that, that’s your cue.
If you adhere to these three principles of creating likability, trust, and belief in your competence, it’s only a matter of time before someone asks and this won’t take that long, by the way. It’s only a matter of time before someone ask you out for coffee or lunch to pick your brain. It’s only a matter of time, because you are now likable, you are trustworthy, and most of all people will have confidence in your competence. When this happens this is your opportunity to find private money lenders, especially your first one. So take up everybody on their invitations. Accept all of them.
First, you get a lot of free coffee and a lot of free lunches, that’s a very cool part. Second, more importantly, you’ll get to answer all of their questions, to first, further convey your competence, and second, to help them out as much as you can. That’s what people should do for other people. Don’t hold back, no secrets, let them know everything that you know. Just about when that meeting is over, you might say something like, “Well, here’s what I said and I continue to say it, because it works.”
“So Mary, I mean you probably wouldn’t be asking me all of these questions if you didn’t plan on profiting on it in some way, right? And if you plan on doing that, you probably have some sort of resources to pull it off? What are you working with?” And she might say something like, “I’ve got $100,000, ” and your response is going to be, “I’ll tell you what, why don’t we partner on a deal, you put in $100,00 and I’ll put in the rest, and you can do the deal right along with me. You can take notes and you can learn firsthand how it all works. Then, at the end, you’ll get your $100,000 back and you and I will split the profit. Does that make sense?”
So that’s how I got my first private money lender and three years later that person still funds some of my deals. I mean, she’s moved on to other things, but she still loans me money and continues to introduce me to her friends, who have money as well. Now I have several private money contacts now, but it only takes one. Actually, if you follow my five rules you probably will only need one. So while you’re going on about your business, focus on the three practices of getting people to like you, trust you, and have confidence in your competence.
For you to be competent, remember, there’s no way around this, you must be doing deals, and you must be doing them successfully and profitably. Don’t skip that part. If you haven’t completed the deal yet, or you’re not doing them consistently or on a regular basis, that should be your focus right now, not how to raise private money. But once you are doing deals consistently, everyone around you, everyone one around you is going to have confidence in your competence, whether you are really talking about it or not. There’s just something kind of magical that happens and I use that word magic, because sometimes there is just no good explanation for it and oftentimes it appears to be magic. But people are just attracted to people doing good business. People want to do business with people that are doing good business, like lend them their money.
Now I have five specific rules about playing the private money game, and if you break them, you’re going to get kicked out of the game, I promise you. Okay, you’ve been warned, so break them at your own risk. Rule number one, always pay your private money person back when you said you were going to pay them back. If you do that you won’t have money problems, ever. I mean, pay them back even if your deal was a dud, even if you lost money. You figure out how to pay them back and pay them back on time. Do it with a smile on your face. I mean, even if you have to miss your own rent or mortgage payment, you do it. You got to sell the ski boat, do it. Sell the flat screen TV, pay them back. Work an extra job, do it. I don’t care what you have to do, do it. Your real estate investing future depends on it.
Well, at least with regards to using private money, it depends on it, and here’s why. Word travels fast and your reputation is everything in this business, especially when it comes to private money. I mean, you might be able to talk your way into a second or third private money situation, but if you’re not keeping your word and you’re not performing per the agreements that you’ve put in place, it’s going to be a very short investing career for you using private money.
Rule number two, do not share your horror stories with your private lender. I mean, even if you’ve paid them back, they don’t need to know how close your deal was to collapsing and how close you were to losing all of their money. Keep that to yourself.
Rule number three, if after someone has given you their private money and your deal isn’t going as good as you thought it was going to go, maybe you might find yourself in a little bit of trouble and it’s going to result in you possibly coming up short or late on your payment to them, don’t take your problems to them. Don’t call and make excuses, don’t try to renegotiate. Always go back to the seller and resolve your problems and issues with them. If you can’t resolve it there, figure out a solution, figure it out. Figure it out without involving your private money lender. You see, you want to make this such a pleasurable experience for your private money lender, so the next time they’ll have no issues or nothing to consider when you ask for a loan. Going back to the private money lender for a solution is always last resort.
Rule number four, don’t make your private money lenders have to chase you. Don’t put them in a situation where they have to call you and ask about the payment that you have yet to make. Be proactive in your communication with them. For example, if you happen to drop their payment in the mail on the day that it is due, call them and let them know. “Hey, I just over-nighted your check, you’ll have it in the morning by 8:30AM.” Maintain that type of integrity and courtesy in your business and your business will be a business, not an annoying pain in the ass, having you dodge phone calls all day.
Rule number five, don’t take a private money loan unless you know exactly how and when you’ll pay it back. You do this by first, placing your focus on finding the deal. Worry about finding the money later. I’ve learned and learned and learned that it is easier, infinitely easier to find the money for your deal when you actually have a deal, than it is to do the other way around. Second, you’ve got to know your exit strategies and you’ve got to know them well. I mean, I dedicated an entire session to exit strategies in a very elementary way so that you are crystal clear as to how each exit strategy works. You’ve got to know how your going to get out of the private money loan before you get into it.
Follow these five rules and money will never be an issue for you inside your real estate investing. In fact, follow those five rules and you will receive phone calls from people asking, “Hey, can I get in on your next deal?” That’s a promise.
All right, let’s say you got some deals under your belt. You’ve got at least one person willing to loan you their money on a deal. So let’s go over how to present your proposal to your private money lender. You’ll want to know that there are three things going through a person’s head when they’re about to loan you their money. When asking for a loan from them, you must address all three things.
The first thing going through their head is, “When am I getting my money back?” The second thing that’s going through their head is, “How much am I getting back?” And the third thing is, “What happens if I don’t get it back when you said you’d give it back?” The more thoroughly you can address those concerns when asking for private money, the easier that money will be for you to get.
Okay, first, “When am I getting my money back?” You’ve got to be clear about your exit strategy. I mean, whatever you think it’s going to be, double it. It’s better to give them their money back early than it is late. I mean, if you have it figured as a three month fix and flip, borrow the money for six months.
Second, “How much am I getting back?” Well, this is really easy to figure. As when you analyze your deal in the Epic Analyzer there is a place specifically for this. Just scroll down to the last third of the page or so and under the section “Money Costs” there is a place for the first loan amount and a second loan amount. So let’s say you already had the money for most of the deal, whether that was seller financing subject to, or maybe you’re using your own cash for most of the deal, which is allowed. I know we haven’t covered that at all, but it is allowed.
But let’s say you’re $50,000 short. You’d enter $50,000 here, then how many months you’d need it for here and at what percentage rate you’d pay your private money lender here. Now if you’re going to give your private money lender some money upfront, what we call “points” and they are percentage points. You’d enter that here. You’d then scroll down, click “calculate” and that private money loan is now figured into your deal. As you can see here, it calculates those costs into your suggested Maximum Financed Offer. Doing it that way, you know exactly how much you’ll be paying back your private money lender, and you know you’ll be able to pay them back without it impacting your minimum deal standards.
Now third, “What happens if I don’t get it back when you said you’d pay it back?” Well, this is pretty easy, too. In the contract you write a simple late payment penalty, that’s simple. For their security I’ll typically record their loan, referred to as a promissory note, I’ll record that note with a trust deed or as a lien against the property, so that my private lender actually has that real security. Basically, if I don’t give them their money back, they get the property. That’s pretty secure. That’s more security than the stock market is giving them.
So when asking for a loan, make sure you cover those three concerns for your private money lender in your initial request or presentation. And here’s why, the best way to handle an objection is to handle it before it ever comes up.