Funding is the first step in the process of real estate investing. Private money is one way to fund those investments with minimal risk.Long before looking at properties in which you may wish to invest, you should first get your financing in order so that when you do find that perfect fit, you can act on it sooner rather than later. Private money lending is one way in which you can fund your investments without risking your personal capital. In this article we will look at Finding Private Money for Real Estate Investing.
What is a Private Money Lender?
Private lenders are individuals or privately owned companies which loan money to individuals at their discretion and without involving banks. With a traditional bank loan borrowers are subject to boilerplate terms and regulations, which may not fit their individual needs. When dealing with a private lender, there is more personal interaction and a relationship is developed between the lender and borrower which allows for the negotiation of terms of a more tailored variety. Obtaining a loan through a bank may be difficult if any of their criteria is not met, but with a private lender, decisions are made based on more than hard credit inquiries and applications.
Finding Private Money for Real Estate Investing
Just about anyone is a potential private lender. Because private lending is relationship based, it’s most advisable to begin with your closest relations and work out from there. Begin with your personal network of friends, family, and business contacts. Just as you build a network of contacts, you can use these contacts to build a network of ‘soft money’ lenders, by asking if they are aware of anyway interested in lending. The more lenders you can bring into the pool, the more money you will have available for transactions, but the fuller the pool is, the less risk is assumed by each individual lender. Distributing and thus minimizing risk, increases the chances of landing more lenders and so the cycle goes on. If you are willing to take on more risk, you can mine the internet for soft money lenders directly or build an online network to fetter them out.
How to Pitch to Private Lenders
Once you have found potential lenders, it is your job to convince them of the reasons you believe they should invest in you. Again, finding private money for real estate investing is all about relationships. Always approach potential lenders with a positive attitude, a well-developed plan, and answers to their questions. Establishing a good rapport is not just about a successful initial pitch, but about the long-term relationship and trust you will build between yourself and the lender so that they are more likely to lend to you again when the time comes for your next investment.
Private money lending is one of the easiest ways to obtain funding, particularly for a first-time investor who holds no clout with a major bank. This is the ground floor of your investment business so be sure to build it with a smile and nurture the relationships with the lenders. They are more than lenders, they are the foundation and backbone of your real estate investment success.
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