Private money is one of the best-kept secrets in real estate investing. It offers flexibility, speed, and control over how deals are funded, giving investors the edge to grow their portfolios quickly and efficiently. Alan Cowgill, a seasoned investor with decades of experience, breaks down everything you need to know about private money: what it is, how to get it, and how to manage it effectively.
What is Private Money?
Private money, at its core, is capital provided by individuals instead of institutions like banks or hard money lenders. Unlike hard money loans, where lenders dictate the terms, private money puts you in control.
Here’s how it differs from hard money lending:
- Hard Money Lenders: They set the terms (interest rates, loan duration, fees). Approval involves hoops like appraisals and strict underwriting.
- Private Money: You set the terms (interest rates, repayment schedule). Approval is based on trust and relationships, not rigid processes.
This flexibility makes private money incredibly attractive for real estate investors who want to grow without the delays and complications of traditional financing.
Alan Cowgill: From the Corporate World to Real Estate
Alan Cowgill’s journey into real estate started in an unusual place: corporate America. After 25 years in the corporate grind, he realized he had to pivot or risk retiring at a poverty level.
A turning point came when his car literally caught fire during a date. Struggling with bills and wanting financial freedom, Alan decided to explore real estate after watching an infomercial late at night. Despite having no initial funding, he took a leap.
With dedication, he grew from two investment properties in his first year to hundreds of deals. His ability to attract private lenders played a major role in his success. Today, Alan teaches others the strategies that transformed his life.
Why Private Money is a Game-Changer
Private money eliminates the most common roadblock in real estate: funding. Traditional lenders focus on credit scores, repayment history, and complicated requirements. Private money is different.
Here’s what private funds solve:
- No Monthly Payments: In many cases, you pay the lender when your deal closes.
- Fewer Rules: Unlike banks or hard money lenders, private money gives investors the freedom to structure deals how they want.
- Speed: Close faster because there’s less red tape.
This flexibility allows investors to grow quickly and capitalize on great deals before competitors do.
Building Confidence with Private Money
The most common fear new investors have is running out of money. Alan emphasizes that having private lenders lined up gives you the confidence to make offers without hesitation.
When you know you can fund deals, negotiations become easier. You’re no longer constrained by what a bank will approve or how long their process will take. Confidence is a powerful tool in real estate, and private money gives you that edge.
The First Step: Starting with People You Know
If you’re just getting started, Alan recommends beginning with family, friends, and associates. These are people who already trust you, making it easier to secure funds.
For example, Alan’s first lender was his mother. He convinced her to invest by offering her a much higher return than she was earning on her CDs.
Be sure to explain how you’ll protect their money. Providing a promissory note, mortgage, and insurance can ease any concerns.
No Friends Left? Strategies for Finding Lenders
What if you don’t know anyone who can lend? Alan calls this being in the “NFL Club” (No Friends Left).
Here are some creative ways to find private lenders:
- Professional Events: Network at industry-specific gatherings (e.g., doctors, attorneys).
- High-Dollar Charities: Attend $500+ ticket galas. People who can afford these events often have idle capital to invest.
- Self-Directed IRA Custodians: Partner with retirement account providers like Quest Trust to find individuals looking for better returns.
These strategies allow you to expand your network and identify individuals with the means to invest.
The Four-Touch Rule for New Relationships
For individuals who aren’t family or friends, build relationships over time. Alan emphasizes the “Four-Touch Rule.” Connect with potential lenders at least three times over 30 days. On the fourth interaction (and after 31 days), you can comfortably discuss funding opportunities.
This helps establish trust and ensures compliance with SEC guidelines.
Paperwork You’ll Need
When working with private money, it’s essential to have the right documents in place.
Key documents include:
- Mortgage: Secures the lender’s money against the property.
- Promissory Note: Outlines repayment terms (interest rate, duration, etc.).
- Hazard Insurance: Protects the lender’s money in case of property damage.
- Title Insurance: Ensures the property has a clear title.
- Disclosure Statement: Details how funds will be used and repayment terms.
These documents protect both you and your lender, ensuring the deal is transparent and legally compliant.
Managing Relationships with Lenders
Once a lender says yes, set clear expectations. Here’s an example of what to say:
“You’ve made a wise decision! Here’s how it works. When I find a deal, I’ll call you. You’ll wire funds directly to the title company or attorney handling the closing. You’ll get a promissory note, mortgage, and insurance documents that secure your loan.”
By communicating the process upfront, you ease any concerns and build trust.
It’s also important to stay in touch regularly. If weeks pass and you haven’t found a deal, let them know. Communication prevents lenders from committing their funds elsewhere.
Tapping into IRA Money
One of the biggest untapped resources for private money is self-directed IRAs. These accounts allow individuals to invest in real estate, providing a “pot of gold” for investors.
To use IRA funds, you’ll need four key forms:
- Open Account Form: Sets up the self-directed IRA.
- Rollover Form: Moves money from an existing 401(k) or IRA.
- Direction of Investment: Sends funds to the closing table.
- Payoff Coupon: Ensures the lender gets their return.
Work with a self-directed IRA custodian to simplify this process and ensure accuracy.
SEC Guidelines for Private Money
Navigating securities regulations is critical in private money. There are both state and federal rules to follow.
- Family, Friends, and Associates: You can raise up to $1 million annually within your state from people you know. Some states allow higher limits with additional filings.
- Regulation D (504): Raise up to $5 million federally, with the ability to advertise.
- Private Placement Memorandum (PPM): Ideal for large-scale projects, with unlimited investment caps.
Consult an SEC attorney to determine the best approach for your situation.
Conclusion
Private money is one of the most powerful tools in a real estate investor’s arsenal. It allows you to secure funding quickly, scale faster, and build lasting relationships.
Whether you’re just starting with family or leveraging IRA funds, the ability to set terms and operate without restrictions is a game-changer. When done right, private money can transform your business and unlock opportunities you never thought possible.
If you’re ready to learn more, check out Alan Cowgill’s resources at PrivateLendingMadeEasy.com. For a deep dive into private money strategies, visit Propelio Academy and watch Alan’s expert videos.
Your next deal might just be one conversation away!
