How to Raise Millions in Private Money
By Scott Meyers
If you’re being challenged by recent market changes or struggling from a lack of cash, here’s a solution for you.
Raising and using private money can help you enjoy more profits in a slow, normal, hot or post-hot real estate market. I want to help you start buying more, and holding more self storage facilities all without ever using any of your own cash or credit.
Many cities and counties across the nation have recently shifted from a hot or normal market to a more challenging market. This is especially true for regions like California, Florida, Washington D.C., etc. If you’re having any trouble collecting cash when you buy, collecting positive cash flow each month or building long term wealth by capturing lots of equity, this article will give you the competitive and strategic advantage you want and need to achieve your financial goals as a creative real estate investor.
One of the keys to some of our most profitable strategies (that are working best right now) is finding, nurturing and using private investors as part of your commercial real estate operation.
The benefits of developing your private lender program and lining up dozens of investors eager to give you cash are substantial and significant:
First, you can begin buying some small facilities for ‘all cash’ at significant discounts… up to 70% off retail value.
Second, you can structure offers on real estate that have lots of equity… receiving $tens or hundreds of thousands more of your profits in advance… in cash… on the day you buy… even if you plan on holding a property for many years.
Finally, you can turn many non-deals with no equity into super profitable deals with substantial equity by paying off existing debt at a discount… using private money.
Steps to systematically raising private money:
1) Create your program so you can explain it to others
2) Write your 60-second elevator speech
3) Build your information and credibility kit
4) Create your presentation
5) Flap your lips to everyone you know
6) Follow up on your leads
Understand lots of people that you come in contact have idle cash savings or retirement funds that are experiencing little or no growth. Offering double-digit returns secured by commercial real estate is a great opportunity for them. Your private investors can enjoy higher profits… thanks to you. And you can make for money, thanks to them.
It’s quite simple…
1) Create your program so you can explain it to others
Private Lender Program – EXAMPLE:
| I pay my private lenders 9% interest on a first lien. I prefer paying monthly interest only payments supported by the income on the property but I can pay principle and interest if needed. Interest only payments keep my lenders entire investment working and they make more money.
I pay my private lenders 11% interest on smaller second liens. I prefer to have their interest accrue with no monthly payments. My investor can earn interest on interest and I can avoid a negative monthly cash flow. I prefer making no payments on a first or second lien when rehabbing a property that I expect to be sold and cashed out within 6 months. I prefer my note payments are due on the 15th of each month allowing the properties income to help cover the payment. My minimum investment is $50,000. I am confident that I can payoff an investor early with 60 days advance notice by replacing them with another private investor. I offer a minimum earned interest of 6 months in the rare case I pay off my investor in less than 6 months. Since they probably do not want their money back that fast I will attempt to substitute the collateral or reinvest their payoff into another property. Interest begins on the day their cleared funds are received by my closing or escrow agent. I will never pool funds together. If I need more than one lender to fund a deal I will give one lender a lien and the other lender a junior lien. I will buy my lender title insurance when acquiring a new property. I may not buy a lender title insurance policy if I’m borrowing against a property I already own. I always keep valid hazard insurance on all my properties and each and every lender on the property will be added to the policy as a mortgagee. I will never accept private money from my lender until they have received an original promissory note and the security instrument (deed of trust) has been sent off for recording. I will never pressure an investor to do a deal. It’s pass or play. If they pass I will offer it to my next lender waiting for a deal. If I cannot find private money I will use hard money lenders as a back up. I structure my offers taking into account the cost points and higher interest I might have to pay to a hard money lender. Using a private lender instead just increases my profits. If I can’t raise hard money or private money from my existing contacts then perhaps the deal is not really a deal. I keep all my promises. If a lender wants me to sign personally I will do so since I am committed to take care of them first if anything goes wrong with the deal. However, I never offer to ‘guarantee’ my lenders investment as that may violate federal or state rules and regulations related to securities. I prefer to sign as trustee or as president. I follow state and federal rules and regulations related to offering securities and seek expert legal advice as needed. |
Now create your own program using the example and ASK YOURSELF…
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Will you pay simple interest or compounded interest?
Will you pay a higher interest for no monthly payments? Will you do second liens, and if so, will you pay a higher rate? Do you ever want to make quarterly or annual payments instead of monthly? What day of the month will you pay all your notes? What is your minimum investment? How will you handle a lender’s request for early pay off? How quickly can you respond to such a request? Will you offer a minimum earned interest or prepayment penalty? When will interest begin? What will you do if you need two lenders on one deal? |
2) Write your 60-second elevator speech
How can you quickly grab someone’s attention and peak their interest about your private lender program? What do you say to someone you know or meet? Review these examples and then develop you own, brief script. Then practice it.
Example #1:
“I’m a professional investor of commercial real estate and Self Storage Facilities throughout <area>. I buy and turn these facilities around and can offer my sellers a quick and easy sale. We make excellent profits helping our buyers and sellers and that allows me to offer a high rate of return to my private investors. Do you know anyone who might have cash savings, other investments or retirement funds that are not consistently and safely getting them a high rate of return…”
Example #2:
“My company is always looking to buy properties each month throughout <area>. We can pay all cash and close within a few days if needed. When we pay all cash for our properties, we use private lenders and pay them a very high rate of return. Do you have any idle cash or retirement funds that are not getting you a well-secured, double digit return…”
Example #3:
“We buy self storage facilities and when we use more cash for a facility, we use private lenders. We pay 9% to 11% on notes secured by local real estate. If you are not getting that type of predicable return on some of your money, I’ll be glad to get you the details. We could sit down sometime, whenever you like and show you how it works. Or I could send you some info. If it looks good just let me know how much you’re looking to invest and how long you can have your funds tied up. I’ll put you on my list and look for an investment opportunity that meets your needs. When I find one, I will call you. At that time you can pass or play. There’s no obligation.”
Example #4:
“I?ve been building my real estate investment company here in <area> over the last <X> years. We buy a number of properties each month and in some cases we can pay all cash quickly and easily. That’s because when we buy facilities with all or a great deal of cash, we use private lenders. My private lenders can make 300 or 400% more money than they can get sitting in a savings account or in bank CDs. Do you know anyone that might have a retirement account or some other investment that is not paying a consistent 9 to 11%? That’s what I pay on notes well-secured with local real estate.”
3) Build your information and credibility kit
Here are some ideas to help you put together an information package for prospective clients. Always carry some kits in your car and a few standing by to be mailed out. Much of what would go into your kit can be used with buyers and sellers also.
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4) Create your presentation
Use a written outline, brochure or PowerPoint slides to cover all the important benefits of your private investor program. Use examples, answer common questions or objections, include testimonials and have a call to action.
5) Flap your lips to everyone you know
Always be on the lookout for an opportunity to deliver your elevator speech. Explain your program to anyone who shows an interest. Many of your best prospects will not be wealthy. Offer to mail information to anyone interested. Set appointments whenever possible to more fully explain your offer or to deliver your prepared presentation. Work your “warm list” before ever cold calling or cold mailing.
Your warm list includes:
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6) Follow up on your leads
Close for a phone appointment, office meeting or lunch. Deliver your presentation one-on-one by appointment. Take a new prospect to lunch once a week. Add your goal for 4 appointments to your monthly marketing plan. Follow-up after appointments with phone calls, postcards and letters. Add new lender marketing campaigns for generating new leads to your monthly plan.
In Conclusion
There you have it. Six steps for getting more private money. Now for some good news… all you have to do immediately is step 1 and step 5. There is no need to what until everything is perfect to get started. Build this bicycle while you are riding it. Perfect your elevator speech and lender presentation as you’re flapping your lips to everyone you know… and lining up cash for when you need it.
To Your Success,
Scott Meyers
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Dugal, I’ll have my director of education contact you if there are any seats left for the Spring Semester of the Mentoring Program. His name is Jim Walker, and you can reach him at 877-662-5924. thanks!