Private Money Checklist
I’ve had a lot of folks asking me about a little PDF my team put together last week about “Our Six Step Process to Private Lending” and I wanted to give you guys a little “deeper” response. For a lot of newer investors, the idea of private money can be VERY daunting, but it doesn’t have to be.
In fact, traditionally, ALL money was private. As some of you can no doubt remember, interest rates in the late 1970s and early 1980s – hovering at 20% – drove a lot of deals into private money. Even today, for many real estate investors, banks are simply not an option. Whether due to their own rules on financing or their current situation with leverage and cashflow, many of the smartest investors prefer to keep their money and credit out of deals.
This is the world of private money investment and it’s far easier to become involved in than you might have ever thought. In fact, I like it so much that my team and I have actually developed a special three-day training on it. A truly deep dive into how to find and use private money in your own investments in my Private Money and Syndication Summit on December 5, 6, and 7 in Austin, Texas.
If you’re ready to get involved with private money lenders, here’s a strategic view of the process, step-by-step, for how you can structure your own deal using private money. Stay tuned, too, because I’ll be sharing some other pieces in the coming weeks for becoming your own private money lender!
- Building Your Network – Chances are, you already know individuals with high net worth that invest in real estate. They might be doctors, attorneys, or even the millionaire next door. You never know until you ask, so make networking a part of your overall real estate and self-storage investment strategy.
- Finding the Deal – Here’s one HUGE secret – the bets private money deals aren’t offered in traditional markets. You’re not going to find them listed for sale online or with a sign out front. Here, the value of your network takes it’s first critical step … getting you in front of sellers who are ready to do business with private money.
- Valuing the Deal – EVERBODY has their own “secret” way to arrive at an offer, but how good is yours, really? I got sick and tired of all the crazy formulas, so I actually built my own code and software – the Valuator – to allow investors an easy way to understand the costs, the offer pricing, and the ROI on any self storage investment. This makes it perfect for using other people’s money, because your costs and returns are completely transparent. Remember, though, if you can’t measure it, you can’t calculate it – a property is only worth what someone will pay for it!
- Qualifying the Deal – So now, you’ve got a realistic value on an investment, you have qualified investors with private money you can reach out to, how will you qualify this deal to those investors? The truth is, every investor has different rules they’ll use and every deal has different options. You absolutely need to be able to validate your due diligence to any investors and you need to be clear on the actual costs of that private money. Will they have ownership? Are they simply holding the property as collateral until you pay back the note? You must be able to offer win-win opportunities to your private money investors AND know what strategies are aligned with your own investment and ownership goals.
- Applying for Funding – In the world of Private Money Investors, every individual and company offering money is going to have different ways for you to apply for their funds. In a Syndication, you’ll have SEC involvement, but in the case of a wealthy individual, they might simply tell you when and how they want their money repaid and the percentage of interest and points in the loan. Which one is better? It can be a HUGE question mark and a real point of concern for you. The wrong relationship or the wrong deal can sour your reputation industry-wide, so make sure you’re incredibly clear on the “how” BEFORE you finalize funding.
- Finalizing and Closing the Deal – Finally, it’s time to close! You’ve got clear Title, money in Escrow, the perfect terms for repayment of the principal and/or the ownership structure for the lender.
If you’ve done everything correctly, you’ll have created a valuable partnership with a private money lender. If you’ve done something wrong, you could be saddled with hundreds of thousands of dollars of debt and a bad deal that makes your next one nearly impossible. Keeping your lines of communication open and remember – NEVER say “no” for the other guy!
That’s it! Are there faster ways to do this? Of course. I’ve been active in the private money world for decades, and even though we do a lot of deals through syndication, many of our deals are also done with private money lenders. The advantages are easy to see and, since these loans are almost always non-recourse, your credit and your personal assets can be protected far better than going to the bank for a loan on a self storage facility (Or any other real estate asset, for that matter).
Again, if this is exactly the type of financing that makes the most sense to you, then keep checking back, as I’m planning on sharing a few more “private money secrets” in the coming weeks. If you’re really ready, though, check out my Private Money and Syndication Summit on December 5, 6, and 7 in Austin, Texas.