How to Coolly Handle These 2 Big Private Lender Beefs

When you are in the process of meeting with people who are possible private lenders, there’s any number of objections that you could face.

Look, there’s no way you can always anticipate every possible objection…

But I’ve learned over the past dozen years of meeting with and securing millions of dollars from private investors that there are some really common objections… and there are some really easy ways that you can overcome them almost effortlessly if you know in advance how to do just that. This way, you’re not caught off guard in a real-life situation.

So, learn from what already works from me and apply it.

Let’s talk about 2 of the biggest objections that I’ve handled aptly with private lenders in the past. You could even use this post as a script if you’d like – memorize it – and use it when necessary.

Here we go…

Typical private money prospect objection #1

“How do I know the investment is safe and secure for me?”

First of all, you can’t tell a potential private lender that a private loan is safe and secure. Even though we believe they are one of the most safe and secure investments around… the SEC doesn’t like us to use that language.

But, this question in some form or another will come up or you can address it in your presentation before the question comes up. It’s all in educating the prospect of the mechanics of the deal and the way you do business.

If you have built up trust and shown you’re credible, and the prospect understands your business… you’re very close to a ‘Yes.’

How to Overcome this Objection:

Well, feel out your prospect. However, the best way to overcome this question is to educate them on the process and the types of properties you buy… and why they are set up to be as predictable and secure as possible.

So, you ‘ll walk them through the paperwork that they get (the mortgage, the insurance binder with them named as the note holder, etc.)…

You’ll explain how they are basically becoming ‘the bank’ with the note and you’ll show them the steps and that this is done 100% professionally with an attorney or title company (which ever your state requires)…

And you’ll show them your investment criteria and explain how you only invest in a property if it is “XX LTV” (whatever LTV you look at… or if it’s multi-family it has to cash flow “$XXX” per month), which protects the private lender.

Basically, you’ll show them how they are in the same position as a bank…

And, also show them the different elements that make it a predictable and a relatively safe investment as compared to the stock market and some other types of investment vehicles.

When it comes down to it, the people who ask this question need reassurance that their money isn’t going to be lost…

So all you have to do is educate them (don’t tell… educate and show with numbers and details) about how your business works and how these elements, when put together, make for a secure environment.

And, if you have a track record of success with paying back private lenders… provide testimonials or even the phone number of a current private lender of yours that they can call (of course get permission from that private lender first ) to verify your info.

Typical private money prospect objection #2

“What happens if you stop paying me my money?”

Some potential lenders will ask this… and it’s a very valid question. In the end, the worst case scenario is that your company doesn’t pay the private lender, and the property goes into foreclosure and they get the property back just as a bank does when it forecloses on a home.

Most private lenders frankly don’t want to go through the trouble of foreclosing and having to figure out something to do with the property.

Others on the other hand, hope they will have to foreclose because if they get a property back that they lent 60% LTV on… they essentially get the property at 60 cents on the dollar… and can turn around and resell it at an even bigger profit.

If you’re working with this type of lender this question likely won’t come up.

How to Overcome this Objection:

As always, you want to be 100% upfront and honest… don’t try to sugarcoat the situation or it will come across as you trying to hide something, which will likely kill the deal.

Again, it comes down to educating the prospect and asking them the right questions.

If that question comes up at the end of your presentation you might say something like:

“Well, that’s a great question and I’m glad you asked that. Truthfully, we’ve never had this situation occur (note: if you have defaulted on a private lender, don’t lie and say you haven’t) and don’t intend to. The reason it hasn’t happened is because we pride ourselves in picking only the investment properties we know we’ll profit from even if it takes us much longer to sell the home than we expect… there’s always a large cushion in place to protect us and in turn to protect you. A lot of investors don’t give themselves this large cushion, but with the way real estate is today, we feel that we can truly wait until we find the properties that allow us this cushion to work with.

But back to your question, so speaking hypothetically, since thankfully we haven’t been through this, if it came down to it and the payments weren’t made to you , you’d be able to foreclose on the property and take the property back just like a bank would if the buyer defaulted. Then, since our private lenders loan at such low LTVs, if you got the property back, you’d own that property at a huge discount and would be able to do what you want with the property including selling it to make your money back… and maybe even more than what you otherwise would have in some situations.

And, as another service to our private lenders, we always place a pre-signed deed in escrow that immediately transfers over to you if XX happens (insert your criteria for XX for the deed immediately transferring over). This speeds up the process and gets the property into your hands immediately rather than having to go through foreclosure. Again, we’ve never had to utilize this… it’s just in place to tip the scales a bit more in your favor.

Make sense, Mr./Mrs. Private Lender Prospect?”

Something like the above conversation usually works very well with that question and objection.

Hope these will help prepare you when meeting with private lenders.

Okay, I’m listening

What other objections have you encountered? I may devote a future blog post to them. Do you have any questions or comments about these? I want hear from you in the comments section below.