There are two primary ways that private money loans are structured… as an equity or debt investment.
Private Money Loan Structuring – Equity vs. Debt
With an equity investment, you’re giving your private lender a portion of the ownership in the property. What portion? It’s up to you. But, I’ll give you an example from one of our students below.
With a debt investment, your private lender is paid a specific rate of return. This is how I’ve structured most of my private money loans. Why? Because most of the time, it’s more profitable. And by retaining 100% ownership of the property, you remain in full control.
Neither structure is right or wrong… just different.
How PMBP Student Justin Wilmot Structures Loans
Justin Wilmot, one of our students kicking serious butt in the Florida market (he’s done more than a dozen deals in the last year since getting started), structures all of his deals straight 50/50 partnership with his private lender.
So, he chose the equity investment route.
… and he never has to worry about financing again.
He brought in one private lender with deep pockets and started doing deal splits. It worked out great for him and his lender so they decided to go into business together.
With cash to close deals at Justin’s disposal, he simply focuses on finding and closing great deals.
How PMBP Student Rob Russell Structures Loans
He offers anywhere from 5 to 10% interest per annum and consistently gets private money on the low end of that range. Whoohoo!
Rob shared a cool story about a “Loaded Dentist” recently who contacted him through his PMBP website. After chatting a couple times and meeting, he had a commitment for private money at 7% per annum… no fees, no points, no hoops, no B.S.
Also, you may be wondering…
How Does Your Private Money Lender Get Paid?
Do whatever makes sense based on your deals, your business model.
If you’re doing long term private loans (anything over a year), maybe you distribute the interest earned or profits over time… through monthly, quarterly, or annual distributions.
For short term loans, you could let it accrue until you cash it out.
It’s up to you to determine.
Got a comment or question?
Toss it into the comment area… let us know how we can help.
P.S. – In our full Private Money Blueprint system, module 4 is called The Nuts and Bolts: The Essentials and Specific Steps to Every Private Money Transaction. We cover – step by step – exactly how to close a transaction and give you all the paperwork… and that’s just one small component of our overall private money getting system.
P.P.S. – Need some inspiration? Check this out
Before we dive right in, answer these questions for me …
= > “Are you frustrated because you can’t get your hands on the cash you need for your real estate deals?”
= > “Are you scared to make an offer for fear that it will get accepted?”
= > “Have you ever lost a great deal because you didn’t have cash to close it?”
= > “Is a lack of financing killing your real estate investing dreams?”
If you answered “yes,” to any of the questions above, then private money may be THE solution for you.
To find out, let’s take a quick crash course in private money … aka Private Money 101.
What is private money?
Private money is cash from an individual that is lent to you, the real estate investor, rather than being invested traditionally through stocks, bonds, mutual funds. When you think about private money, think investment funds from an individual … any individual.
Is private money the same as hard money?
Far from it!
Hard money lenders finance deals for real estate investors as a business. They lend to investors based on the property, not necessarily based on the person. The hard money lender dictates the terms of the deal to you, the investor.
A typical hard money loan has high interest, points, and is short term. For instance, I purchased my second deal with a hard money loan. I was charged 15% interest, five points (or 5% of the loan balance), and had a term of six months to repay the loan in full.
Do you see why they call it “hard” money?
On the other hand, with private money, you dictate the terms of the loan to your private money lender. Based on the deal and your business model, you offer terms that suit your needs and provide a good return for your private lender. A typical private money loan could have 6% to 10% interest, no points, and a term that suits your exit strategy.
What type of properties can you buy with private money?
The primary niche for my real estate investing business is single family homes. But, single family homes are not the only type of property you can buy with private money.
Trevor only buys apartment buildings. He has been investing for several years now and has accumulated a nice portfolio. Each property cash flows well, is managed by a professional property management company, and is in or near his local market.
And how do you think he finances every one of his purchases?
You guessed it … Private Money!
Any great real estate investing deal can be financed with private money; it doesn’t matter if it is a house, condo, townhouse, apartment building, skyscraper, or beach front home.
Do you have to do lender luncheons to get private money?
One of the popular methods taught to get private money is to host a lender luncheon. You would be required to rent a facility, advertise to fill the room, and you would present your private lending program in front of the audience. While I believe this to be a good strategy for some, hosting a lender luncheon is not a viable strategy for most.
Why you might ask?
The number one fear in our country is public speaking. And you know what is number two … death! Most people would rather die that speak in front of an audience. Even if it was easy to get private money by hosting a lender luncheon, the majority of people would not do it.
So the question still remains, “Are lender luncheons required to get private money?”
Luckily for you, the answer is “no.”
I actually found that it is easier to get private money by presenting your investment program to prospects one on one. Plus, you don’t have to spend money to rent a room at a restaurant or hotel, pay for marketing costs, deal with the anxiety of presenting in front of an audience, etc. etc.
What types of people are the best private money prospects?
The first type is people who know and trust you. This could be a family member, long time friend, neighbor, someone from church or school . . . really anyone that you have built a long term relationship with could be a good source for private money.
The second is people who know a good deal when they see one. Anyone who works in a field related to the real estate industry could fit in this category. Examples would be real estate agents, mortgage brokers, bankers, appraisers, home inspectors, attorneys, accountants.
And yet another type most likely to lend to you is the best source of all . . . people who know someone who has invested with you. Or, in other words, referrals! Once you get your private lender base established, ask them who they know that would also like to make a good solid rate of return backed by real estate.
Would my local real estate investing association (REIA) be a good place to find private money?
Yes, it would!
REIA meetings are filled with people who have heard real estate investing is lucrative, want to make money doing it, but do not have the time, energy, motivation, or know how to do it themselves. That’s where your private lending program comes in …
You offer a hands off real estate investment with a good return. Your private lender gets to “invest” in real estate without having to deal with the hassles that come with owning property like repairs, managing contractors, dealing with tenants, and other general property management duties. All they have to do is stroke you a check.
People who attend REIA meetings are already sold on real estate investing, all you have to do is sell them on lending against one of your deals.
How do you convince someone to lend you private money?
That is coming from the wrong mindset. You’re not out to “convince” anyone to lend money to you. Your goal is to educate people about your investment opportunities. If someone is interested, great. If someone is not, next.
Class adjourned. That’s it for your crash course, Private Money 101.
If you have any questions, comments, or additional tips, throw ’em in the comment area.
Happy Private Money Getting!
– Patrick & Trevor
Some places are better (and easier) to get private money than others.
So, you may be thinking, “what are the best highest impact places to easily get private money?”
In a moment, I’m gonna share 3 of these places with you in a video I just shot for ya. .
So, get out your pen and pad because class is in session. Prepare to get schooled.
3 HIGH IMPACT Places to Get Private Money Now
Watch the video NOW!
So, now for your homework …
Pick out 1 of these places and GO! Set a date for when and do it. Action is the key here.
So, networking is a GREAT way to get private money. And is the primary way that I’ve gotten most of my private money ($6 million plus).
But, as I mentioned to you at the end of the video …
How many of you want to get private money without networking?
How many of you don’t have family and friends with extra money to fund your real estate deals?
If that’s you, we’ve got somethin’ for you too.
So, keep your eye out soon for a brank spankin’ new in-depth presentation on an old (but little known) private money getting method that we’ve perfected over the last 8 months.
You’re gonna LOVE this!
P.S. – What other spots have you found to be HIGH IMPACT places to get private money? Be a giver. Share ’em in the comment area.
Shae Bynes, of Good Faith Investing, has created what we like to call, “Private Money Momentum”. And it’s a beautiful thing!
It ‘took her a minute” (in her words) to get private money … but once she roped in 1 private lender, it only took 49 days to get 2 more.
We chat with our students a good bit through Twitter and Facebook. Check out her tweet below about getting her first private lender …
And exactly 49 days later, Shae updates us over on Facebook …
A quick shout out to Mike Henninger, of The Tattooed Investor, for saying, “PMBP rules!!!”
Big Congrats to Shae for following the Blueprint and getting private money.
Catch ya later,
… aka P-Rid
P.S. – If you’re still struggling to get private money (and you’re at risk of missing out on the greatest time to buy real estate that we may ever see in our lifetimes), plug into the Private Money Blueprint System. Many other smart investors already have.
** These private money results are not typical. The “average” person doesn’t take any action, and therefore, gets no private money.
Before I share it with ya …
Have you ever been stumped by an objection raised by a private money lending prospect? or maybe you weren’t stumped, but didn’t get through to the prospect and persuade them to become your private lender. Has that ever happened to you?
Let’s face it. It’s happened to all of us.
But, if you’re sick and tired of letting objections handle you (instead of the other way around), you’re about to learn a POWERFUL technique that can change that.
So, listen close.
How to Use a “Third Party Story” to Smash Objections
OK, let’s say your meeting with a private money prospect, and they find it hard to believe that now is a good time to buy real estate. Most would respond by telling them why it makes sense to invest today, why it is a good time to buy real estate now.
So, it’s you telling them.
A much more effective way to get that same message across is to use a third party story.
Where someone else (a third party) is telling them that it makes sense to invest today.
Frankly, it’s more believable. Because anything that comes out of your mouth, self interest is involved. Not so when it comes out of someone else’s mouth.
So, here’s an easy way to use a third party story to handle the common objection: it’s not a good time to buy real estate today.
And we’re going to bring in billionaire (and arguable the most successful investor of our times), Warren Buffet, to handle this objection for us.
Check this out …
Click here for the entire article.
Let Warren Buffet Handle That Objection for You
- Plug the pic above into your private lender PowerPoint presentation
- Add it to your credibility kit
- Post it on your private money getting website (if you use ours, this is easy since we built the sites off WordPress)
- Include the article in your monthly or quarterly newsletter
- Send a link to the article to your friends on Facebook and followers on Twitter with the caption, “If Warren Buffet is buying real estate today, I am too. Check this out <insert link>”.
So, when that objection comes up – it’s not a good time to buy real estate today – tell them you’re simply modeling success. You’re modeling how billionaire, Warren Buffet, invests today.
And that my friend is a highly effective strategy for handling an objection … using a third party story.
Now for the interactive part
= > What other ways could you use this article to get more private money?
= > How and where do you plan on using third party stories in the private money getting process?
Leave your thoughts, questions, and comments before ya go.
Happy Private Money Getting!
Hopefully, you either haven’t yet made or never will make these private money getting mistakes.
One of the best ways to learn something new, is to learn what NOT to do. In this instance, mistakes to avoid.
Learn from these common private money getting mistakes so that you get private money for your deals safer, easier, and faster.
3 Private Money Getting Mistakes You Must Avoid
1) Advertising Directly for Investors Without Registering with the SEC
Here’s an example of how NOT to advertise to get private money:
10% Returns Backed By Real Estate
Contact us at xxx-xxxx
If you were to run an ad like this in your local newspaper, that would be considered a general solicitation. And without registering with the SEC, that could land you in some big time trouble.
Here are a couple tips …
Never, and I mean never, say that an investment is guaranteed. That could get you in major hot water with the SEC … not where you want to be. Like Benjamin Franklin said, “Nothing is certain but death and taxes.”
I recommend that your primary strategy for finding private money leads is to network at REIA meetings, chamber of commerce, rotary, small business associations, BNI, and other similar organizations.
But, for those of you who still want to advertise, here’s how to structure your ad so that you stay SEC compliant.
Position your ad as if you’re teaching how to become a private lender rather than directly offering an investment. For instance …
Learn How to Make Great Returns
Backed by Real Estate
Contact us at xxx-xxxx
That would not be considered a general solicitation.
2) Presenting a Specific Deal During the First Appointment
During the presentation, rather than presenting a specific deal, go over general terms for your private lending program.
You see, it’s much easier for someone to object to a characteristic of a specific deal than to an ongoing investment program.
If you present a deal at this point, your prospect may not have the required funds, may not like the property, may not be able to meet the time frame needed to fund the deal.
However, once you sell someone on your investment program and you find out exactly what range of funds they have, time frame available, expectations from a good investment opportunity, etc., you can transition to passing specific deals by him or her; deals that match the information you already elicited.
3) Telling Instead of Selling
To get private money, it’s not about you telling a prospect about you, about your company, about your real estate investing strategy, about your private lending program.
True, that’s part of it. But only part.
You’re selling an idea; an idea of how to make a good return on investment dollars. And the best way to sell that idea, believe it or not, is by asking good questions; the type of questions that elicit information about your prospect’s pains and goals.
Here are some good examples of questions to ask when borrowing private money.
Making mistakes in the private money game can cost you dearly. By steering clear of these 3 common mistakes, you’ll be on your way to getting private money safer, easier, and faster …
Happy Private Money Getting!
If you guys and gals have any questions, put ’em in the comment area.
– Patrick & Trevor
One of the best types of private money prospects are people that know and trust you.
These are your family, friends, work colleagues . . . really anyone whom which you have a strong personal relationship.
But there’s a BIG problem with that type of prospect!
The problem is that most people flat out don’t want to ask people like that for private money. And it’s not even just that they don’t want to . . . they won’t even consider it.
. . . I can understand how you feel because I felt the exact same way when I first got started. And even though I hated doing it, I made myself due to the desperate need we had for private money. We NEEDED a financing solution for our real estate investing business. Conventional financing and hard money weren’t cutting it.
One day, my business partner brought home another great contract on a property in Summerville, SC and so the ball was back in my court to find private money to finance it.
I reluctantly started making a list of people to call and then, all the sudden, I thought of a different angle of how to structure the call . . . a different way to “sell” my program.
. . . and let me tell you . . . it made ALL the difference! You’ve gotta check out this secret ninja strategy for getting private money.
Watch the video below now . . .
If you want more great private money videos, subscribe to our YouTube channel. Otherwise, you may miss out on a tip or technique that could mean the difference between struggling to finance a deal and having private money lenders beating down your door.
Click below to subscribe . . .
– Patrick & Trevor
This is one of the top questions asked by investors wanting to get private money for their real estate deals …
“How do you ask someone for private money?”
When I got started on my private money getting journey, I found myself dreading asking people for money. Money was just one of those subjects you didn’t bring up let alone go into explicit detail.
So, we were under the gun to get a deal financed, and I didn’t know what to do. I was in a very unmotivated flat out negative mind frame. I was sick and tired of asking people for private money! Doesn’t sound like a very good place to be, does it?
It was about that time when I knew something had to change.
Sooooo, I tweaked my approach. I remembered something that I had read from a book earlier that month (I’m an avid reader if you didn’t know it already) and like magic … EVERYTHING changed!
Check out the video now to learn “the difference that made that difference” …
Now you don’t even have to ask for private money … and you can still get it!
Isn’t that cool?
– Patrick & Trevor
Got a question from one of our private money students recently and wanted to share it with you …
Great question, Gene …
At my local REIA (real estate investment association) meeting, the group leader always asks if anyone has a deal they want to pass by the group … what a GREAT opportunity to present your deal to potential private money prospects.
For those of you that don’t already know, I’ve turned tons of people that I’ve met at my local REIA group into my private money lenders … even ones that are active investors themselves.
Check out the video below for a complete script of what to say (even if your REIA group doesn’t give you a chance to pitch a deal during the meeting, the script can be crafted to a single person or small group).
Soooooo, when you need to get a deal funded ASAP, here’s what you say …
I thought I’d make it really easy for you and type out the meat and potatoes from the video for you as well …
4 Fundamental Elements When Presenting for Private Money to Your REIA
- Paint the Big Picture
- WIIFT (if you don’t know what that stands for, guess you have to watch the video
- Promote Scarcity
- Disqualify Them
**Private Money Power Script**
WARNING: When using this alluring script, you may have to break up a fight … a fight between everyone who wants to fund your deal!
“We have an excellent deal under contract … a 52 unit building that we’ll be closing in the next <X> days. We’ve already done our homework and KNOW that this deal is rock solid.
Now, this opportunity isn’t for everyone … but there is a chance for one lucky individual to jump on board with us and make a great return. We’re bringing in a private investor for $ <X> Dollars to provide the cash needed to do the deal.
This person will … simply by writing a check … make a great safe return on their investment dollars … not have to deal with the hassle of owning and managing real estate … not have to deal with contractors or tenants … (because we do EVERYTHING for you) … not have to spend an ounce of their time … and still receive all the excellent benefits that real estate investing has to offer.
As you can imagine, this opportunity will not last long … they NEVER do … because we’ll have a private investor committed to fund this deal by next <X>.
Soooooo, if you want to jump on this opportunity before it’s gone, write the best time for me to call you on your business card and get it to me before I leave tonight.
Thanks and again … we know that this ISN’T for everyone … just those looking for a easy, hands off, safe, excellent return backed by real estate.”
The primary way we teach to get private money isn’t to “pitch” a deal to a prospect first … it’s to pique a person’s interest and get them into a formal appointment. BUT, if you have the opportunity to present a deal to an entire room of real estate investors … DO IT! And, this script can come in handy when you’re under the gun to close fast.
Not sure if Gene already has his deal funded so if anyone wants to hear more about his private money opportunity, throw a comment below, and we’ll hook you guys up.
– Patrick & Trevor
The most effective strategy to borrow private money is to ask your prospect the right questions. Questions that elicit motivation, questions that uncover goals, questions that make the prospect imagine themselves enjoying and benefiting from your investment program.
When you borrow private money, here are 5 questions to ask prospects . . .
(Quick Tip: Make sure to write down everything a prospect tells you when you’re going through these questions. This is valuable info!)
1) What experience do you have investing?
Find out if they are or have invested in CDs, mutual funds, bonds, stocks, real estate, race horses, or gold. This will help you get a good picture of the type of investor you’re dealing with, their expectations, how knowledgeable they are with investments, etc.
If they have any experience investing in real estate, you want to know the details. What did they like? What did they dislike?
The prospect’s answer will indicate whether they primarily move away from pain (losing money or earning meager returns) or towards pleasure (making more money/better returns/financial freedom). Note whether they move away from pain or towards pleasure. You will present your investment opportunity to them based on this information.
2) Are you happy with the performance of your investments (investment portfolio)?
Whether they are happy with it or not, you ask the same question next . . . “What average rate of return have you been getting from your investments?”
At this point, if they tell you a 20% annualized return, you can let them know it was nice talking with them and move onto the next prospect. You just saved yourself some time.
Let’s say the prospect said he or she was earning a 6% return on x-investment. At the end of your presentation, you could say something like, “Well, I’m not sure if we can do this or not but . . . what if we could offer you a 8% annualized return backed by real estate . . . would that be something that might work for you?”
3) Whether or not our program is a fit, is it important that you find the right investment opportunity soon?
If they say “no,” this may be a good person to add to your follow up list. You could also say something like this to them, “Sooooo if the money stayed in x-investment earning x% for say another 6 to 12 months, you would be fine with that?” Or, “If your money just sits there earning you nothing for x-time, you’re ok with that?”
If they say it’s important to find an investment soon, you have a green light to continue moving forward towards turning them into a private lender.
4) Are you more interested in making a quick buck or building wealth?
This is another way of asking if the prospect is interested in a short or long term investment. We would prefer that the person invest long term. So by saying “quick buck,” we’re already putting a negative connotation around that idea. The longer term you can negotiate, the better.
If you find out the prospect just wants to make a quick buck, it may be best to move on.
5) What would the right investment provide for you?
This question is key to get the prospect visualizing a positive experience with your investment opportunity. And we’re not even referencing our investment.
Get your prospect to imagine retiring one day with complete financial security, going on that dream family vacation, feeling safe and secure and your prospect will associate those feelings with your investment program.
Remember, borrowing private money is all about asking good questions. So ask good questions and then keep your mouth shut. The more you learn about your prospect, the better the chance of converting them into a private money lender.
– Patrick and Trevor