The Only 2 Ways I Structure Private Money Loans

I hear from people fairly often who feel a little “fuzzy” on how to best structure their private money loans. So today I’d like to offer a little helpful insight, using a couple of our students as willful guinea pigs.

The fact is, there are really two PM loan structures that I (and most every investor I know) use regularly: Equity investment or debt investment.

Private Money Structuring – Equity vs. Debt

With an equity investment, you give your private lender a portion of the ownership in the property. What portion? It’s up to you. Could be 50/50…70/30… I’ll give you an example from one of our students below. But essentially you’re making your private money lender into a true partner in the deal.

With a debt investment, your private lender is paid a specific rate of return. And rather than having part ownership in the property, they get a lien against the property (note + mortgage or deed of trust) to secure their interest.

This is how I’ve structured most of my private money loans. Why? Because most of the time, it’s more profitable for me. And by retaining 100% ownership of the property, I remain in full control.

Neither structure is right or wrong… just different.

How Justin Wilmot Structures His Private Money

Justin Wilmot, one of our Private Money Blueprint students, has been kicking serious butt in the Florida market for some time now – he’s a hybrid wholesaler/rehabber taking down three or so deals monthly. He scores around $10k per wholesale deal, and rehabs are $25k profit on average. We actually did a riveting 90-ish minute case study with Justin recently – check it out in your member’s area under January’s training.

Anyway Justin’s secured many millions in private deal funding now, and he always prefers the equity investment route, structuring a straight 50/50 partnership with his private lender. Right from the start, he brought in one private lender with deep pockets and started doing deal splits, sharing 50% of the net profits after all costs associated with the deal are factored in.

The reason he shares “so much” is because that’s just the deal that he worked out with his lender. For Justin, it makes great sense. He never has to worry about needing financing again.

for this deals, as he has a tap of private funds ready and willing. He simply focuses on finding and closing great deals, and he doesn’t even have any monthly payments on his loans, which is HUGE. Also as a 50/50 partner, Justin’s only assuming half the risk of the deal.

How Rob Russell Structures His Private Money

Rob Russell, one of our Platinum students in Oregon, chose to go the debt route. Rob offers anywhere from 5 to 10% interest per annum (interest only, no payments) and consistently gets private money on the low end of that range. Yay, Rob!

Rob shared a cool story with me about a “Loaded Dentist” who contacted him through his PMBP website. After chatting a couple times and meeting, he got a private money commitment at 7% per annum… no fees, no points, no hoops, no B.S.

This is also my preferred structure most of the time. With the debt investment route, you assume more risk in the deal in a manner of speaking, but you also tend to make more money on the deal.

Question: How Does Your Private Lender Get Paid?

Answer: It’s always negotiable, and also depends on the situation.

For an equity investment, it’s often ideal to setup an LLC with both you and your PM equity partner as members, and you as the managing member. Then when the deal is done, you can just make a profit distribution from the LLC to each member. (But please consult your attorney and tax professional – I’m not one 🙂

For the debt investment model, you’ll typically have your title company draft a note with agreed terms, and a mortgage (or deed of trust) to secure it. (Hint: You could set it up with or without monthly payments  to your private lender.)

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.

I typically structure my flip deals as simple one to one transactions, and always go for low interest and no payments until the deal is sold if I can get it.

Bottom line, there is no right or wrong. It’s up to you to determine, so do whatever makes sense based on your deals and your business model.

How to Explain the “Worst Case Scenario” to Your Private Lender

Today I want to answer a question from one of our students, Jose Sanchez in Miami, FL…

“Hey, guys. I’ve been asked, ‘What happens if things go wrong?’ – So how do deal with this? I mean, foreclosure would be the obvious remedy for the private lender if things go south. But how do I mention this without scaring them?”

Great question, Jose! And one that I believe pertains to almost every real estate investor out there. Over the years I’ve seen heaps of investors struggle with this issue. So, listen in, this is a good one.

Not If, But When…

First off, if I were sitting with Jose right now, I’d start by asking him, “At what point exactly are you trying to answer this question?” The reason being, I’ve noticed far too many people making the mistake of dealing with this at entirely the wrong point in time.

Our Private Money Blueprint students know that you almost never answer a “detail” question like this until you’re in a formal sit down appointment. This is where you have all the decision makers present, and you’re walking them through your PowerPoint presentation (or mine that I gave you 🙂 Trying to answer this “what if” question has a much higher risk of sabotaging things for you if you contend with it before then.

Dealing With It…

So now when I’m sitting down in an appointment and the question comes up: “Patrick, what’s the worst case scenario for me in all this?”

My response is something like: “You know what? Great question. Basically if things were to ever go south, worst case scenario, rather than you being a lender-investor, making interest on your money, you would then become the owner, and whatever equity is in the property would become yours.”

And then I would immediately try to comfort them and shift their focus a little with something like:

“You know, at this point in our relationship, my aim is to mostly just to find out what your investing experience is, understand what your needs and goals are, and see how we fit each other. So that moving forward, I can only offer investment opportunities that match your needs and goals really well. That’s really all I want to accomplish together today.”

“Then once I find a particular property, I’ll know what seems like a good match as an investment for you. Then we’d meet again, and I’d show you all the details of the property. If it looks good to you, then at that point in time you’d make the decision to lend on it – but only because you know it’s a good investment and you know that ultimately, if you were to get the property back in the worst case scenario, there’s great equity in the property. You’d be 100% comfortable with it at that time, and confident that it’s a great and safe investment for you.”

“So ultimately, worst case scenario, if we were ever to be somehow unable to pay you for any reason, you’d safely get the property back, including all the equity, which you were comfortable lending on from the beginning. Does that make sense?”

“The Exact Process?”

At that point I would just keep going in the presentation. But if they’re the “focus on the details” type, they may ask you more about what this process would look like exactly.

Keep in mind, I wouldn’t actually bring this up unless they specifically ask, but here’s how I would handle it painlessly…

“Well typically when a bank lends money, if someone defaults, they would have to foreclose. That’s a whole process and usually handled by an attorney. But we can actually go the extra mile to help make sure things are super easy and safe from your end. Whenever you’re lending us the money for a particular property, we can go ahead and sign a deed over to you at purchase, that can then be held in escrow, just in case the worst possible scenario ever happened.”

“So that way, you wouldn’t even have to go through any of the foreclosure process if we were to default for whatever reason. You’d already have a deed to you safely in escrow, and it would be outlined in our paperwork that if we ever default, that deed could simply be recorded, and the property is yours. No fuss, no hassle. That’s kind of an extra thing that we provide anyone who does business with us, just so you feel 100% comfortable, safe and secure. Does that all make sense?”

From that point I would just shut up and see if they have any more questions. But you really shouldn’t get any push back, and it really is just that easy.

Bottom Line…

Keep in mind the magic’s not so much in memorizing the exact script I just gave you word-for-word, but in 1) Only ever answering this question when/if asked, 2) Not dealing with it ever until the official sit down together, and 3) Reassuring them in a confident manner that they’re safe and secure, even if it means offering them a backup deed-in-lieu of foreclosure.

Bottom line, you want to open upfront, lay it all out for them, answer their questions confidently, and then just dive back in the presentation and keep going forward.

Finding Deals or Funding Deals…Which Comes First?

Today I want to tackle a question I get all the time from investors.

“Should I focus on finding a good deal, or should I focus on funding first?

I can certainly understand why this can seem a little bit confusing. After all, it’s the chicken or the egg, right? Should you focus on finding the deals first or finding the private money you need, so that you can actually close on them?

Here’s What I Suggest…

First off, I feel your first action step should be to map out your marketing plan. How are you going to get your phone ringing with motivated sellers?

Now, why do I suggest crafting a marketing plan for your first action step?

Well let’s say you go out and get a great deal under contract, but you don’t quite have the funding lined up yet. You probably already know that you can put an “out” in place (i.e. an inspection or financing contingency) so that, if you either can’t find a buyer or can’t get funding for the deal, you can pull back from the deal and you’re out clean.

Believe it or not, it’s not finding or funding deals that keep most budding investors from ever getting those first few deals done. Most of the time, its inaction, due to procrastination, due to fear.

And by far the best cure for fear is to force yourself to take action in the face of fear and uncertainty.

Ralph Waldo Emerson said: “Do the thing you fear and the death of fear is certain.”

This is why I say you should start marketing ASAP to start generating leads fast, whether you have your funding lined up or not. Because no matter what, you’ll at least get the experience of talking to sellers, negotiating with them, contracting property, and so on. And this action-based experience is worth tons in getting you over the “new investor” hump and getting your first deal notched in your belt.

Both/And…

At the same time, I don’t want you to ignore your funding needs.

In fact, I actually want you to start both at the same time – while you’re out there marketing and/or hunting for deals, go ahead and start taking action on securing the funding you need.

As I said, you can put a deal under contract and then potentially wholesale it for some quick cash – typically a couple thousand here or there. But ultimately you want to have private money at your disposal. Cultivating relationships with private money prospects that eventually turn into lenders – that’s how you make the big chunks of money. But you’ve got to start somewhere, and start as soon as possible.

First, map out that marketing plan and immediately start generating leads. And at the same time, in essence, you should start spreading word wide, far and frequently about your private lending program, and work on cultivating good personal relationships with those prospects, so it will all come together for you.

A Recent Story…

This kind of reminded me, just this past week, one of our students –Butch out of Texas – we did a case study on him a few months ago. He had run out of his own funds to use in his deals, but he had a great deal under contract.

So Butch joined up with us. We helped him through the process to find private money to close that deal.

He just e-mailed me this past week. He calculated the net profits, brought all of his numbers together, and in the end Butch made over $30K on that one deal. He said it’s the most he has ever made on any deal up to now. Congratulations, Butch for taking action!

Bottom Line…

Go as fast and hard as you can to get your phone ringing with seller leads. Start that marketing plan, and at the same time, go ahead and start building those private money relationship, so you can actually close those deals and make the big money just like Butch did. In the meantime, you’ll learn a heck of a lot and might even wholesale a few, nice and easy like!

And hey, if you have any questions or comments about any of this, just reach out. We’d love to hear from you. Just send us an email to support@privatemoneyblueprint.com.

7 Deals, $300K in Private Money in Only 5 Weeks …in a Brand New Market!

For this month’s training call we invited PMBP Member Tim Bratz to join us to share how he’s recently been able to score 7 deals and $300K in private money in only 5 weeks…in a brand new market!

Ha, pretty impressive, yeah? 🙂

You may recall Tim from the not-too-distant past (We’ve connected with him before) and one thing we learned for sure is he’s an exceptional implementer, and he’s done quite well since he first started flipping houses back in ’09…

But recently Tim relocated into an entirely new and very different market — and boy did he hit the ground running! Check out this Facebook message he recently sent me…

What You’ll Learn:

• How-to: Hear exactly how Tim cracked into a new market & locked up 7 deals in only 5 wks
• Due Diligence: The biggest, most important things he did to learn this new market quickly
• Funding: How he scored $500K in new private money to “go play monopoly” with
• Market Segments: The 2 specific market slices Tim’s focusing on right now (and why)
• Revealed: The only 4 types of deals he’s investing his time and effort in today (and why)
• Formulas: See his exact criteria for all 4 models
• Sneaky! Learn his secret “phantom” tactic for sourcing 10-15 fresh cash buyers at any time
• Revealed: The unconventional way Tim sells his houses lightning fast (often less than a week!)
• Steal This: See EXACTLY what his signs look like, and why they work so well (swipe and deploy this into your biz)
• Q&A: We also answered as many live questions as we could in the latter part of the training call

Listen In Here:

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Download MP3…

Extras:

During the live call, Tim graciously offered a special goody for his “phantom tactic”. So here it is – swipe and deploy!

Clever Cash Cow: How to Create and Manage a Note Buying Fund

We’ve invited our good friend and private money champion Susan Lassiter Lyons to walk us through a number of clever and gusty ways to craft and leverage syndicated (pooled) funds…

YOU’LL LEARN:

What is syndication really?

• 11 ways to get paid just for organizing this (even w/no cash of your own in the deal)

• 7 steps to creating your syndicate

• Susan’s secret strategy for putting together a “note buying” fund (plus detailed case study)

• How to pool capital from investors to purchase performing and non-performing notes to flip or hold for long-term cash flow.

Grab a pen and a notebook and get ready to learn this strategy that will help your REI biz grow!

 

Join the conversation and leave your comments below.

8 Keys to Getting More Real Estate Leads Online

This month Patrick invited two mystery guests to join him (Mr. X and Mr. Y) with a ton to share.

A quick idea of what we’ll be discussing:

> 8 steps to systematic lead gen online

> 9 “instant credibility” tricks online (you can use these on your website)

> 1 clever way to automatically build a private lenders list (without really even trying)

> 2 five-min SEO hacks we use to get top 5 Google rankings (anyone can do this)

> and a whole bunch more

BOTTOM LINE:

This is all about sharing some proven, powerful ways you can leverage the right MESSAGE with the right TECHNOLOGY to snag as many LEADS online as possible for your real estate investing business.

If that sounds good to you, then you’re gonna love our web training this month. Grab a pen and a notebook (because you won’t want to miss a thing!) and let’s get started.

How to Become a Fund Manager: Let Other People Do All The Work… While YOU Just Find The Money!

For this month’s training, Patrick chatted with one of our PMBP members, Bobby Freiler. Bobby hasn’t been a member very long, but he has recruited A LOT of private money!

In this training, he’ll show us how to become a fund manager and stop driving around looking at properties! Stop negotiating with sellers and dealing with Realtors! Stop dealing with short sales! No more rehabs… or dealing with contractors and tenants!

In this unique training, here’s what you’re going to learn:

– The Instant Expert Approach. How to posture yourself as an expert even if you’re brand new to real estate and have never done a deal.
– The “Fund Manager” Framework. Let other people do all the work… while YOU just find the money!
– Pick A Target Market (ANY Market). Yep, you can do this anywhere. Regardless of where you live!
– The “80/20 Wealth Accelerator” PPM. How to get more funding for your deals AND build massive wealth at the same time. This is HUGE!
– The “HPSTY” Test. Are you following this wise advice from Bobby’s mentor?
– The $5mm Action Plan. Here’s what a multi-million dollar action plan looks like!

Get ready to take notes and tune into the video below!

Join the conversation and leave your comments and questions below!

How Platinum Members, Carlton And Nancy Linder, Closed An 86-Unit Apartment Deal And Achieved Their Dream

This month Patrick brought  on PMBP Platinum Members, Carlton and Nancy Linder… who achieved their dream on July 18th by closing on their FIRST apartment building deal…

… and you’re going to learn exactly how they did it!

Here’s what you’re going to learn:

– The most important 30 seconds of Carlton’s investing career (swipe this word-for-word and use it your biz)
– The secret ingredient (it starts with a “P”) that allowed Carlton and Nancy to achieve their dream of becoming apartment building investors
– Revealed: The funding source that put up $500k for the deal. You get their contact info for attending live!
– How they found the 86-unit apartment deal and the creative strategy used to close it
– $60,000!! How a small tweak in the paperwork saved $60k in profits. This is HUGE!
– Plus, Carlton and Nancy are going to give you a copy of their “private lending presentation for apartment deals”…
that they’ve spent the last 2 years perfecting… for FREE!

Watch the video below…

Join the conversation. Post your thoughts and questions below.

Step by Step Deal Evaluations!

On this month’s training call, Patrick talks with faculty member, Daniil Kleyman. In this training they will go over how to step-by-step how to analyze deals (so you NEVER overpay for a property… one of the biggest mistakes investors make)… Daniil will also show you how to use the free version of his software that does all the number crunching for you.

So, here’s what you need to do:

1) Get the free version of Daniil’s deal evaluation software ($97 value)

(when you sign up for the free software, Daniil will send you an email with the download link… also, fyi, he has a “premium” version of the software that he’ll tell you about, but you don’t need to buy it to analyze deals and participate in the live demo training)

2) Watch the video below!

As a bonus, you’ll also learn how to use the “Max Offer Calculator” and how to evaluate multiple exit strategies in seconds! Get your free software and get tuned in now!

Join the conversation! Let us know how the Deal Analyzer software has helped you and your business by leaving a comment below.

Live Interview With Master Negotiator, Dusty Keefe

Patrick interviews investment biz partner, Dusty Keefe, and this is an AWESOME call!

According to Patrick, Dusty is a master negotiator. The best he’s ever seen.

One time, he discounted a 2nd mortgage that was owed $65k… and got them to
accept $1,260 as payment in full. On another deal, the bank was owed $3.4mm and
accepted $1.7mm on a short sale. Dusty then proceeded to flip the property for
$2.1mm. You’ll hear more about that deal on the call plus…

You’re going to learn:

– Dusty’s “pre-game” ritual. Do this every time without exception!
– The first thing you should ALWAYS ask a seller (and why)
– 3-Step Rapid Selling Technique. A simple formula for negotiating great deals
– The Suspicion Killer Script. Get your free copy on the live training 🙂
– His famous price AND terms strategy
– The magic “deal multiplier” question
– How to get 0% loans and create MASSIVE wealth… quickly
– And other cool stuff that you can apply immediately to negotiate bigger and better
deals!

Becoming an expert negotiator is one of the highest paid skills you can develop. Now you can learn from the best, Patrick’s partner Dusty Keefe. You’ll be glad you did.

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