In the last couple of months I’ve secured about $1.25M in private money plus two of my current PML that are invested with me have assured me they will roll up principal and interest or profit into new projects after we sell the ones we are working on. So, I have received a few comments on Facebook asking me for my “pitch” or for “useful phrases”, and yes I will mention these and I will elaborate on them but I think the most important items to keep in mind when seeking private money are:
1). Talk to everybody and anybody (see my chronology of PML at the bottom of the page)
2). Take rejection lightly – if somebody says “no” or you are needing to take a long time to convince them, move on. Better to look for a better candidate than waste time trying to change somebody’s mind
3). Look for win-win situations (always) and try to put together people that will benefit from each other (Realtors and investors…)
4). Seek recommendations from people within the industry asking for “people who would be interested in investing in real estate” – one of my current investors was introduced to me by the agent that was representing me in a purchase I needed money for
Regarding about where to look for lenders, on coaching calls I have advised my students to make three lists of potential PML:
1). People very close to you, people you literally spend Thanksgiving with. This list should be short but these people should trust you and care for you so there is some likelihood of lending you money
2). People close to you, not Thanksgiving close, but people you go out with, go camping with or BBQ together. This list should be a bit larger and with people that know you and trust you.
3). People you know how to get ahold of them even though they are not close to you but you know or believe they are financially successful and educated. In my case this list included my primary doctor, my attorney, my CPA, my kids orthodontist, my kids dermatologist, my dentist, the owner of three restaurants in the city where we live, the owner of a 7/11 store near my house, etc.
I suggest you write down these list, put together your PML credibility packets and go talk to everybody on your three lists, money will be lended out of it, believe me.
Also,this is my style, may not fit everybody’s model but I was asked how I have been so successful securing private money, so here it goes: in most occasions I don’t present the investment opportunity in the first conversation, after all, I meet these people on an on-going basis. I prepare the “field”, I mention the projects I am working on or the ones I just sold, I mention that I use people’s money secured by real estate to provide an “above average” return and I pretty much leave it like that. I never look like I need money, I position it as I can offer a great opportunity because of my business, then in a future meeting I do give my “elevator pitch” highlighting these items:
1). Real estate is a very transparent industry – I am not sharing a stock tip stating that I know “…the company will get FDA approval on a new medication soon…”, nor am I seeking investment in a new technology, etc. Warren Buffett insist you should not buy stocks on companies you don’t understand what they do – we all understand the value of owning a house, so investing in real estate is an easy concept to grasp
2). Real estate valuation is very easy to prove, both on what I am purchasing as well on what I will be selling after a rehab, there are CMAs, comps, appraisals, etc.
3). The cost of what I am doing to improve the house is also very easy to verify through SOW, contractor bids, etc.
4). If my investor is going to get points/interest, I state that he/she will get a notarized Note and Deed of Trust recorded in the County and that the money will be wired to escrow. The PML’s investment is safe by county recorded documents and secured by real property
5). If my investor will be an equity partner, his/her LLC will go in Title, the closing documents will state his/her percentage of ownership/equity and I share with them how transparent my accounting process is: my office manager tracks on a shared Google spreadsheet the daily expenses by categories (materials, labor, professional fees and miscellaneous expenses). My office manager also uploads on a daily basis all invoices on a shared Google folder. This way my investor/partner can track anytime where the money is being spent and match spreadsheet entries with scanned invoices, you have no idea how much peace of mind this simple process gives to a potential investor. Plus if you use a rehab lender, this process helps you to get things in order for requesting reimbursements (I am happy to share my spreadsheet if you ask me for it)
I try to make my meetings fun, I try to take away the “business meeting” flavor, very often I suggest my potential investors to bring their spouses to the meetings, I bring my wife, I propose to meet at a nice patio bar or the lobby bar of a high end hotel. I want to share, in a subtle way, that I am successful, that I own my time, that my business gets successful people together and that this is not a “business meeting with the objective of leaving with a check”. I try to go deeper than the “conference room presentation”, if the wife of the investor or if the investor is a female and she clicks with my wife, if they see me as a “family man” (we share pictures of our kids, dogs, etc.), the “business barriers” are down, suddenly I am a likeable, family oriented, successful guy that has this amazing investment opportunity, it’s almost a subtle invitation to be a part of something rewarding. My wife is a stay home Mom, she is not an actual part of my business, but she is part of my life and future partners or investors want to know who you “really are”, not having “business meetings” but “social meetings where business is part of the conversation” has been very productive for me.
So there you have it, these are the “secrets” of my success in securing PML, the people I talk to, the situations I create and the phrases I use. Now, FULL DISCLOSURE: it’s not for everybody, a bunch of people may prefer the “powerpoint presentation in a conference room” kind of thing and pitch immediately to get the money, not me.
Regardless of the approach you decide to follow, I think that the highlights of points 1 to 5 above are useful to highlight to potential investors. The picture on this post is the bar tab of a meeting with an investor of mine that has now $700,000 in my projects and a potential future investor, obviously I wanted the potential investor to meet one that already has $700,000 invested, I asked them both to bring their spouses, we had the best time at the bar of the Claremont Hotel, the outcome of the meeting was great, did I get a good ROI on my $400 bill? You betcha!
Chronology of my PML
1 to 3). I met my first PML at an REIC, she funded my first project and I got 15% of the profit, yes, very-very small but it allowed me to get started. She also funded my second, I got 20% profit, and my third, I got 25% profit. After these three I left her
4). I met my second PML at a kitchen cabinet store, I overheard his conversation with the sale srep, which lead me to believe he was an investor/rehabber, so I introduced myself, told him about a house I had under contract and my three previous one. He funded the deal and I got 50% profit
5 to 10). My next PML was introduced to me by a Realtor, this guy wanted to invest some money, he called a Realtor asking if he knew somebody good to partner with, the Realtor had seen before and afters of my first projects so he introduced us. This guy funded my next 5 deals.
11 to 22). I met my next PML at a sidewalk, literally. There was a house that just went pending across one I was rehabbing, I met the buyer, introduced myself, he told me it was a buy and hold and he needed a roofer and an HVAC guy, I shared mine with him. I asked him if he was interested in funding flips, we grab coffee the next day, I showed him a property I had under contract, he wrote a check for it…
22 to 26). This investor was introduced to me by another Realtor that had also seen my projects
And the list goes on like that, I have investors referred to me by my kids’ Doctors, by other Realtors, owners of businesses I dealt with when I worked for Corporate America, etc. Its a matter of talking with everybody you come across with. So!, go talk to at least 10 people this week, talk about your business, look for win-win situations, for synergies, feel proud and happy about being in this industry and have fun with it.