Working With Private Investors

Whether you are just starting out or not, the more avenues you have to make deals the more successful you will be. One of those avenues corresponds with working alongside a private money investor. Even though the number of private investors has risen over the past few years, their terms and conditions have remained relatively similar. You may have good credit and collateral, but with the ever changing lending landscape, you may not be able to get approved on a certain deal. Here is where you can take advantage of short term private financing and move forward without skipping a beat.

Many new investors are taken aback when they first learn of the terms and fees associated with private financing. The rates will be between 12-15% with fees ranging from a few points to a percentage of the profit, depending on who you work with. This may seem outrageous, but on closer inspection this may be exactly what you need. If you are only using the money for a few months, you are only paying the interest for that time. The fees are still pricey, but that could be considered costs of doing business and a means to still make money on a deal.

You can find private investors through your realtor, attorney or at real estate investment meetings (REIA). They want to work with you as much as you want to work with them. Each has their own criteria for which they will lend. Some favor your credit score while others look at past investing experience. However, almost all are looking for a good plan and collateral. Private financers have money to lend because they have made their living investing in low risk areas and have added a series of small profits to eventually build a big pool. They will not invest blindly to anyone who does not have a clear vision for what they want to do, how they are going to do it and in what time-frame it will be done.

Like anything else, it is always good to have a couple of different options to invest with. You can shop around from private investors and keep your options open. You may use private financing on one deal a year, but it is always good to keep a good relationship that you can use when needed. This could be your bridge to fund bigger deals, possibly even commercial or apartment buildings. If you burn one private money guy, you can be sure that other people in the business will find out about it and soon enough you will not be able to get money when you need it. You can negotiate fees and terms all you like, but once you agree with them you had better honor your commitments or you will find access dried up.

Using private financing can seem a bit overwhelming and intimidating, but using someone else’s money on certain deals can lead to even a few more deals a year. Just closing a few deals a year can lead to thousands in your pocket and open doors to do other deals. Finding private financing does not have to be as difficult as you may have thought.