“Where Do I Get The Money?”
by Ron LeGrand
Probably the most asked question we get, but before I answer it this question must be answered…
Money For What?
Everyone is so concerned about where to get the money when the reality is most of the best deals in real estate don’t require any or very little. You don’t need a dime to do ACTS deals or sandwich lease options. No down payment, closing costs or even earnest money. Subject to deals usually only require closing costs, sometimes a little to the seller. Wholesale flips require only an earnest money deposit and so do options. So raising capital is really only applicable if you intend to pay cash for houses. Truthfully, you can spend your entire real estate career and make a good six figure income and never pay cash for a house. Many do. Spend a little to get properly trained and it will become abundantly clear you don’t need money to make money, especially not in real estate. In fact, the minute you do raise capital you’re now at a risk.
The training you need is in my Quick Start Real Estate School; and I promise you it’s costing you a fortune in lost income until you make up your mind to get there and by the way, there is no substitute for it. No book, no CD’s and no other seminars. There is no easy or free way to get the training. We deliver a lot of training in the form of videos and lessons like this but you can’t get to college and skip high school. Now don’t you get me wrong, I did not say you shouldn’t buy cash deals. I only said you don’t have to but unfortunately some people use money as a lame excuse not to do anything. Now’s the best time in our lifetime to buy bank owned houses. Never been better. I’m buying them at 1985 prices just as we do in my Quick Start School. Actually, you should be buying like…A Bat Out Of Hell! This recession won’t last forever and these prices won’t stay this low for long. So let’s discuss where to get the money for cash deals. Really there’s only one good source. Its private lenders. Not mortgage brokers or professional lenders. Just ordinary people with money in the bank who want a higher rate of return. Not the super wealthy. Just ordinary people with a few hundred thousand dollars or so and they’re all around you regardless of who you are or where you live.
They need you as bad or worse then you need them but they won’t come to you, you must go to them and let them know what you do. Of course, the hardest loan to get will be your first. Once you crack the code it gets easier every time and you can use the first lender for credibility. I know what you want is someone to hand you a list of lenders so you don’t have to do any work or get uncomfortable asking. Sorry… Ain’t Gonna Happen. There is no such list and if there were any investor would rather you date his wife then give up his private lender. So don’t ask! It only makes you look foolish. FYI, there are those who say this magic list exists and all you have to do is subscribe to a matching service and they’ll flood it to you….not true. There are lists of potential prospects who appear to be good candidates but even then you must approach them. Unfortunately the SEC has regulations against you soliciting for money unless you have an existing relationship and the rules are cloudy. The best thing you should do is not to publically advertise for money.
The good news is the president signed a law removing this restriction recently but it comes with a lot
of restrictions which render it almost worthless to small investors. Plus, I can make a case that a private loan is not a security and have seen evidence of that in a Supreme Court ruling. However, I don’t want you to be the one defending that in front of the SEC so my advice is simple…assume you can’t publically solicit for now.
So that brings us to the fastest, easiest, and no cost way to get money…Flap Your Lips. Here’s my elevator speech I used for years and still do today when talk to people… “Do You Have An IRA Or Other Investment Capital Not Getting You A High Rate Of Return, Safely?” If the answer is no, ask for a referral. If the answer is yes, and many will be, follow up with… “I buy and sell houses and I sometimes borrow funds from individuals such as yourself to purchase and rehab these houses and pay a high rate of return. Your money is secured by a mortgage, closed by an attorney with title insurance, fire insurance and properly recorded. I never borrow more than 65% of the current value so there’s always plenty of value above the loan. Does that sound interesting to you?” If you get a no try to find out why. Sometimes they need to discuss it a little to understand better. If you get a yes… “OK, all I need to know is how much you want to put to work and I’ll call you when I’m ready for my next loan. If you approve, I’ll ask you to wire the funds to my attorney and we’ll close shortly thereafter. Of course I’ll give you his number if you’d like to call him. Do you have any more questions?” That’s it. Yes it is that simple. Of course the lender will ask you what rate of return he/she will get and your answer is… What Do You Think Is Fair? It’s likely the answer will be in the low single digits since bank accounts are paying less than 1%. I offer 7% even if they’ll take less. That’s 14 times what banks pay. You can offer what you want but be careful your mouth doesn’t overload your brain. The wrong words here can cost you a lot of money. The term is up to you, not the lender. You are in control. Remember, no mortgage brokers here to make the rules. They are what you say they are. If you want 5 years, its 5 years. If your goal is to rehab and flip get at least 2 years. No need for a shorter term. You’ll likely pay it off sooner but what if you don’t? A longer term costs nothing. If your goal is to lease option the house, get 5 years. Don’t box yourself in to a short term. If it’s a short term load let the interest accrue so you don’t have a payment. Only make one if you don’t have to and you don’t.
If you borrow 100k at 7% in two years you owe 114k. Simple. Now you get to keep 100% of the rent if you install a tenant. Remember, you make the rules. I dare you to start asking for money. It costs nothing and you may be surprised with the results. Don’t forget to ask for referrals.
(June 2014 Newsletter)