Real estate investors require money in order to make investment prospects come to life. Without sufficient funds, the invest equation is totally incomplete. This is where a private money lender comes. A private Money Lender a non-institutional individual or company that loans money to prospective persons, secured by a note or deed of trust, for the purpose of funding a real estate transaction.
Why Choose Private Money Lenders?
A common mistake made by relatively new Real Estate investors in the market, is that they spend too much time of finding and making deal, but so small amount of time on how to raise equity capital (the funds) required to tie up a deal or to purchase it. We should work smarter and not harder, to prevent a lot of hard work and time from going down the drain. Thus the right approach, in order to achieve investment success, would be working on raising capital from private money lenders, while concurrently working on securing better deals.
Private Money Lender Circles
With, now having understood on the why to choose private money lenders? The next question that comes to mind is whom to approach to raise the equity capital.
Made up of Family, friends and relatives, is the most popular approach for its basically approaching people one knows best and are more positively inclined to say Yes! With the simplicity in family and friends funding, the sophistication is not enough to differentiate between a good deal and a bad one, thus problems when the deal goes sour, valuable relationships can also be lost. It is always advisable to seek for funding from friends and family members of whom can afford to lose the investment. More often than not, the capital raised by this circle is not enough, but it can be instead used like an initial earnest deposit money, giving you more time to locate and lock better deals, as you explore additional ways to raise more capital.
This circles consists of Friends and colleagues of your primary circle, which forms the very basis of that the bigger your primary circle then the much bigger the secondary circle of private money lenders. Well explained through social networking groups such as LinkedIn. It is basically made up of more receptive audience or potential investors, owing to the appeal and consent of the primary circle of mutual contact. With reference to the growing numbers, this party will feature a bigger capital pool. The negative parts with this group is that they are less inclined to say yes, and need to be swayed in order to be productive. From presentations, to luncheons, to happy hours and dinners, one has to go the extra mile.
Third Party Circle
The third party circle of private money lenders, is basically made up of investors removed from your social network i.e. you don’t know them in a personal manner. This circle goes without saying that it makes the biggest capital pool, but evidently takes quite some time and effort to convince them to invest. There are several ways of how to find them, but the two major ways are; Through Investor Contact Sites such as BiggerPockets, Go Big Network, and Marketplace, among many more. And secondly through Investor Direct Mail List.