Hard money is money that is typically asset based. Asset based means the lender doesn’t care too much about you or your background (although they are starting to care…more about that later), as long as you have some money to put into the project. In other words, you have ‘skin in the game.’
Private money is more of a relationship between you and a ‘financial friend.’ Your friend has lazy money that is sitting around not providing the returns they would like. People who have private money are not typically real estate experts.
Knowing the difference between hard money and private money is the first step. Where to find these different types of funding is the next step. I'm going to present you with five places to find hard money and five places to find private money – which should be more than enough to get you started. Let’s jump in!
1) Leverage Your “Power Team”
I often talk about the importance of building your own power team of people. Begin to build this team before you ever need them – then you can work with them on many different levels. You power team might include:
- Title Company
- Closing Attorney
- Insurance Agent
Now that you are in the position to look for hard money lenders, you can begin to utilize your power team. These will be people who already know you and with whom you have a history. Any one of these contacts may personally know of hard money lenders. So let them know you’re in the market and looking.
You’re already savvy about that fact that you can find most anything through an online search. Use Google to search for hard-money-lending companies. Invest the time to research who’s out there.
3) Local REIA (Real Estate Investors Association)
If you’re serious about this business, there’s no reason not to be a member of a local REIA group. At monthly meetings, you’ll meet many other investors who are doing deals and who will be familiar with active hard money lenders in the area. Most groups put out a monthly newsletter. This is yet another source for learning the names of hard money lenders. The very lenders you want to connect with might run ads in those very newsletters.
4) Ask Other Local Wholesalers
Networking is the name of the game in real estate investing. Find ways to locate other wholesalers and learn to work with them in tandem. These are the people who will know the names of local hard money lenders – even if they’ve never used them.
One approach with such a wholesaler might go something like this:
“If I buy one of your wholesale deals, do you have a hard money lender you could introduce me to? That would help me leverage the funds that I have on hand.”
5) Local Foreclosure Auctions
This is a great place to hang out and meet people. Really, it is. Why…
Often, it’s cash buyers who are at these auctions. Also, you’ll find professional bidders and bidding companies – a lot of players are available. Network, get to know people and ask for referrals. Or, as luck might have it, you could actually meet a few hard money lenders at the auction. You won’t know unless you try.
Finding private money is totally different from finding hard money lenders. Here are five tips that can help get you thinking. It’s certainly not an exhaustive list by any means, but it’s a good start.
1) Start Close to Home
When it comes to private money, begin with those who are closest to you. See who has “mattress money” lying around. Many people these days are quite unhappy with conventional investments such as stocks, bonds, and certificates of deposit. (Or even worse, a regular savings account. Oh the horror!)
In these cases, it can be the relationship behind the relationship that will lead you to the key person. In other words, the ones closest to you may not be the candidates, but they may know of someone who would be interested.
Part of your pitch goes like this:
“I want to present you with an opportunity. If this is for you, great. Let’s talk. If not, could you recommend someone else who might be interested?”
As long as you create a personal relationship with them, you can present the concept of borrowing money from them. You will find this much more productive than contacting strangers through social media or advertising online.
2) Local IRA Custodian Meetings
Attending local IRA Custodian meetings is a great way to raise private money. A lot of companies such as Entrust, Equity Trust, and other custodians for retirement accounts hold luncheons in order to advertise for new customers. This is their opportunity to educate people who are investing their retirement accounts, which means it’s a great place to network because it’s a source of lots of lazy money.
Often, these are people who don’t understand real estate like you do, but they’re looking for a gateway to get their money into action and earn better returns. You can be the answer to their problem.
3) Local Country Club
If you want to hang out with local private money lenders,learn how to golf. Yep, I’m serious. Join your local country club where you can network with those who have cash at the ready.
4) Business Network International (BNI)
BNI is one of largest, most expansive business networking groups in the world. This is a great place to network and get access to other business people and let them know who you are and what you do. As a real estate investor, you provide opportunities for private investment partners to make great returns on their money.
Attaining and achieving positions of leadership in these types of organizations means you can talk about your business in the normal flow of conversation. Many times at these types of meetings, there will be people who have always wanted to get involved in real estate and will want to know more.
5) Local Cash Sales
Take the time to research for local cash sales in an area. This can be done by the MLS using a realtor that is on your power team. (See, your trusty power team is coming in handy, huh.) You can locate all the cash sales in a certain zip code.
In the county assessor’s office, you can look up who funded a certain deal. It’s either going to be some big bank or mortgage company – or it will be an individual. Get that information and send a letter to the private lender saying that you’re actively locating deals in and around that area. You’re looking for someone who might want to get involved in your deals.
No need to make any firm promise about returns, but if they’re interested, invite them to call you. Set up a lunch appointment and begin to build a friendly relationship with them. And then present the opportunity.
Finding Funding Means You Have to Act
Reading through these 10 tips, you can quickly see that you’re looking in different places and using totally different methods, whether you need hard money or private money.
The common denominator of all these tips is taking action either by networking on a personal level or by investing time researching the needed information and contacts.
No matter how you look at it, the money to fund your deals will not simply fall into your lap. However, the good news is, once you get the ball rolling and build momentum (with a good reputation), the job will become easier and the workload lighter.