8 Borrow Private Money Do’s and Don’ts

June 5, 2009 | By | 4 Replies More

Borrow Private MoneyWhen you borrow private money . . .

DO – Spread the Word About Your Private Money Investment Program Like Wildfire

Every person you meet and every person you know should know two things about you:

1) You’re a Real Estate Investor

and …

2) You Have an Investment Program

Use the 30 second commercial to introduce both yourself and the general idea about your investing opportunities. Notice, I said “general idea”. The 30 second commercial is designed to paint the big picture . . . not designed to explain how your program works or any details therein.

DON’T – “Spill Your Candy in the Lobby”

If you disclose too much information about your private money program when spreading the word, you will jeopardize turning that prospect into a private money lender. Why, you might ask . . .

Investing is serious business and should treated as such. Only discuss your investment program in a formal setting when you’re presenting your PowerPoint. Your job is to pique interest in potential private money prospects by using the 30 second commercial; then you go for the formal appointment. Sooooo don’t “spill your candy in the lobby” and talk details before the time is right.

DO – Meet with ALL Decision Makers When Presenting Your Private Money PowerPoint Presentation

This is one of the biggest mistakes I see people make continually . . . over and over again. And it’s not a hard concept guys.

In every part of your real estate investing business, negotiating with buyers, negotiating with sellers, negotiating with tenants, negotiating with private money lenders, get ALL decision makers to your appointment.

I’ve found that typically, when you borrow private money, if someone is married, the spouse is involved in the decision making process. Therefore, set up your appointment accordingly.

DONT – Present a Deal to Borrow Private Money Until . . .

. . . you’ve presented your PowerPoint presentation to your prospect.

“What do you mean Patrick? When I give my PowerPoint, I offer my latest deal within the presentation. That’s the point right . . . to get my deal funded . . .”

I’ve found it’s best to present a continuous investment program rather than a specific deal when you first meet with a prospect. The free private lender PowerPoint that I give away is structured so that you ask tons of questions and find out all the information you need to know what kind of deal may work for your prospect. Then, after that initial appointment, you only present deals that could be a match for that prospect’s needs and goals.

Why would you ever try to sell someone something before you know what’s right for them?

Remember, selling a product or service is not about you, it’s about them, it’s not about telling, it’s about asking good questions so that you can find out if they would be a good fit for what you have to offer.

DO – Get Help Preparing Your Private Money Lenders Paperwork

Here’s the paperwork used when you borrow private money:

1) Promissory Note

2) Mortgage or Deed of Trust (depending on your state)

3) Name on Hazard Insurance Policy

4) Disclosure

Your closing attorney/title company can prepare the note and the mortgage/deed of trust. Give your insurance agent your lender’s information and they’ll add it to the policy. Using a disclosure is a great way to lay everything out between both you and your private lender and protect everyone’s interests. The closing agent should be able to put this together for you as well.

DON’T – Ignore SEC Guidelines and Regulations

There are a couple things you need to know in regards to the SEC and borrowing private money . . .

The way that I’ve structured loans with private money lenders is the easiest way to borrow private money so that you don’t have to register with the SEC.

= > Stick to 1 to 1 Transactions (meaning – one private lender per property)

= > Stay Away from Advertising and Direct Mail

If you want to syndicate funds, pool private money, or market your program through newspaper ads and direct mail . . . that’s fine. But realize that you need to get expert advice so that you make sure you’re staying SEC compliant. The last thing you need is the SEC breathing down your neck!

DO – Follow Up With Your Private Money Prospects Aggressively

Lately, several of my new private money students have been disappointed after formally presenting their presentation and not yet having private money in hand.

Here’s a KEY to getting private money – The Fortunes in the Follow Up!

Make a list of everyone to which you’ve presented, follow up with each person every time you have a deal that matches their needs and goals, and over time, you’ll build massive trust and credibility until one day . . . it’s the right place at the right time . . . they say “Yes” and you’ve got yourself a private money lender.

DON’T – Use Traditional Salesman Tactics When You Borrow Private Money

My approach would be called “negative selling” or “reluctant role selling”.

You see, I know that being in the reluctant role is the best place to be in every selling situation (whether you’re the buyer or seller). So maybe you’re asking yourself, “Well, what do I say so that I don’t come across as a traditional salesman and remain in the reluctant role?”

Here are a few common phrases that I use . . .

“Our program is definitely NOT for everyone . . . it’s probably not right for you.”

“You most likely would NOT be interested in this opportunity but . . .”

“If we had an investment opportunity that was within the range of funds you had available and paid you a rate you were happy with, would you want to go ahead and invest now, or probably NOT.”

“NOT sure if you qualify for our program yet, but if you would like, we can set up a time to show you our presentation and find out.”

I know this technique may sound counterintuitive, but I can tell you from experience . . . IT WORKS!

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Category: Real Estate Investment Financing Strategies, Tips and Tricks

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Comments (4)

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  1. MN Houses says:

    Thanks for the tips, Patrick. I love your “reluctant position” idea. I think I would adopt some of those lines, if you don’t mind.


  2. Patrick Riddle says:

    You’re welcome Nicole! Adopt anything that makes sense to you … that’s why it’s here.

    ~ Patrick

  3. Ruth says:

    Hi Ptrick,
    I have been following your advice and would like to ask a few questions.
    1. How would you structure the use of private funds on a $500,000 purchase, asking for $100,000? This amount includes: Down payment, my commission of 10%, realtor fees and closing costs with seller financing 90%.
    I would like to make sure that the investor gets paid when the property sells paying him 9%
    on his money. I just don’t know the calculations of a 3 year term. Can you suggest the information?


    Ruth Marshall

    Dn Payment 50,000
    My commission 25,000
    Realtor commission if any 15,000
    Repairs 5000
    Escrow Fees 5000

  4. Patrick Riddle says:

    Hey Ruth, structuring would depend on your exit strategy. I guess your planning on at least holding it for 3 years. Do you plan on paying the private lender their interest during the term of the investment or do you plan on paying it all off when the property sells?

    ~ Patrick