How To Prevent Private Money Lenders From Backing Out

February 14, 2012 | By | Reply More

Have you ever had a private lender commit funds to you… only to get cold feet and back out of the deal?If so, you’re not alone. It happens to many of us.

After a couple lenders backed out on me early on in my career leaving me high and dry, I finally learned how to handle this problem once and for all.

Here’s what to do…

4 Lessons To Prevent Private Lenders From Backing Out

Lesson #1 – Beware Of The “Casual Yes

First, have you sat down with your private lender prospect and walked them through my private lender PowerPoint presentation? (right click and “Save link as…” to download my presentation)

If not, that’s the next step.

Many times, investors will start telling everyone they know about private lending, the rates and terms they offer, the paperwork involved, and more… in a casual setting. At a REIA meeting, on the phone, grabbing a drink at a bar… instead of waiting to go over those details in the formal sit down appointment.

When this happens, often times you’ll get a “casual yes” from your private lender prospect.

They act interested… but since you didn’t take them through a formal process, they don’t have all their questions answered and aren’t really committed… even though you think they are.

Here’s the most effective private money getting process I’ve found and how to do away with “casual yes’s“…

Step 1 – Paint the big picture

Tell people that you’re a real estate investor. Get ’em interested, intrigued with your business. Use techniques like the half minute private money hook and the biz card reversal technique to get other people asking you for more info about your investment opportunities.

Do NOT go over details in this step (ie rates, paperwork, etc).

Then transition to…

Step 2 – The formal appointment

This is where you present your private lender presentation and go over all the details. Make sure all decision makers are there (if someone is married, that usually means both spouses).

In this appt, you’ll be educating your prospect on your biz model, why you borrow from individuals, how they fit in the process… you’ll be answering their questions and objections… and you’ll be gathering information about your lender so you know exactly what they want in a good investment.

Then you’re ready to…

Step 3 – Pass specific investment opportunities by your prospects that match up with their goals and needs

Now when your private lender commits to funding a deal for you, it will be an educated decision. It’s much more likely that they’ll come through after this process, than from a “casual yes.”

But, there are still some steps to take to ensure 100% that you’ll get your deal funded.

Lesson #2Are You Crazy? The Market Is Terrible!

After your private lender commits to funding a deal, there’s a future objection that you need to handle that may come up before closing.

For example…

So your private lender says “yes,” then goes to work the next day and tells one of their colleagues about the decision to lend money on a real estate deal… to which they reply, “Are you crazy? The real estate market is terrible!”

Here’s how to handle this… right after you’re lender says “yes”… say, “If you happen to talk to anyone about your decision to lend funds on one of our real estate deals,  you’ll probably get a response like ‘the real estate market is in shambles’ or ‘are you crazy’ or ‘it’s a horrible time to invest in real estate’…

… so I just wanted to prepare you for that. That’s how the mass media paints the picture about investing in real estate… but you and I both know that NOW is a great time to invest in real estate based on what intelligent investors do… buy when the market is down.

Now, if someone says something about the terrible market or it being a bad decision to invest in RE, your private lender expects it… and doesn’t have to defend their decision because they knew this was coming.

Lesson #3Committed Funds Have A Shelf Life

In my investment biz, we’ve always said that good deal have a shelf life. Meaning if we don’t close quickly, we may end up losing the deal.

Well, it’s the same with private money. Wait too long and you’ll risk losing access to the moolah.

The quicker that you can put a lender’s funds to work in a deal after the commitment, the better.

Lesson #4The Worst Number In Business

This is something that you probably don’t want to hear… that may rub you the wrong way… but I’m here to tell you what you need to hear, not what you want to hear.

If a private lender gets cold feet and walks away right before closing and you lose the deal…

… it’s YOUR fault.

Sure, you can get ticked off, point fingers and blame the person who “caused you to lose the deal”… but I’m here to tell you that YOU put yourself in that position.

The worst number in business… 1.

If you ever rely on ONLY one source of funding, the only person you can get upset with if you lose a deal is yourself.

You want (need) multiple funding options to ensure that you NEVER lose a great deal.

Always have a back up lender in place.

Leave your thoughts and questions in the comment area. Let me know how I can help :-)

Happy Investing!

– Patrick

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Category: Negotiating, Real Estate Investment Financing Strategies, Tips and Tricks

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