What is a Private Money Lender?
A private money lender is a non-bank lender who offers capital to people and entrepreneurs. Each lender may use eligibility criteria they feel comfortable with when offering you money. That said, private money lenders focus more on relationship-based lending than collaterals and real estate value, etc.
You can use this money for investments, fix and flip, or purchasing properties. Furthermore, private money lenders may offer you money in installments or lump sums. It is also up to each lender’s discretion to ask for profit-sharing, interest payments, or they can even waive them.
How to Find Private Money Lenders in 3 Circles?
You can look for private money lenders in 3 circles. Let us briefly explore each of them.
Family, Friends, and Acquaintances
The first place to look for private money lenders is your personal circle, also known as “The Primary Circle.” It would help if you asked your parents, aunts, friends, other family members, and coworkers. Look for all possible potential lenders.
There are, however, negative aspects of raising money from friends and family. They may not be knowledgeable enough to know the difference between a good and bad deal. Be very clear about the risks. Make sure your lender truly has enough money for the deal and can afford to lose the investment if it goes south. Otherwise, the deal may sour the relationship.
This circle can provide that essential initial source of funds—like an earnest deposit money. Using money from primary circle lenders gives you time to create value by locating and locking up deals so that you can raise additional money.
The Investors
Also known as the secondary circle, finding an investor is the second circle. However, it is interconnected to the first circle as you can ask a family and friend to become an investor and share a percentage of profits with them.
If not, you can explore other options to find potential big fish in the sea through personal recommendations and ask them to invest by pitching your idea. However, these private lenders are hard to convince because it is all about securing their investment and profitability. Therefore, you will have to prove your worth when presenting your project.
The Third Party Investors
The third circle refers to investors, not from your circle. You have to research and find the right investors who are known to lend money or may consider your request. You would need to do some cold calling to get in touch with these lenders to request a meeting, pitch your idea, and then hope to get the amount you need.
This is the most challenging quest in your “how to find private money lenders?” journey because these lenders will be cautious and thorough with screening as they do not know you. Convincing them will take some real effort. So do your homework before you stand in front of a third-party investor.
8 Strategies to Find Private Money Lenders
Now that you know how to find a private money lender from one of the three circles, it is time to learn how to start looking for one.
1. Attending Foreclosure Auctions
People with lots of cash like to invest in a profitable venture, and real estate is an ideal investment sector for many. Therefore attending a foreclosure auction will give you direct access to many individuals who have cash that they would like to invest in a profitable commodity or business.
Act courteously and introduce yourself to people you think may be potential private money lenders. However, do not interrupt them when bidding for an auction, and do not try to oversell yourself.
2. Cold calling – the Old Fashioned Way
Create a list with all potential investors, pick up that phone, and start dialing. First, you can create a basic script that includes a quick intro, who you wish to speak to, and why. The next part of the pitch is when you talk to the investors and explain the reason for your call, i.e., your business plan and investment request.
3. Direct Mail Marketing
Yes, sending letters is old but still in fashion. You can contact an investor by mentioning how you found them and giving references of their previous investments similar to your project. This will instantly build a rapport with the investor to show you are knowledgeable about real estate investing.
4. Leveraging Your Social Outreach
These days you can spread the word by using your personal and social media networks. Let the people know that you are looking for a private lender and request them to come forward or recommend a lender.
You can even call and email your professional connections, such as closing attorneys, CPAs, or agents, to find out if they know any private lenders. This strategy may help you find a private money lender willing to invest.
· Attending your local business meetups
· Attending commerce meetings and conferences as your local chamber of commerce
· Attending events where you are most likely to find investors, such as local real estate clubs
5. Leveraging Public Records
If networking isn’t taking off, try searching public records. Each time a mortgage is made, the related documents are publicly recorded at the local county government, found online, or in the building itself.
While all sites are different, most offer searchable public records, including real estate closings and deals.
By digging into these, you’ll be able to figure out who funded deals in that particular county. While most will be banks, credit unions, and lenders, some will be individuals and small business-sounding names—and that’s where your private money trail begins.
6. Leveraging Online Mailing Lists
So, how to find private money lenders by yourself? Simply use a data broker site to post your business plan for which you want an investment and let the lenders come to you. Then, you can use DirectMail or ListSource to download the names of the investors and reach them via email.
7. Networking Always Pays Off
What if you cannot find a single lender in your first two circles? How do you find private money lenders in the 3rd party circle? Well, network as much as you can and continue to do so until you find a lender.
8. Crowdfunding
One of the problems faced by investors looking to get started with a real estate investment is the high barrier to entry. If you are looking to buy a rental property, get ready to shell out a down payment of 25% or more in most cases!
Crowdfunding raises money online from multiple people to fund investments.
Real estate crowdfunding platforms have created a unique solution to this problem. Now, you can pool your money with other investors worldwide, thanks to crowdfunding.
Conclusion
When working with private money lenders, your goal should not be to land a deal and move on. Instead, you should seek out someone you can present deals to on a long-term basis. If you focus on building a strong relationship, you can secure financing for your current and future investments.
I hope this helps, looking forward to joining you all in this journey to Financial Freedom & Education!
