Discover how to raise private money for your house flips. Many people are scared of private money because they don't think they know the right people and they've never done it before. In this video we're going to help overcome some of those fears and I'll share with you what it really takes to do this right.
Do You Need Money to Flip Houses?
Just imagine having enough money to do all the house flips you’ve always wanted to do. That’s what makes private money so powerful – it gives you the ability to do more deals because you're using other people's money. Now you may have some of your own funds to work with, but even so, you’re still limited on how many deals you can keep going. Now wait a minute, you may be asking yourself: “I thought you all taught people how to flip houses with very little money out of pocket?” And we do! We’ve been doing it for nearly 20 years and we’re arguably the best that’s ever existed in the history of this industry at doing that. But times are changing.
State Requirements
Some states are now requiring you to be on title before you can flip a house. Oklahoma changed that years ago; and South Carolina just changed their wholesaling laws. And there’s potential that may spread to other states. If you’re not sure about your state, or have heard of legislation in the works, let me know in the comments.
Seller Needs Cash to Move
Besides state requirements, not all deals can be easily wholesaled or sold prior to closing. Sometimes the seller lives in it, and they can’t afford to move out until after closing, after they have their cash, and it may not allow you much time for a showing. So being ready to get them faster cash allows you more opportunities.
Repair Stigmas for Bigger Returns
You’ll also come across deals that have a few eyesores or even stigmas:
- Maybe there’s some minor mold that needs removed
- Cigarette smoke that requires an ozone machine.
- Pet stains that need treated.
These can all be remedied, but you’re not going to spend the money until you own the property. And without dealing with those items, a lot of buyers will pass, or make you much lower offers.
More Cash Allows for More Deals
So, there are times where spending a little time and money can yield you a much bigger return. And the bottom line is that access to more cash allows you to do more deals!
The 3 Keys to Raising Private Money
There are 3 keys to raising private money, and they’re likely not what you thought, but they’re fundamental to your success.
1. You’re Working on a Good Deal
First, you need to be working on a good deal. We covered this in more detail in another video: Why You’re Failing to Get Funding for Your House Flip.
Property Value: But foremost here is that you must be clear on the property’s value, and you do that through MLS comps. Anything less and you’re potentially in the dark, and that can cost you dearly.
Property Condition: You also MUST know your property’s condition, so all your expenses and planning are accurate. You can’t afford any surprises!
Market Demand: Finally, to be sure you have a good deal, you need to know your local market demand.
These should be a given but miss them and you’ll suffer the consequences. We specialize in teaching our apprentices how to get good deals!
2. You’re Able to Provide a Great Return
The next key to raising private money is providing a great return. That starts with what you already clarified: your property’s value, condition, and the market demand. When you have that information, you can put together a quick and easy pitch because you need to be able to confidently show your private money lender that you can provide a solid return, in a quick, effective, and professional manner. And we show our apprentices how to do that. Anyone considering loaning you money wants to know:
- What will it cost me?
- How much will I make?
- When do I get it?
Attorney Drawn Paperwork: Additionally, part of building confidence in a great return is using attorney drawn paperwork. Your private money lender needs to be clear on the opportunity, and legally protected. Now you may try to skip this step to save some money, but that’s not in your lender’s best interest, and therefore it’s not in yours.
Your private money lender may not have a lot of requirements, and that makes it easier, but that means you value that relationship all the more and want to avoid any misunderstandings or problems. If you’re going to trip and fall learning lending, or even real estate, do it in front of a hard money lender or a bank, but NOT in front of a private money lender!
3. A Deal Where You Can Be In and Out Fast
The third key to raising private money is you need to be working on a deal where you can be in and out fast. Long, drawn-out rehabs always bring lots of surprises and added expenses and headaches. You want to focus on cosmetic rehabs rather than full renovations. And don’t try to do it all yourself, that doesn’t actually save you any money. Rather it just prolongs the project and compounds the headaches. Line up good contractors that can get the work done right, and quickly. You want to go into the rehab with accurate bids so you can stay on time and on budget. Plus, when you’re working on properties that are in market demand, in safe and affordable areas, you won’t be stuck dropping your price and waiting for a buyer.
Private Money Sources
That brings us to our big question, who do you get the private money from? We’ve covered funding on another video: How to Fund Your First House Flip. And if you’ve watched that one, you know that private money is one of the 3 most common ways to fund house flips. A lot of people assume that private money will only come from friends and family. But what do you do if you’re surrounded by friends and family that are broke? Well, it turns out there's a lot of people in your sphere of influence that you could connect with, that may have money they need to put to work:
Accountant: The accountant that does your taxes.
Doctor: You’re paying a fortune to sit in that waiting room, you might as well ask the doctor if they want to get a great return on some house flips.
Other Business Owners: How about the business owners you deal with regularly that don’t have time to find and do deals but would absolutely go for a better return on their money than they’re getting otherwise.
Other Home Owners: We’re also in a unique time where there are a lot of homeowners that have a lot of equity in their homes, and they don't really know where to put the money. They're nervous about putting it in the stock market. A real property investment, that’s secured by the real estate can be a great opportunity to get a return on their dormant equity through a line of credit, or even the right retirement account.
So, there's a lot of people around you each and every day, that if you just thought about it and had a conversation, they're looking for places to put their money to grow it. You just need to present the opportunity.
Private Money is Relationship Based
Now keep in mind, private money is more relationship based than hard money loans, which can mean better terms. For example, a lower interest rate, perhaps without points, and you may be able to skip the monthly payments. However, private money doesn’t stop at the relationship, you of course have to follow the three keys and have a good deal that will yield a great return, and you have to be in and out fast. And that means don’t gamble on risky deals because this is other people’s money and you can’t afford to make any mistakes here! So, you better do this right!
Raising Private Money Doesn't Have to Be Scary!
That’s why we very carefully focus on each and every one of these steps with our apprentices; because when you’re doing a good deal, and you’re in and out fast, and you get your private money lender paid back with a great return, you know they will want to go do it again and again! And that's the beauty of flipping houses with private money. When you do it right, you're going to have more money than you have deals! And that’s where you want to be!
Every Successful House Flipper Has a Mentor
Raising private money doesn’t have to be scary. You have more access to cash around you than you know, and when you learn how to find good deals and present the right pitch, you can raise the private money you need to take your house flipping business to the next level. We work with our apprentices, day in and day out to find, evaluate, and successfully complete profitable house flips using private money. It’s a win-win arrangement that has helped countless investors create house flipping businesses that are money making machines! If you want to learn how to raise private money and build a business that will transform your financial future, apply to our Apprentice Program, where Phil, Devin, myself, and the rest of our team will mentor, coach and guide you to tremendous success: Freedom Mentor Apprentice Program.
If you have questions for us, text FREEDOM to 305-315-8030 or post a comment below.
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