5 Important Questions To Ask Yourself Before Finding A Private Lender
One of the great things about investing in real estate is that you don’t need your own funds to get started. Sure, having disposable money is nice but it is far from a necessity. That coupled with the fact that there are more capital options available than ever before makes this a great time to be an investor. With all the increased competition in the market, it is essential to have a plan in place before you start your search for money. If not, you run the risk of making a poor first impression and spoiling your top capital options. This is a great time to invest in real estate, especially if don’t have your own funds to get started. Here are five important questions you need to ask if you are looking for money.
- Who is my target? The very first question you need to ask is “what is your target market?” As we mentioned, there are more capital options than ever before. That being said, not all of them are a good fit for you and your business. You need to figure out if you want to work with private money lenders, hard money lenders or a traditional bank. Private money lenders can be any friends, family or personal contacts you know that have money they are looking to invest. Hard money lenders are individuals or groups that act like a bank without the red tape of bank underwriting. Traditional lenders require personal capital as a down payment, but more programs are coming out all the time and are worth looking at. Matching your goals, investing style and personality to your capital option can make things much easier or more difficult depending on who you use. Always start with your potential target market and go from there.
- What is my plan for the capital? Simply put what do you plan on doing with the money? If you are looking for capital, you are probably into quick flips and rehabs. Most lenders are not willing to tie up their funds with long term rental properties. That said, you need to have a plan of attack with your purchases. You need to know everything about the market you are thinking about, what types of properties you will pursue and how you will generate deals. Whoever you approach for capital are going to have plenty of questions and it is essential for you to quickly and confidently answer them. You don’t necessarily need to know everything, but you should have the basics of your business in mind. Take the time to research your plans and ask yourself questions about them. If there are holes in your approach, make some tweaks or outright changes prior to reaching out for money. You need to think of your request like a presentation and be as prepared as you can be for anything that may come your way.
- What value do I bring to the table? Nobody, regardless of how well they know you, is going to blindly hand you money. In order to separate yourself from the pack you need to bring something to the table that helps you stand out from the crowd. As you consider who to reach out to for capital, you should ask yourself what you bring to the table. Do you have years of experience or contacts in a comparable real estate field? Do you have access to deals that can give you the inside track? Have you turned away opportunities because you didn’t have capital? Whatever it is that makes you unique should be a selling point. Your capital partner is going to want to hit the ground running and typically won’t offer funds unless you have a deal on the table. It is important to add value to the relationship to ease their concerns and make them feel confident.
- What systems/team do I need? As part of your pitch you need to have your systems laid out and your team in place. It is not too early to start reaching out to prospective team members and forming a team. Everyone from your real estate agent to your contractor to attorney is a valuable piece of the puzzle. Explain to them where you are in the process and what you are looking to do. Some may be turned off by your experience but those who are willing to work with someone on the ground level will relish the opportunity. As you look for your team you need to get your systems in place. This will help define the types of properties you entertain and the offers you make.
- How much time can I dedicate to real estate? You don’t need to invest full time to make money in real estate. There are many investors who only close a deal or two a year and are entirely comfortable with that. However, it is important that you, and your capital, partners know just how much time you can dedicate to the business. Do you have a full-time job that restricts phone or computer use? Can you work from home and are able to evaluate deals in your down time? Can you oversee a project if you get an offer accepted? You can probably make things work regardless of how much time you have available, but you need to know what you are working with.
Capital is more available than at any time in recent memory. Don’t waste the opportunities that are out there but not knowing what you need to do to get it.