A Practical Raising Capital Conversation with the RevNYou with Real Estate Partners
At one point or another, all real estate investors are going to have to raise capital for their deals. It’s not a question of if, but when!
Knowing this, what can we do as real estate investors to become exceptional, ethical raisers of capital within our own networks?
Join RevNYou with Real Estate Education Partners, long-time joint venture expert Gary Spencer-Smith and host Doug Meyers, as we discuss the ever-important subject of Raising Capital on this edition of the show.
Conversation points include:
Why raising capital is about relationships Building trust and integrity People need to know that you’re looking for capital! Sources of capital – both traditional and creative Educated real estate investors can always find the money Takeaway exercises to help you identify where capital potential exists in your network
If you’ve got any questions about this episode, please e-mail us at firstname.lastname@example.org.
Thank you for listening and we look forward to welcoming you to the RevNYou with Real Estate community!
Have you ever wanted to invest in real estate but you don’t have the funds to start? We are here to tell you its no excuse! There are many ways to get started in real estate without using your own money.
#1 – Use the equity in your own home.
If you’ve owned your home for a while and you’ve paid down your mortgage and perhaps the house price went up a little bit, you might have some equity sitting there. Use what you’ve got to get what you want. You already have it, so why not put that to use? Otherwise the equity is sitting there doing nothing for you. It might giving you peace of mind, but it’s not helping generate anything for your life. So use what you’ve got to get what you want.
#2 – Do you have RRSPs?
There are two ways of using RRSPs if you have your own. You can lend it out as a mortgage through a soft direct account. And the other one is if you’re an investor, you can use other people’s RRSPs. Now there are a few rules behind this. They can’t be a parent or sibling. There’s various rules and we’ve got a video that explains about RRSP mortgages on our YouTube Channel, but you can also use other people’s RRSPs and you can have that as a first or a second mortgage on your property. Typically we will do 8 to 10% on a RRSP for someone and that’s secured against an asset. This makes sure people are happy when they’re doing it and they’re happy to lend it. We usually do that for shorter term lender, not for long term lenders, but that’s what we use RRSPs for.
#3- Private Money.
This is sometimes called hard lending, but basically that’s somebody that has cash and they’re willing to lend it to you for a guaranteed rate of return. This can be high. I’ve done 50 to 60% of the deals that and we’re finding people that have money but they don’t necessarily have the time to put into a real estate deal. So we’ll use their money, we’ll put it in our time, and then together we will create a joint venture, then give them a return on their money. It’s secured against a solid asset. It’s in real estate. Most educated people don’t want to just put it in the bank, they don’t want to put it into a mutual fund. When the market crashed in 2007 2008 people saw the money just disappear. An example of who people may want to take it out and put it in a solid asset.
#4 – Be a Joint venture Partner.
If you might not be able to qualify for a mortgage, then we shall find my “friend Bob.” Thankfully, Bob has great credit and his ability to borrow to get the mortgage is possible. Now you and your “friend Bob” with create a joint venture agreement for a real estate deal! There are many ways of getting into a joint venture. A joint venture is you and at least one other person are going into a venture together to partner up to go purchase some real estate and it’s gotta be a win-win.
You want to make sure everybody’s happy and you want to make sure that everybody has different benefits that they’re bringing to the deal. Someone might be bringing the experience, someone might be bringing the money, someone else might be bringing the ability to borrow from a lender, are a few to name. If someone has money for example, which you may hear the terms; a private money lender or a hard money lender would be one person in the deal. Someone with no money may borrow this persons money because they’re self employed or cannot qualify. Its kind of like fitting the pieces into the puzzle or the different people into the same deal. Usually if your the one borrowing the money your skill will have to be putting in your knowledge and managing of the project. If you need investor training go to Rev N You School and see our real estate investing courses.
#5- Presenting a Good Deal.
And the final way, and this is probably one of the most important. One of my mentors said this to me very early on, they said, “Gary, if you find the right property and the right deal, the money will come to you.” Now I didn’t really understand what that meant. And then as I got further into the process of looking at properties, looking for deals, I then realized that you can’t say the wrong thing to the right person if your deal makes sense on paper and is simply a good deal! So what I mean by that is it, if you came up to me now and you were showing me the numbers on a piece of paper of this deal, and it’s a great investment. There’s lots of people I know, friends of mine, people in my narrow, they’ve all got great deals and when they show me on paper, I’m like, I would find the money for that.
For example, if I had a Porsche that was worth $150,000 you know it’s a really good one. And I said, Hey, you can have this push for $10,000 you might not have $10,000 in your pocket, but you’d find $10,000 pretty fast because you know that is worth $150,000. It didn’t matter if I was giving you the wrong information about the statistics of the brakes. It doesn’t matter how good the deal is, if it’s not the right person to invest and then not the right mindset, you could talk to them for three days. They will never invest. But if you have the right house and the right property, then the money will find you.
Finding Money Resources
BONUS TIP: Go to local real estate meetings and start to network and meet people! People are constantly connecting and finding joint venture partners by taking the extra time to go to events. It’s beneficial if you have a great deals ready to show people or talk about then follow up with them with more information.
Watch this video before you head to your next meeting.
Where to Find People with Money for Your Real Estate Deals
Hey there, I’m Julie broad with Rev N You and today I want to answer the big question around raising money for your deals. Where are the people with money hiding? Well, if you haven’t found the super secret place where they all are. I’m going to explain how you can uncover people with money to help you fund your deals. So the first thing is you have to let people know that you’re a real estate investor. I have met a lot of people who keep it a secret from the people. They know that they have investment properties, that they’re taking training to become a real estate investor. You have to let people know! Now I get it at your job, it may not be appropriate, but your friends and your family, they can know what you’re up to and they should because they’re going to help you find those people with money.
Step one is to let people know what you do. When you meet people at social gatherings, you can say, I am an engineer by day, but I’m a real estate investor by night and soon real estate will be my full time gig, right? Or whatever the case may be for you. But you need to start letting people know what you do.
The second trick is that you can’t be boring about it. So find an interesting way to tell people what you do. I was just at an open house a week ago, just around the corner from where we live and it’s one of our investment markets. While we were there, some people come through to look at the home. One guy looked at me and he said, “how’s your guys’s house hunt going?” And I said “we live just down the street, but I collect old houses.” And he said, “Oh well that sounds like an expensive hobby.” And I said, “well other people rent them from us and they pay the mortgage, it makes it a more affordable hobby.” But I said, “yeah, it can be an expensive hobby.” And he started to ask me some questions and unfortunately his realtor dragged him away to go look at another house before we could carry on the conversation much. But you can see how quickly that engaged someone. Oh yes, I collect old houses. Right. It’s an interesting way to look at it. Be interesting!
The third thing, is it new? Because if they don’t hear something different then normal, you’re going to be ignored and it’s just going to go right over people’s head. If you say, Oh, I’m a real estate investor. I know this happened for us for years because people thought we were real estate agents! We actually buy the houses ourselves so we weren’t even being interesting enough. So you have to be new and interesting to people. You want them to remember you and think of you.
If you just start doing these 3 things, your conversations will change and you’ll start to find people asking you questions about your deals and soon people will ask you whether they can work with you on one of your upcoming deals.
How to Create the Perfect Script for Raising Money
Joint Venture Partners
I want to help you raise money for your real estate deals. And to do that, I’m going to give you the five questions that you need to answer in order to have an investor give you their cold, hard earned cash. So those five questions, get that pen and paper out.
#1 – Why me?
#2- Why now?
#3- Why this market?
#4 – Why this deal?
#5 – Why this strategy?
Now, there’s some key elements under each of those questions that you need to answer and you’ll also need to know that I’m not encouraging you to memorize a script to answer each of those five questions because the other person you’re talking to doesn’t have the same script. So if they don’t ask you the questions they’re supposed to ask you or follow the format that you’ve practiced to follow, then you’re going to be all messed up.
I recommend you get comfortable with the key points that you want to cover and know that those generally are the five key areas that you’re going to have to discuss. Somebody has a comfort level in what you’re doing. Now the key point and the point that a lot of people mess up is they memorize bullet points of facts and then they regurgitate them and… it’s not horrible, but it’s not a very engaging or a very influential way to communicate. Let me give you an example from a client that I was working with. Although I’m going to make up neighborhoods for the sake of protecting the hard research that she’s spent most of the year doing in the city of Toronto. She got on the phone with me to practice this cause that’s one thing we spend a lot of time helping our coaching clients do is refine their five why’s. If you want one on one coaching involving joint venture partners go to our coaching page. We would love to help you out.
She was working on these elements and one of the things was why this area, why this market? She picked the Albert area and how she’s picked Albert area after a year. She went on to tell me there’s 450,000 people working in downtown Toronto and they have high paying jobs in the financial industry, healthcare professionals and professional services. And those are good tenants because they have high paying jobs. This area is also mostly houses where as a lot of areas in Toronto are now totally condos. And she also said that it’s a 12 minute subway ride to downtown, so it’s really easy commute for people.It was a good family neighborhood. She gave me these facts and it sounds good, right?
Oh, I forgot one of the key elements, the price of houses in that area. It was still possible to find houses for under $500,000 and the layouts of them were conducive to adding a second and sometimes even a third suite so you could turn a single family family home into a duplex or triplex. So those were the facts and it’s good information but it’s not that engaging or interesting. So I made a little change and I basically said, okay, it’s good information. So now here’s how you want to tell somebody. You know what? I have spent all year finding the perfect area for investment. And for part of the year I was really excited about Lulu town and Francesca Ville because those two areas had the house layouts, they’re close to schools, they had good transportation. And I really thought that I’d be able to attract good quality tenants to those areas. But I wasn’t satisfied with the price of homes. I didn’t feel like there was enough opportunity there with the price of home that I wanted to buy and to be able to add suites. So I kept digging and I dug and I put hours and I’ve spent my Saturdays going into these areas and I finally found “Albert area.”
Albert area is perfect. I’m so excited about the area. I can find houses for under $500,000 I can put a little bit of money into it, $85,000 – $100,000 to turn it into a duplex or triplex and that house now has the potential to be worth $700,000 but I won’t go too far into the numbers I want to tell you about this area and why it’s so cool because it’s a 12 minute subway ride to downtown. There’s people commuting an hour or two hours into downtown Toronto for work and these folks, they can live in a house, not a condo, which is what a lot of people want, a lot of professionals want and they only have a 12 minute commute. The areas, the sub pockets of Toronto always get discovered. So I’m certain there isn’t that much time to act on this area because it won’t be too long before people realize that there’s still houses for under $500,000 that we can make a lot of money on.
She still has more information to convey, but she’s going to stop, right? You’re not going to do your whole spiel. She’s going to stop there and see if they have questions, comments, and then she’ll engage a little bit more. Maybe ask them if they’re familiar with the area and go from there. So it is a conversation you don’t want to get too enthusiastic and get too carried away and talk too much, but you also really want to turn it into a bit of a story. So I tried to turn it into a story of how she found the area, and I haven’t even gotten into the fact that she has a killer team that knows this area, that has insider access to city of Toronto information and a few other key details, which she would then work the rest of the conversation.
It’s a big subject and something I love working on. I love taking the facts that people have and helping them create an influential and story with impact that will help others raise money too. But for now, start thinking about your answers to those five why’s so that you can start crafting your own stories and creating your own conversations to raise money for your real estate deals.
Do you want to access a massive amount of money to fund your deals?
I believe this is the largest untapped source of funds available to us because very few people actually know this option exists.
It doesn’t always make sense for you to use RRSP funds to finance your deals, but it can be a fantastic option for you.
Master this and you’ll always be able to find the funds for your deals. A mortgage can be held in a self directed RRSP account and when you tell your potential investors this they just might be surprised to find out they could be making money like a bank with funds in their RRSP account. With no management fees or advisor commissions to pay, RRSP holders could be making a stable and predictable 6, 7, even 10% or more return on their money inside their RRSP.
How many people do you know that have delayed retirement plans because of a sudden dip in their retirement funds thanks to a swing in the markets? When holding a debt obligation in your RRSP fund you have a lot more control over the risk, you have a say in the return you get, and you actually have recourse if you aren’t making the return you were promised.
Today, Dave’s put together a couple of videos to help you understand how to use RRSP mortgages to fund your investments.
7 Steps to Use RRSP Mortgages to Finance Your Real Estate Investments
Now that you have an idea of how they work, here’s when you might want to use them and how much you will likely have to pay a lender if you borrow their RRSP funds.
When To Use RRSP Mortgages
Have questions or comments? Posting them below the videos in YouTube or popping over to our Facebook Page are the best places to ask and get answered!
Want the only resource you need to use RRSP Mortgages?
How to Find Your Ideal Joint Venture Partner or Lender
Joint Venture Partners
One of the things I talk about all the time when I’m on stage giving talks about raising money, in our workshops or our live training about raising money for deals is; What you need to focus on when finding your ideal investor. I do this for two reasons. One is because it takes the focus off finding the money and kind of puts the power back in your shoes, right? Cause you’re no longer looking for money, you’re looking for somebody that is a great fit. And of course it’s critical to find somebody who is a great fit because if you don’t, it’ll be a pain in your butt. It’s very important to do that and it’s something a lot of people don’t do!
Many people think, I need somebody with money and then they can give me the money for the deal so I can buy more property. But there is more to it, you want to find somebody who’s a great fit and everything gets easier if you do that. But how do you know what is a great fit? It can be really hard to think about that and figure it out.
So here’s what you do.
Take out a piece of paper,
draw a line down the middle.
One side will be for what you DO want.
The other side will be what you DON’T.
All you’re going to do is make a list of everything do and don’t want an investment partner. So when we did this, we thought, okay, well we don’t want somebody who’s active. We want to be the only cook in the kitchen. So dinner turns out perfectly. We don’t want somebody who is an active investor. We don’t want somebody who asks us a billion questions. We don’t want somebody who only has a small amount of money. We don’t want somebody who wants their money out quickly.
Those are kind of things we started to write. And by doing that, we’re able to very clearly see who we do want. For example, we want somebody who’s hands off, they don’t want to be involved in the day to day decisions. They’re going to rely on us in our expertise and experience. To do that, we want somebody who has the financial capability of doing multiple deals. We don’t want this to be their last $50,000. We want somebody who can afford to do multiple deals. We want somebody who will ask some good questions to make sure their investment is secure, but they’re going to trust us and rely on us to make the decisions. They’re not going to challenge every little thing like, why did you buy that dishwasher?
So once you go through and you figure out what you don’t want, you can clearly figure out what you do want. Once you know what you do want, you’re able to sit across from somebody and ask really high quality questions to figure out if they’re a fit for you to work together. You can ask them, have you ever invested in real estate? Do you currently? Why or why not? Right? Find out if they’re active investor, what are you looking for in an in an investment, right? Do they want to be hands on? Do they want to be involved? Those are some of the questions that you can now ask because you know what you’re looking for, so hopefully that helps you raise money for your deals.
Finding Your Ideal JV Partner Resources
Go to local real estate events and start talking to people, build relationships and get to know them. A lot of people jump into a real estate deal with not much knowledge about a personal behaviors.
One lovely morning last week when we didn’t have any early meetings, we strolled along the seawall towards Starbucks. As we were attaching the leashes to the fence outside the shop another fellow walked up with a dog. We smiled, motioned to our pups and suggested he tie his dog up on the other side of the outdoor sitting area to keep things calm while we all went inside to enjoy a coffee.
He nodded and stopped where he could tie up his dog at a nice distance from ours. All was well.
Inside, as we were waiting for our drinks to come up on the bar he commented on what good dogs we have. I smiled and gave a silent thanks that they were in fact being good at that moment.
I commented on how good looking his dog was and he started telling us the story of how he came to have his dog as part of his family. It was a good story. He’d rescued his dog from a bad situation in the middle of the winter. I was smiling and nodding – encouraging him to go on – until he took a step towards me.
He’d moved into my space and had made me completely uneasy. I couldn’t end that conversation fast enough.
He probably had no idea what happened. I was totally into it one second and running away the next.
Unfortunately the same thing happens to so many people when they are raising money, presenting offers or even showing properties to tenants. When you are trying to build rapport, engage someone in a conversation and ultimately influence their action you need to be aware – very aware – of what you say and do and how it impacts other people.
The words you use are important but your message is impacted DRAMATICALLY by the things you do more than anything else. Where are your hands? What are they doing when you speak? Where are your feet pointing? What is your posture like?
Your Body Language Can Kill Your Real Estate Deal
I have spent a lot of time observing and thinking about body language in real estate. I’ve had the pleasure of meeting and learning from someone who is a worldwide known expert on body language, influence and persuasion (more on him in a minute). And, after hosting 10 different live workshops across Canada on raising money for your real estate deals, I’ve seen a lot of bad body language in action. When someone tells me they have been struggling to raise money, a quick look at what they do when they are talking about their deals can reveal a lot.
Here’s three of the most common things I’ve seen that kill deals (and while these things are most obviously going to impact your attempt to raise money it absolutely will impact your conversations with tenants, sellers, buyers and anybody else in your life that you’re trying to influence in any way!). Check to see if you’re guilty of any of them.
Body Language in Real Estate Tip One: Ignore that itch – scratching makes you look nervous!
In our workshops, when I walk up to a pair who are practicing their money raising conversations I can usually tell within 5 seconds who is the one presenting a deal and who is the one listening. The person presenting is often scratching or rubbing something.
We rub our arms to self soothe which means you’re uncomfortable. Itching anything makes you look nervous.
Get control of those hands. You’ll look and feel a lot more confident.
In Kevin Hogan’s newest book Invisible Influence he pointedly says NEVER touch your face. “Do not touch your face. It is never perceived as professional or attractive and can indicate deception.” (Kevin is the influence and persuasion expert I mentioned above. This is his 22nd or 23rd book on influence, persuasion and body language. You’ll find that gem on page 163 along with six other body language tips. This book is an excellent read by the way! I highly recommend it)
Body Language in Real Estate Tip Two: Where are your feet pointing?
Influence is about engaging and understanding the other person’s point of view. Most of us struggle with that because we are very focused on ourselves and the message we have to communicate. The most important person to focus on when you’re influencing someone is that person. Listen to them. Your entire body – right down to your feet – needs to show them that you’re engaged and really listening.
We first learned this one from Elliot Hoppe (links to a video) at a body language course we took. Where your feet are pointing is a good indicator of where you want to be. If you’re engaged in a conversation you’ll usually find your feet are naturally pointing to the person you’re speaking with. If you’re bored or annoyed or just ready to go, your feet will naturally point to the door or an exit.
You may think that it doesn’t matter because most people don’t know about this but the reality is that a lot of cues are processed subconsciously and the other person may not know precisely how they know you are (or are not!) listening to them, but they will just know you are.
Body Language in Real Estate Tip Three: Sit Still – Especially When Someone Asks You a Question
I had a boss that used to lean back and then cross his ankle over his knee when I asked him a question that made him uncomfortable. It happened every single time.
I didn’t know anything about body language at the time, but I knew enough to realize that I was about to get a story when he did that. It was a defensive reaction. He didn’t want to answer my question so he’d tell me a story. He had great stories but most of the time the story didn’t answer what I was asking.
The point is that I knew it was coming. I also knew that he wasn’t being open and honest. He was hiding things from me.
I would walk out of the meetings where this happened irritated. I was getting a line and I knew it. He would probably feel good that he handled the situation well and told me a motivational story in the process.
When someone asks you a question that makes you uncomfortable pay attention to what you do in reaction. In our workshops the most common reaction is what I call a human pretzel move. Most people cross their arms or legs or both! And they do it without realizing they are doing it … and it’s almost always in immediate response to a question that makes them uncomfortable.
Think about what you are telling the other person when you do this. You are sending their unconscious mind signals that you want to hide the truth, you’re uncomfortable with the question and you’re not confident.
Even after 4 years of running our real estate investment business full time, eleven years of history of never missing a mortgage payment on any property, and a substantial net worth, we still find it challenging to finance our investments. In September we bought an beautifully cash flowing triplex. In order to finance it with the bank we had to show 3 years of mortgage and interest payments just hanging out collecting dust in a bank account. That’s on top of the 25% down payment that also has to be sitting in a bank account for 30 days before we even apply for the mortgage.
We bought it for $325,000. In order to even apply for the mortgage we have to have about $130,000 in cash just sitting around.
If you are starting to think about becoming a full time real estate investor and leaving your job, I encourage you to finance as many properties as you can while you have what the bank perceives to be a secure job. You’ll also want to start planning for your funding and financing future (one of the best ways to do that is to join us for one of our Fund Your Deals in 49 Days LIVE training events – we’ll help you build a funnel of sources for funds!).
The good news is that you do have some options when the bank says no or you don’t happen to have hundreds of thousands of dollars sitting around so the bank will say yes.
No Money Down – No Bank Needed
If you watch late night infomercials you’ll probably feel some attraction to the no money down, no qualifying at the bank strategies. We’ve been right there with you … not once but twice. We’ve invested almost $40,000 into learning “no money down” and no bank needed investment strategies.
The biggest lesson I can share with you is that just because you can do deals with no money down doesn’t mean you won’t need money.
Sandwich leases are a popular one these days for Canadians that want to do no money down and no bank needed type deals. A sandwich lease is simply where you find someone who will allow you to lease option their home from them and you turn around and offer it as a rent to own to someone else. You pocket the difference in monthly cash flow and option fee.
In theory this is a great strategy. The reality isn’t as pretty. It takes a lot of marketing effort to find the deals. It also takes a lot of effort to educate and explain what you’re doing to the seller. Finally, you’ll find the houses are generally in a state of disrepair and need some investment to improve them so you can attract good rent to own tenants. How much money do you want to put into a house you don’t own? The final issue is that it rarely works out that your lease option term aligns with the term that your rent to own tenants are able to buy within. It’s tricky. Your upside is limited in this type of deal and while you CAN do it without the bank, we find most investors get into this type of deal really excited and work hard for a year or two and then look for something new because it’s so much work for a minimal pay day.
Generally when we did creative deals – whether it was a sandwich lease, wrap mortgage or some sort of seller financed strategy – we ended up with problem properties and challenging tenants. We basically created a full time babysitting job for ourselves. That is because the kind of deals you can do creatively generally are not the great properties in good areas. They don’t attract the best caliber of tenant nor do they have minimal maintenance requirements.
The no money down and no bank needed strategies work but they didn’t work for the life and business we wanted to create.
The strategies we use to fund and finance our deals include Vendor Take Back Mortgages, Private Money, RRSP mortgages and joint venture partners. Sometimes we use a combination and other times we just use one. These strategies allow us to focus on doing great deals in areas that attract the best tenants. Our tenants typically love their homes like they were their own, apologize when they are late with rent or give us a heads up that it might happen, and rarely call us with problems. That’s because we focus on doing the deals that allow us to create a business and life we love instead of doing deals just because we can do them creatively or with little money down or no banks.
4 Great Ways for Getting the Money for Your Real Estate Deals
Vendor Take Back Mortgages
Seller financing, more commonly called a VTB or vendor take back mortgage is simply where the seller (Vendor) of a property is willing to provide some (or all) of the mortgage financing on that property.
Seller financing can take several different forms. We’ve done deals where the seller provided the entire mortgage, which amounted to 80% of the property value. We paid her 6% interest amortized over 25 years for a 3 year term with no prepayment penalties and an option to renew. She was able to sell her house in a slower market and made more money from it than she otherwise would have through three years of interest payments. We also have used seller financing to top up traditional bank financing.
Private money is simply money from an individual. It’s different than hard money. Hard money lenders finance deals for real estate investors as a business. They are more sophisticated in their investment terms and will typically seek quick repayment at high interest rates. With private money you can have more control over the terms of the loan. You can offer terms that suit your needs and offer a good return for your private lender.
The easiest way to find private money is to call your favourite mortgage broker and ask if they have any private lenders. That money is expensive thought. The upfront fees on those funds alone are usually1-3% of your mortgage amount. On a $250,000 mortgage that means up front you can start off with a $7,500 fee plus pay at least 7% interest on the loan. That’s ok if you’re in a pinch with a strong cash flowing property, but our preferred source of private funds is to raise them ourselves.
We find that a lot of folks have paid off their homes and are willing to put a line of credit on the property and loan that money out for a premium. One of our favourite strategies is to borrow $350,000 from someone’s line of credit to buy and renovate a property. We paid them 5% + their line of credit costs. (See an example of a property we’re doing this on right now in our video series on adding a legal suite to a property).
Mutual funds and stocks are not the only investments that are RRSP eligible. A mortgage can be held in a self directed RRSP (or RESP, LIRA, or RRIF) account. This is probably the largest untapped source of funds available to real estate investors because very few people know this option exists.
Master this and you’ll always be able to find the funds for your deals. With no management fees or advisor commissions to pay, RRSP holders could be making a stable and predictable 6, 7, even 10% or more return on their money inside their RRSP.
There are some additional rules around using RRSP funds though. For example, you can’t borrow funds from your immediate family to fund your investments. It needs to be arms length. You also can’t use the RRSP funds for a down payment directly on a property. You’ll need to put the funds on a different property as a first or second mortgage and then use those funds on the new investment. **We now cover using RRSP funds in our Fund Your Deals in 49 Days Live Training**
Joint Venture Partners
This is the most powerful strategy in our investment tool box. It’s the strategy that has allowed us to comfortably add a new property to our portfolio almost every month.
Our joint venture deals typically are structured so that we find the deals, oversee all work and management and split the proceeds 50% / 50% with our partner. In exchange for all experience and efforts, our partner puts in the cash required to close on the property and puts their name on title so they qualify for financing from the bank.
If anything goes wrong with the property and requires cash we are partners and split the costs 50% 50% just like we split the proceeds.
Busy people love this option. They don’t want to spend the hundreds of hours we’ve spent learning an area, building a team and digging up deals. And they definitely don’t want to take calls from tenants or handle issues around the property management. They can get into real estate without the hassles of being a landlord.
Quick – you need to get $25,000 for a renovation on one of your rental properties. That renovation will allow you to add another suite and increase your monthly positive cash flow by $800/month. It makes great business sense to do the work but you don’t have the cash.
Your line of credit is maxed out because you used it for a down payment and now the bank isn’t interested in lending you any more money. What do you do to raise money for real estate investing?
There are lots of options to get money for real estate investing but unless you can (or want) to tap into equity in your home with a refinance, all the options you have require that you raise some private money.
Private money is simply money from an individual (instead of a bank or credit union). It’s different than hard money. Hard money lenders finance deals for real estate investors as a business. They are more sophisticated in their investment terms and will typically seek quick repayment at high interest rates. With private money you can have more control over the terms of the loan. You can offer terms that suit your needs and offer a good return for your private lender.
The easiest way to find private money is to call your favourite mortgage broker and ask if they have any private lenders. Most mortgage brokers work with a few wealthy folks that have money to lend or they will refer you to a mortgage broker with private money connections. If you have decent credit and the property generates a solid cash flow you should be able to find money this way, but that money is expensive.
The upfront fees on those funds alone are usually 1-3% or a minimum of a $2,000 fee (whichever is greater) of your mortgage amount. On a $25,000 loan or mortgage that means up front you can start off with a $2,000 fee plus pay at least 7% interest on the loan. That’s ok if you’re in a pinch with a strong cash flowing property, but there are much better alternatives. And those alternatives are usually found by reaching out to friends and family for referrals or getting out there and meeting some other folks interested in real estate investing.
The goal is to get a face to face meeting with people. In that face to face meeting you can look each other in the eye and determine if there’s a good fit to work together, you can assess what each person brings to the table and make sure you’re offering a deal that makes sense for both of you. In ten years and millions of dollars of other people’s money raised for our deals, we’ve only ever ONCE raised money without a face to face meeting. In that one case it was with someone we had a long standing relationship with and, quite frankly, we gave him the best deal we’ve ever given anyone because we found ourselves in a bit of a last minute bind.
Generally you have to have ONE face to face meeting to move your money raising efforts forward. But most people never get to that face to face meeting because they do one of two things that cause you to fail almost every single time. How do we know?? We messed up dozens and dozens (ok probably more like a hundred) opportunities before we figured out these deal killing mistakes. Today I am going to hand them to you on a silver platter to save you a lot of trouble and a lot of headache from banging your head against the wall wondering why things aren’t working!
2 Things that NEVER Work to Raise Money for Your Deals:
1. Email I don’t like the telephone. Unless I am expecting a call I don’t answer the phone. My preferred mode of communication is in person, or via email or text. So to get to the in person meetings I tried REALLY hard to find a way to raise money via email. I used all my writing skills to write compelling emails. I spent hours writing people personal well thought out messages. I sent dozens of emails.
The result? I felt lousy because EVERYONE ignored me except a few really polite friends or family that would send back some very awkward email saying “thanks for thinking of me I will review this later.”
Then I started to get annoyed at how rude people were … until I realized it wasn’t them … it was ME!!
Email does NOT work. I don’t care if you have the HOTTEST deal to hit town in a decade, email is going to flop 99% of the time.
Email only is an effective tool after you’ve met with someone and they have indicated that they want to work with you. Save yourself time and embarrassment and DON’T EMAIL PEOPLE your deals and ask them to work with you. Yea – email feels easier at first because you avoid having people say no to your face but the reality is that all people will do is ignore you so it’s ineffective and a waste of time.
2. Spilling your candy in the lobby This was the lesson Dave learned. He LOVES to talk on the phone. He loves to catch up with his friends and family and learn what people are up to in their lives. He also gets pretty excited when somebody asks what we’re doing. So … he would get on the phone with someone he wanted to set up an in-person meeting with and when they’d say “What are you up to these days Dave?” he’d proceed to basically tell them everything about what we’re doing with our investments negating the need to get together. The problem is that you pretty much HAVE to get that face to face meeting to get the deal done.
Dave wasn’t sure what he was doing wrong so we called up our friend & private money raising expert Patrick Riddle (www.mustknowinvesting.com) and asked what we were doing wrong. He simply said “You’re spilling your candy in the lobby and there’s nothing left for the show.”
You want to give people a reason to meet with you and if you tell them everything that you’re doing on the phone then there’s no reason to meet. You have to keep the call brief and interesting. Give them a reason to meet with you and then get the date and time set up.
One of the best ways to do this is simply say “Jason I’ve been driving by your car dealership and I keep thinking that I really admire and respect what you’ve built with your business. I’m working on a few things and I would really appreciate your opinion. Have you got time next week so I can pick your brain and buy you lunch?”
Nobody ever says no to that kind of invitation and next thing you know you’re having a lunch, learning and finding money for your deals!
Of course … now you might be wondering what you say when you get to the in-person meeting but that’s a little trickier than we can cover in one little article!! Simply stated your objective is to get an understanding of whether your investment program is a good fit for their needs. If it is, confirm their interest and let them know that you will follow up when you have a specific deal that fits their criteria (or present your deal!). If it isn’t, then ask if they know anybody that might be interested.
Hey there, it’s Julie broad with Rev N You coming at you with a real estate investing video tip. And this one’s quick, but I’m going to make a very big, big point when it comes to raising money for your deals. Here’s how a guy approached me recently and he was like, I found this deal and it’s a duplex and it needs a bit of work, but I think we can get it for X price. I want to figure out why I’m not able to raise money because I need to get these deals done and I’m finding good deals. I don’t know exactly what he said to me, but my point is this might’ve been the best deal on Vancouver Island, which is where I live and invest. It might’ve been the best deal, but no one is going to work with this guy on this deal.
And it had nothing to do with the fact that he was a little nervous. It had everything to do with the fact that this guy had no energy. He was like, uh, you know, if I talked to you like that on this video, you would’ve clicked away like 45 seconds ago. So if you’re out there in public, and I hope you are talking to people, generate some energy, slap on a smile, show some enthusiasm. If you want to be in the real estate business, you’re going to have to show that you like it. And if you don’t like it, why are you in it? Because it’s going to be a rough ride. There’s times when you won’t like it, even if you love it. So get out there and meet people. I highly encourage you to do that, especially if you’re raising funds for your deals, but you’re going to have to have energy and enthusiasm for what you do. But you know, why did he do that? If you make that effort to smile, to be enthusiastic, to be positive, you’re going to find that it’s quite a bit easier to raise money for your deals. And you might even find a few cool opportunities that find their way to you. And you weren’t even trying. So smile, be energetic and have fun.
If you’ve been finding that money for your real estate deals is hard to come by -private money just might be the answer. In today’s article private money broker Shannon Quickfall gives you a good understanding of what a private lender will look at, and what you, as a borrower, should know.
I was scrolling through Twitter posts the other day and one of the people I follow had posted this joke:
A man walks into the bank and says to the bank manager “I’d like to talk to you about a loan”. The bank manager says “Great! How much can you lend us?”
I laughed because Dave and I had gone into the bank earlier in the week to make some large cash withdrawals. We owed my brothers a bit of money for their help with our rental property renovation in June, and we had to juggle money around to a few different accounts for property taxes and other upcoming bills. When we started giving the bank teller the sums of money we were going to withdraw, she started to panic saying that we should have called the bank ahead of time to let them know that we were going to be taking out more than a few thousand dollars in cash.
“But – you’re the bank! If you don’t have money, who does?” I was thinking.
Of course we smiled and apologized and eventually they were able to round up enough cash to meet our requests.
We had to laugh though – if you can’t go to the bank to get money where can you go?!
Of course, you might feel the same way when it comes to finding money for your real estate deals! The lenders have added so many restrictions that people all over North America are finding it darn near impossible to find financing for rental properties. In Canada, in particular, the regulations have changed so much in the past few months that people with multiple properties (like us!) are faced with a mountain of paperwork and a whole lot more trouble than ever before.
But, as we’ve said over and over, we don’t focus on the obstacles we’re facing. Instead, we place our attention on the ways we can get around those obstacles.One way to get money for your deals is to turn to a private lender.
Previously, we had a great article on private money and a fabulous video from Patrick Riddle of MustKnowInvesting.Com on the subject … this week we’re pleased to present a private money expert from our own backyard in Burnaby, BC to help you learn a little bit more about private money.
An Alternative to the Traditional Lenders Private Money: An Introduction For Borrowers
by Shannon Quickfall
How many of us have found a great deal but, for various reasons, just couldnot secure sufficient financing to make it work? Or how many of us have been in a deal where we needed refinancing but could not get it on the terms that we wanted? When that happens, we end up watching that opportunity pass us by – and in some cases there was a solution! There was a way you could have secured the financing you needed to close that deal.
Private lending is often an overlooked solution to financing problems. misconceptions, myths and mystery surround private lending.
There are a variety of lenders that could be called private lenders, for which the fees and costs of financing vary substantially. The focus of this article is to discuss private individual lenders, not institutions or investment corporations. The private individual lender can be difficult to access and so many borrowers end up with private institutional lending which can be more costly when fees are added in. Some of the benefits to using a private individual lender is that, in many situations, there are more opportunities to customize the mortgage that the borrower needs and, in many deals, fees can be lower than other institutional private sources.
How does private individual lending work?
A mortgage broker who specializes in private financing can help a borrower find an individual who will lend ‘privately’ (i.e., not through a bank or institution but directly on their personal behalf) on a property. An individual lender seeks a better return than bonds and does not want the risk of the stock market; instead, an individual lender wants to make money off of real estate without directly owning it.
A private mortgage is generally short term in nature (typically 12 months), is secured by real property, and the return is the interest that the borrower pays with, possibly, a lender fee.
The lender will make an offer on the mortgage stating the terms that they require to lend the mortgage. There can be a negotiation and private lending offers opportunity to tailor mortgage requirements more so than an institution who only offers certain mortgage products that may or may not be open and may or may not have other requirements. When an agreement is reached, a lawyer or notary will prepare the necessary documents and a charge will be registered against the property just like any other mortgage. Private financing does cost more that conventional financing, and private money is a market like any other which is moved by supply and demand; the price of which fluctuates accordingly. The following are some of the situations where private financing offers significant benefit:
1. A private lender, may lend more on the basis and merits of the property so if a borrower has less than perfect credit or lack of credit or has a difficult time proving income but the property itself holds good value, the latter can make the deal work for a private lender whereas a conventional lender will decline it.
2. Private borrowing can also work for properties which are held in a trust, even a foreign one. Most banks won’t lend to a trust because they require a personal guarantee.
3. Private lending is also a good solution for temporary needs, such as when a borrower feels that in a short time their credit may be good enough to get conventional financing or if they are waiting for another deal to close in order to release funds to use for the new deal. This works well with private money because most private mortgages are for relatively short terms, 12 months or 24 months.
4. Private mortgages can even be negotiated to be ‘prepaid’ mortgages, such as when the borrower doesn’t want to make monthly payments; this way the borrower simply pays the whole amount (including the capitalized interest amount) back at the end of the term. This especially makes sense for someone who is selling their property and knows they will have the funds to payout the mortgage within a year.
5. Private lending is also a potential solution if the location of your property is outside of where a conventional lender is willing to lend.
A private lender has the same rights as a bank when it comes to being paid. If the mortgagor is behind on payments the private lender has the right to pursue foreclosure just like a bank would in accordance with provincial or state laws. As well, if payments are late, it is typical for a charge to be added which would be defined in the mortgage agreement. Some private mortgages may require the borrower to have life insurance but it is not necessarily a standard clause. What is important to remember is that for the extra cost of financing the borrower has the opportunity to negotiate what terms are important to them to make the deal work and a private mortgage broker can help with this as a mediator between the borrower and the private lender.
Private lending might be the right solution for you, but it’s worth nothing that it is not a solution to buy property with no money down. Realistically, in the current market, most private lenders will not lend above 80% of the property value, so you need to have at least 20% equity (and commercial properties need even more). Private mortgages can be in first or second position, and possibly a third depending on the amount of equity. They can be used for residential, commercial and even in construction financing.
Written by Shannon Quickfall, BBA
Shannon has a background in finance with a BBA from Simon Fraser University and currently a CFA candidate. She works with borrowers and private lenders to create mortgages that meet the needs of both parties.
Shannon can be contacted at: http://www.custommortgages.ca Toll Free 1.877.294.9330 Toll Free Fax: 1.888.241.5767 Posted on July 14th, 2009
Are you having trouble getting the cash you need for your real estate deals? Have you ever lost a great deal because you didn’t have funds to close it? Is a lack of financing killing your real estate investing dreams?
If you answered “yes,” to any of the questions above, then private money may be THE solution for you.
“Patrick, what do you mean by private money?”
Private money is investment capital from an individual. There is a limitless supply of private money lenders to finance your deals. All you have to do is educate people about your investment program and help them understand why becoming a private lender is a good alternative to traditional investments like stocks, bonds, mutual funds, and CDs.
7 “Must Know” Tips to Getting Private Money for Your Deals
1) It’s All About Personal Relationships
Investors approach me all the time and say something like, “I’ve got this great deal under contract, and I need some private money to get it financed. What would your private investors charge to finance my deal?”
What people don’t seem to understand is that getting private money is all about personal relationships . . . relationships that YOU build with your private money prospects.
2) 3 Types of People Most Likely to Invest with You
The first type is people who know and trust you. This could be a family member, long time friend, neighbor, someone from church or school . . . really anyone that you’ve built a long term relationship with could be a good source for private money.
The second is people who know a good deal when they see one. Anyone who works in a field related to the real estate industry could fit in this category. Examples would be real estate agents, mortgage brokers, bankers, appraisers, home inspectors, attorneys, accountants, etc.
The last type of people most likely to invest with you is the best source of all . . . people that know someone who has invested in a property of yours. Or, in other words, referrals! Once you get your private investor base established, ask them who they know that would also like to make a good solid rate of return backed by real estate.
3) Plant Seeds Voraciously
By “plant seeds,” I mean “get the word out about your investment program.” You can plant a seed by telling someone about it, handing someone a business card with details, directing traffic to a website, or any other strategy to introduce the idea that you finance deals using funds from private investors.
I found that when getting started with private money, it took between four to six months on average to get someone to invest with me after presenting my investment program to them. Sooooooo, get started planting seeds immediately!
4) Less is More
When you are first telling someone about your investment program, less is more! All you want to do is pique their curiously and get them into a formal appointment.
Do this by saying something like, “We buy houses and use cash from investors, just everyday people like you and me, to finance our deals. Our investors are typically tired of the volatility of the stock market and frustrated with meager returns from CDs and mutual funds. Our main service is to provide good returns to investors backed by real estate. Is that something that you would like to learn more about?”
Keep in mind that the goal here is to . . .
5) Get the Formal Appointment
This is where you will present your investment program to the private money prospect. I’ve provided a link in my bio below where you can download a free customizable PowerPoint presentation to use when meeting with prospects.
Make sure that all decision makers are present when you have your appointment. Good meeting places would be an office (if you have one), a coffee shop, or the prospect’s home.
6) Present Your Investment Program . . . Not a Specific Deal
It’s much easier for someone to object to a characteristic of a specific deal than to an ongoing investment program.
If you present a deal, your prospect may not have the required funds, may not like the area or the property.
Once you sell someone on your investment program and you find out exactly what range of funds they have, timeframe available, and how they would like to receive their interest payments, you would only present deals that make sense to them.
7) Following Up is THE Key to Building Your Investor Base
The reason that I’ve been as successful as I have with getting private money is because I followed up with people that I presented to until they invested with me or told me to get lost.
I would add people’s names to my follow up list every time I had a formal appointment. Then, I followed up with them every time I had a deal that met their needs and goals. There are three slides in the PowerPoint presentation that are titled, “Investor Evaluation.” Make sure to write down the information that you elicit from asking the questions on these slides. That’s how you will match up deals that you have on your plate with private investor prospects that you’ve met with.
Patrick Riddle has been a full time real estate investor for over six years, has done well over 100 deals, and has recruited over $6,000,000 in cash from private investors. He shares his knowledge and experience on his creative real estate investing blog. To get your free copy of the “How to Recruit Private Money Millions” eBook and PowerPoint presentation, go to http://www.mustknowinvesting.com/freestuff.html