I think the better question is why wouldn’t someone give you $100,000 in cash? Is it because you would run off with the money? Is it because you have little to no experience in handling that kind of money? Does that thought run through your mind on a regular basis? Well it needs to stop! Focus on the goal and dump the negativity! If you are a crook stop reading this article. The best question to ask is, who will fund my whole project, (the purchase price, the repair costs, the monthly payments, the utilities, the taxes, and insurance) and allow me to make a good profit?
Let me put the quantity of money into prospective. Let me also put into prospective the major two differences between a hard money lender and a private lender.
In the past I thought that $100,000 was a lot of money. Today this amount will buy a nice single family house in a blue collar neighborhood. The house will need to be fixed up and it might be in an area with a less than desirable school system. So, if your business plan is to fix up houses in the price range of $50,000 then sell at the $100,000 this will work. You will be very happy to have a person invest in your project. The project must make sense. The project must make money for the investor/ lender. The investor/ lender is sharing the risk with you. The investor/ lender will want to know that they will be paid back on time and in full with no excuses or late night phone calls.
One of my hard money lenders told me “I won’t let anyone invest with me unless they have 1 million dollars to invest and don’t want it back for 5 years”. Your hard money lender will be more sophisticated and understands what they are lending on, will be more concerned with the project, your experience and the exit strategy. The difference is the hard money lender will be using other peoples money not just their own.
For most private lenders, the money they are lending took years for them to accumulate. Don’t devalue what they bring to the table. They are trusting and cannot afford to lose any amount of money. Knowing how to protect that lender will be the educational material you will want to develop to share with your lenders. The paperwork with a private lender is a lot less than a hard money lender. However, you will need to consider the following areas: 1) Ask if this money the lender is providing for your project is all of their retirement? 2) How many times a month do you need to check in with updates on the project? There is nothing worse than having a lender who will micro manage your project and you. 3) Is the money the lender providing the only dollars they have available? If so, then you may want to think twice before you deploy it into one of your projects. In other words, your project cannot fail! I was told early on in my investing career that when you are starting a relationship with an investor, you want to make it as safe a project as you can, in order build the relationship and pay the investor/ lender back.
Money will flow to great deals. Money will crawl to average deals and money will be hard to find on bad deals. If you are having a hard time finding the right deal and the money, then you may need to partner with a coach to fill in the blanks and build the relationship with the lender.