Six Secrets to Raising Private Money to Buy Foreclosures FAST

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<p>Six Secrets to Raising Private Money to Buy Foreclosures FASTBy Trace Trajano</p> <p>INTRODUCTION Why You Need Private Money So youre a real estate investor. You have a property or several properties and chances are youve bought these properties with the help of banks. You put a down payment and then the rest of the money came from in the form of a bank mortgage. Although using the banks money to buy real estate is wise move - because the banks money is relatively a cheap source of funds - you should start raising money from private lenders. Why? Speed. Based on my experience, you can get a seller - specially a bank with a foreclosed property to give you a bigger discount if you can tell the seller that you can close on the property in one week or less. The only way for you to have this confidence and capability is if you have private lenders willing to finance the deal for you in a matter of days. In one instance, I was able to stop the foreclosure of a property and bought it for basically 50% of its value 4 days before the foreclosure. This would have been impossible if my only source of funds are banks. If you want to truly succeed and make a lot more money as a real estate investor, you need to start meeting prospective private lenders and you need to start learning how to get them to invest their money on your deals.</p> <p>Secret #1: Find the Money when You Dont Need It Some real estate investors love to cram. They put together a real estate deal, and then they cram in raising the capital they need so they can close on the deal. Ive done this myself and when I do, I failed miserably in raising the money I need to acquire the property. Also, when youre cramming and desperate to raise the money, you get one of two reactions or feedback from prospective investors or private lenders: 1. Since youre desperate, I dont want to lend you the money because you dont appear confident with the deal. If this is truly a good deal, other investors should have invested on this deal already. Since youre pressed for time, no one has invested on this or interested and its probably a bad deal. 2. Since youre desperate - I dont want to lend you the money. I will let you walk away from the deal and I will take over and make more money. The first reaction is that of a fear. The second is one of greed. In either case, you lose the deal. Heres the key. Look for the money long before you need it. You should start planting the seeds now even before you have a deal and then when you need a deal, its harvest time. You should appear confident and excited when that happens and you should have several investors to choose from. When you do this, your investors or private lenders will feel that its going to be a privilege investing in your deal and so they will gladly invest their money. You can also instill in them a sense of scarcity because you can tell them honestly that theyre not your only source of capital to acquire the deal. I have many instances that some of my investors were upset because I have to</p> <p>turn away the money they want to give me. You might be saying - This is nice theory but how do you actually seek the money long before you need it? Here are some practical tips: 1. Always network and expand your network. Secret #2 shows you the right way to network. 2. Always talk about real estate investing - specially the exciting returns youre getting from it. You can read more about this in Secret #6. 3. Learn the art of the elevator speech - that is, if you saw Bill Gates on the elevator and you have less than 30 seconds to convince him to invest in your deal, how would you do it? You have to learn how to convey your message in a very concise way and still capture whats exciting about your opportunity. To learn how to do this, you may want to join Toastmasters. 4. Seek out places where prospective private lenders hang out. These can be your local chamber of commerce for example. These can be investment groups or Cashflow 101 groups.</p> <p>Secret #2 - COIN COIN - stands for Centers of Influence Networking. Instead of networking blindly and trying to meet all types of real estate people or people with the money in the hopes that they will invest their money in your deals, you should network with a few people who have a wide network and very influential in their own network. People who are highly influential will of course refer you to people who are prospective investors or private lenders. The fact that youre being referred by someone influential will lower your barrier to entry. You will immediately establish rapport and trust because youre being endorsed by someone they know. Trust or gaining the trust of your prospective private lenders is crucial because without it, they will not invest or do business with you. How do you seek these Centers of Influence? Here are some practical tips: 1. You can seek out organizers of real estate associations, landlord associations, Cashflow 101 groups, and groups in your area. Target groups with 100 or more members. The fact that they can get that many people to join them means they can influence and attract enough people - some of whom will invest in your real estate deal. 2. You can seek out real estate agents and brokers who are the most dominant players in their areas. You can then ask them to refer you to potential money partners for your deals. 3. You can network with lawyers, specially those who specialize in estate planning to introduce you to their clients who are interested in making good returns on their money with very little risk and no involvement on their part. Other lawyers you can ask for referrals are lawyers who specialize in inheritance situations or probates. Now that you know how to find these highly influential people, how do you network with them properly? Let me tell you the WRONG WAY to do it: Asking for the names of people with money specially upfront. Doing this is</p> <p>absolutely wrong because the one youre networking with does not know you yet. You have to work the relationship first. You have to give before you can receive. Truly be sincere about this because these highly influential people can smell a fake a mile away. Heres how you network with Centers of Influence - in fact its the secret to successfully networking with anyone period - SERVE. Thats right. You have to offer your services to the one you want to network with. You have to offer to help them for free. No strings attached. When you do, they will feel obligated to you and through the Law of Reciprocity, they will seek out opportunities so they can return the favor. You can ask them what they do or how is their business. Then you should ask the following question with 100% sincerity: What is the help you need in your business? Someone always need help in some way and you should think of people, resources or know-how that you have that you can share freely to help the one youre networking with. If you do, you separate yourself from the 99.9% of the people who approach this highly influential person. Everyone are seeking out for help and not offering help. If youre the one who offer help, you will immediately gain this persons trust and he/she will seek out to help you in return.</p> <p>Secret #3: Six Degrees of Separation You are closer to more private money than you can handle. A close corollary of Centers of Influence Networking is the whole idea behind 6 degrees of separation. It has been studied that everyone is connected to everyone else by no more than 6 degrees of separation.</p> <p>For example, one of my students sat on a plane beside an investment advisor to the government of Singapore and she established some rapport. Of course this investment advisor talks with the Prime Minister of Singapore or at least the Finance Minister. So, I can say that the Finance Minister of Singapore is separated from me by only 2 degrees of separation. Trace Student Investment advisor Finance Minister If you are only 6 degrees of separation from every person on the planet, chances are you are 2, 3 or at most 4 degrees of separation from all the private lenders you will need in your real estate business. If this is the case, then you should not underestimate the power of REFERRALS.</p> <p>Heres a practical tip: instead of asking people you meet Will you be interested to invest money on my deal? ask them Do you know of anyone who might be interested in making 12-15% return on their money? Doing this accomplishes 2 things: 1. Its a soft sell - youre not pushing the person youre talking with to invest their money in your deal. 2. Youre asking for a referral. If the person youre talking with has the money, he/she will probably say I want to invest and make 12-15% return. If not, he/she will likely refer you to someone who does. If you have networked in the right way (like I described in Secret #2) you should have no problems getting help. Let me give you a practical tip: start a LinkedIn account. LinkedIn is a social media site for connecting professionals. The nice thing about it is that once you get connected to a person, you can potentially get connected with all of the persons contacts and his contacts contacts. LinkedIn is good because the members of LinkedIn are CEOs, entrepreneurs and managers of companies. It is said that LinkedIn members have an average income of over $100,000. Chances are these folks have the money to invest in your deal or know someone who does.</p> <p>Secret #4: The 2 ROIs When I started raising money from private lenders I focused only on one ROI - return ON investment. I focused on the high return my investor can make. I thought my investors would invest when I threw numbers like making 12-15%, even 20% return on their money. BUT I got nowhere. Your investors or prospective lenders are not dumb. They know that anyone can manipulate the numbers to show a high rate of return. And high Return ON investment is meaningless without the second ROI that a lot of real estate investors almost always fail to emphasize. Here it is: Return OF Investment Return OF investment is all about safety of the investment. If you have a deal such that when the worst happens, your investor will not only get paid but will actually be paid more, then your investor will find the investment a no-brainer. For example, I usually get properties that I can buy for 50% of their fair market value. I give my private lenders excellent return on their money usually 12-15% per year. Moreover, I give the property to them as collateral. This means if I dont pay the loan I owe them, they can get the property as payment in full. This my friends is what I mean by return OF investment. The money of your investor or private lender should come back or be returned no matter what happens. If the best case happens, your investor gets his money back plus 12-15% annualized return. If the worst happens, your investor should get his money back as well. When I started emphasizing the safety of their investment, my investors came out in droves and getting the money is no longer difficult. Do the same.</p> <p>Secret #5: The Power of A Prospectus I get emails once in a while that goes something like this: Dear sir, Ive read your book Think Rich Quick and I became inspired by the possibility of acquiring properties with no money. I would like your help. I have this investment opportunity and I need half a million. You can make 10% return. I am desperate and so I will make this business work because my child is suffering from a fatal disease and my spouse just left me. Please sirhelp me! I delete emails like these immediately. Its not because I am not compassionate. I give away a lot of money to charity every year. I delete emails like these because they lack the one thing I need to review before investing - The Prospectus. The Prospectus is a document that outlines what the investment is, the Return ON investment, the Return OF investment or safety, the risks and what the principal in the transaction can do to mitigate the risks. Without this document, I dont invest in a deal and my investors dont either. The prospectus gives me a good overview of what the investment is and it helps me decide whether its something I want to invest in. Pleading and begging does not work with me and my investors and thats the last thing you want to do. There are two kinds of prospectus - the One Pager Prospectus and the Detailed Prospectus. You have to have both. The One Pager Prospectus gives your prospective lender a good overview and as the name denotes, the Detailed Prospectus contains all the details of the deal or the investment. I usually attach a good overview of the financials in the One Pager Prospectus. I give my students both types of prospectuses</p> <p>and I even help them raise money for their deals. Check out</p> <p>Secret #6: Position Yourself as An Expert The fastest way to raising more money from private lenders is to position yourself as an expert. Again, the principle is people do business with people they trust. If you dont get the trust of your prospective investor, you will not get them to lend you money. Even though the numbers of the deal is important and the way you present them in a Prospectus is key, your lenders and investors are investing their money on YOU as much as they are investing in your deal. If you are trustworthy chances are your investors and lenders will invest their money with you. How do you gain trust? Become an expert or position yourself as one. How do you do this? You have to partner with people who have done deals before if this is your first deal. Donald Trump partnered with his father in his first few deals. He partnered with Hyatt hotel when he renovated his first hotel. He borrowed credibility until he earned it. Do the same. My students get to borrow my credibility by partnering with me. For more details check out If you have done a few deals, then document your successful deals in what I call the Credibility Kit. If youre a renovator, put the before and after pictures of your renovation projects. Show them the money youre making on your deals. Show picture of checks or their scanned images. Get testimonials from your satisfied buyers and sellers. If youre a landlord, include in your credibility kit copies of your leases, pictures of your properties, and appraisals if you have them. You can show your prospective investors your Balance Sheet - showing how much net worth you have - as well as your Cashflow Statement - showing how much rent youre getting and the expenses in operating your properties. Then what you do is after you give the 1-pager Prospectus to your prospective investor, you can then give him or her your Credibility Kit. You first tell them the details of the deal and why it makes sense to invest and</p> <p>then you tell them why they should invest in YOU. If you have done deals before and done so successfully, your prospective investor will li...</p>