When I say “Private Money” you get really excited.
Private individuals wiring money to closing so you can pay cash for hot deals, or put up earnest money on a smoking deal you are going to wholesale; cutting out banks and their time wasting underwriting rigmarole altogether.
But then reality hits, and you realize. Real private lenders, that is, not hard money lenders, not brokers, not intermediaries of any kind, but individuals who have money sitting in a bank account or CD, who need to get it out at a “growth” rate of return, have to be searched for, found, a relationship cultivated, and then offered an opportunity to invest their capital.
Bottom line for you; that means prospecting for possible candidates, and then pitching your deal to them.
So, now that we’ve uttered the words “pitching prospects for private money”, what is it that comes to mind?
Or something like …
“Let me get this straight. You want me, to loan you, money I’ve spent years saving, so you can go and do, what now … buy some ‘apartment’ deal. Are you crazy!!! What in all creation would possess me to do something like that??? Are you out of your mind??!!”
It may not be exactly this, but if imagining yourself raising private money sets off thoughts similar to the above, don’t worry. You’re not doomed to never raise any money. You’re more like, just … normal. Read more…
The lamestream media says everything is rosy (yeah, right). The problem with a cliff, even a demographic cliff, is that it is such a sharp drop-off that most folks can’t see the cliff until they are teetering the brink, especially when they are moving fast and thinking about something else.
Two realty brokerage firms in Las Vegas NV (ground zero of 2008 crash) are contradicting each other. One says there is a major downturn coming this year (wait a few months to buy when prices are lower), and the other says buy now before prices skyrocket. Who shall we believe?
The triggers for crashing real estate are: (1) Lack of debt financing and (2) lack of cash flow to service debt. The 2008 crash was caused by #1 when Wall St ran out of Other People’s Money (OPM), and then it was “solved” by the FED buying toxic mortgages with money printed out of thin air. #2 will happen when a sudden shift in demographics causes job losses and a sharp reduction in spendable income. The FED cannot “solve” that problem.
How much debt the FED buys won’t matter when there is insufficient spendable income to service that debt. Any financial calculator will show how Present Value (PV) and periodic payment (PMT) vary proportionately for a certain periodic interest (RATE). The PV and RATE vary inversely for a certain PMT (when RATE goes up the PV goes down). The FED can set rates to zero to try to prop up PV (to hide bank insolvency), but when PMT goes down, the PV must also go down. Read more…
One of the key parts of buying an apartment building is raising private money, whether it is for the earnest money if you are wholesaling, or for the down payment and repair cost if you are turning the property around, or buying to hold.
After getting your offer accepted, posting earnest money is the next benchmark to hit. In most situations you have about a week once your seller signs the Purchase Agreement. If you don’t have private money sources on tap, ready to call when the time to post earnest money arrives, you will be unable to post earnest money and your contract will be null and void, right as you are getting started.
Not good. In fact, this minor conundrum is enough of a mental obstacle that it keeps many starting Apartment Entrepreneurs immobilized and not making forward progress on their initial deal.
Because the prospect of raising private money contains a bundle of fears that is right up there with fear of public speaking. Fear of embarrassment, fear of looking stupid, fear of rejection, fear of feeling hopeless, fear of feeling like an idiot, you name it. Every blind fear there is raises it’s dark, insidious head the minute the prospect of you raising private money is entertained.