Strategy #1: Private Lenders and CASH
August 20, 2009 by Chris Yates
Filed under Real Estate Investing
Last week I told you that I would write about sources that private lenders can tap in order to take advantage of the incredible investment opportunities that you are about to open up for them, and also discuss over a dozen different ways of financing a real estate deal without using any of your own cash or credit. Instead of a dozen, I was able to come up with 21 different ways to finance your deals! Here is the first one to wet your appetite. I’ll get into more and more fun stuff as the weeks continue, and will offer strategies that will help you recruit these funds along the way.
Strategy #1: Private Lenders and CASH
If you’ve ever heard the expression “fast money wins” or “cash is king”, then you know why this is the best way to fund your deals….. with one condition of course. The cash you use in funding your deals should belong to someone else!
Your own cash reserves are there for you and your family to live on. Do you think Donald Trump puts his own cash into his real estate deals? Of course not! Conventional lenders will want you to have a cash down payment so that you have “skin in the game”. It’s ok to combine cash with other types of financing. Just make sure that the cash comes from someone else. Just as you would, the private lenders you work with have funds allocated specifically for investment purposes. Utilize their funds to maximize your leverage and ability to accumulate the most profitable real estate portfolio possible in the shortest amount of time.
Pros:
Cash held in most types of bank accounts can be accessed quickly and can fund your deals in minutes instead of hours or days. Fees are generally minimal for wire transfers and cashier’s checks.
Cons:
Most people don’t have large cash reserves that are not in some other form of investment account like a CD, IRA, or money market account. This could limit the amount of funds available to you very quickly, so be sure to keep cash moving for your lenders to entice them to hold their cash in reserves to fund your deals.
Strategy:
Although it is not always necessary for you to pay points to your private lenders, doing so may entice them to keep their cash in a liquid state rather than tie it up for longer time periods in low-yielding financial instruments like CD’s and bonds. Consider offering your lenders the option to withdraw their funds early with no penalty in case of an emergency. As long as they can give you 30-45 days notice, offer not to charge them for an early payoff request. This is a great benefit to private lenders to build confidence and comfort as they are used to early withdrawal penalties from most financial institutions on fixed term investments.
