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Securing Funds From Private Lenders for Real Estate Deals
Previously, I discussed being prepared to gain business capitol. The first step is to act like a person who is actively looking for it and constantly networking. Secondly, you should have a credibility kit assembled and ready to go; ready to hand out when the opportunity arises. That doesn’t mean leaving it sitting on a shelf at home or desk at work ready to send, but physically on you to offer immediately to a potential private lender. Timing can be critical.
Once you have your foot in the door, you’ll need to be ready to seal the deal with a prospective private lender. It is important that you capture their interest first, before ever putting a live deal in front of them. This is for two key reasons. First, you want them to see value in your business, not just a single deal, since this lends itself (no pun intended) to future deals beyond the first one. Second, and perhaps more importantly, capturing their interest before putting their funds into a specific deal keeps you in better compliance with securities laws. Hence, handing out the credibility kit and capturing their interest immediately.
OK, I know I just popped open can of worms there, didn’t I? Securities laws? Before you get nervous, let me give you the quick highlights. When you capture interest from a private lender, they’re only seeing value in a business model before committing any funds. They aren’t being presented with a specific opportunity until after they’ve agreed to provide some funding for your business. This means they haven’t been formally solicited for funding, which is more closely governed by the laws that concern investments. Just stay away from randomly soliciting funds for a specific deal and you should be OK. I of course may be missing a detail or two so be sure to run all this by your attorney to make sure you are doing everything correctly.
Now that I that have covered the bases, I will now discuss what you need to agree on with your lenders. Example terms for an agreement with a private lender include the following:
The length of the loan
The amount that is being borrowed
The return that is expected
The means by which the loan will be repaid (usually a fixed return rate or sometimes profit sharing)
Recourse if the loan is not paid back on time
Something to keep in mind when you outline the terms of the agreement is the ability to go back and renegotiate the terms at a later date. As I have pointed out before, Murphy’s Law is everywhere and it certainly doesn’t hurt to put in a safety net for all parties should something go awry. The private lender may also view this too as smart business on your part and respect your attention to details and keeping their best interest as well.
There may be some other agreed upon terms, too, but these are the main things you need to work out with a private lender. Ways to put all this to paper can vary and I highly suggest you work with your attorney to get it all put together because your lender will probably be having their attorney review it.
For more information go to www.freemakemoneygift.com/Invitation.html
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