How to Raise Private Money For Your Next Real Estate Investment

One of the biggest obstacles for new and experienced real estate investors alike is funding your real estate investment. 

What if I told you that you can fund your investment without a penny of your own money?

Would you want to hear more?

That’s what I thought!

I’m talking about private money lending. 

With private money lending, you can get quick funding to buy an investment property without a penny of your own money — and there's no credit score required.

In this article, I’ll break down everything you need to know about private money lending, including how you can get started with this form of funding.

Let's get started!

What is Private Money in Real Estate Investing? 

Private money, also known as hard money or private lending, is a form of financing where a person or a group of investors lend money to real estate investors like yourself. 

How does it work?

This type of funding is typically secured by the property itself, not a down payment or credit score, compared to a traditional mortgage.

In my experience, private money lenders are more willing to provide funding for projects that may not meet the strict criteria of traditional lenders.

Benefits of Private Money for Real Estate Investors

Let's take a look at a few benefits of using private money for your next real estate investment.

Fast Approval Process

If you find the perfect investment property, you may be pressed for time to obtain financing.

Traditional mortgages can take weeks to months for approval, and that's what makes private money so great. With private money, there is a much faster approval process — it can take from just a few days to just a few weeks.

This allows you to capitalize on an investment property that is for sale with stiff competition.

No Credit Score Required

Whereas a traditional lender will require a specific credit score and large downpayment, neither of these is required with private money.

Instead, the deal will hinge on your plan to repay the private money lender and the property itself.

No Money Required

Because you'll pay back the private money lending loan with income you receive from your real estate investment, you don't need to put a penny of your own money into the deal to obtain the property.

It can't get any better than that!

How To Raise Private Money in 6 Steps

Let's take a look at how you can raise private money for your next real estate investment deal step by step.

Step 1: Evaluating Your REI Project

Before approaching private money lenders, you need to get your ducks in a row.

This includes finding a property (which you can do for FREE with Propwire's industry-leading search tool) and analyzing the potential risks and returns, researching the current market conditions, and, if it's a fix and flip, developing a realistic timeline and budget for your project.

But not just that.

You'll need to break down the property's location, market demand, rental potential, ROI and more.

Once you have this data, the next step is to create a business plan.

Step 2: Building a Credible REI Business Plan

Because private money hinges on the deal itself, not your credit score or other requirements traditional lenders have, you'll need to present to a private money lender why they should give you money, and this includes showcasing how you will make them money.

By having a well crafted business plan showcasing your past expertise and your future plans with a specific investment property, you can show private money lenders that they can trust you and your real estate business.

Stay away from rough figures; be sure to include hard numbers, including the expected costs, revenues, and profits of the project.

Step 3: Crafting a Compelling Pitch

After you have these figures and you've organized it into a business plan, the next step is to craft a pitch.

Remember, private money lenders want to be paid back with interest. Practice explaining how you will make them money in a 5-10 minute pitch.

Step 4: Contact Identifying Potential Private Money Lenders

The next step is to reach out to private money lenders and present your business plan along with your pitch.

If you don't already have one in mind, how can you find a private money lender?

I can't recommend enough attending local real estate networking events, seminars, or workshops put on by real estate groups, because by being a familiar and friendly face at these events, you'll likely meet one or a few private money lenders.

Step 5: Negotiating Terms and Conditions

Once you have a potential private money lender interested, the next step is to negotiate the terms and conditions of the loan.

Be prepared to discuss and negotiate interest rates, loan duration, repayment terms, and any security or collateral required.

Step 6: Drafting a Legal Agreement

When finalizing a deal with a private money lender, it is crucial to have a legally binding agreement in place for both your protection and theirs.

After that, the private money lender will transfer you funds, and you can get started on your real estate investment!

The Bottom Line: Raising Private Money for REI

A private money lender can not only fund your next real estate investment; he or she can fund your projects in the future as well.

That's why it's so important to not only grow your real estate investing expertise, but also your real estate network.

Once you have a relationship with a private money lender, follow this simple 6 step process to ensure you get the money to fund your next investment. 

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