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Soliciting private money for flipping vs. buy & holding

Question:

Hi Tony…and thanks a million for this invaluable forum!

Got one for you about private lenders. I’ve started talking it up. I’m going to focus primarily on flipping in the beginning but I want to hold some as well once I get rollin. When I explain the dual focus some are asking the rate difference. I explain that the rate to retail is higher than holding on rentals. I’d like a better answer.

What should the difference be? If retail is say 9% what would long term be?

(if that was answered in your course…plz forgive me!)

Last one…should the Note provide the ability for the lender to convert if they like? It seems prudent to craft that in with friendly language along the lines of “we have the right to convert” so people know it’s possible from the outset and so I don’t have to go back and explain it once things are in motion.

One person said straight out…”I like the rate and security but aren’t crazy about it being short term.” I’m guessing that on occasion I’ll need to finance out retail money with different lenders who would be happy with less for a longer term. But it would be nice to convert people if I choose and/or if I need to because the property isn’t selling for one reason or another.

Did I say thanks?

Many, many, MANY thanks Tony.

-M.

Answer:

Okay, out of the gate let me just make one point very clear. When you’re trying to solicit money from people that have it, they’re motivation for lending it is as varied and different from one to the other as are grains of sand in the ocean.

You’re job is to attract the money based on the probability of a successful outcome. The two things that anyone lending money is typically focused on is:

1. The return ON their investment
2. And the return OF their investment
(the latter being the most important).

How you structure the notes (conversion) or the interest rates is solely up to you. What they will accept, you’ll soon find out, is solely up to them. I have found that what buys me the most leverage when wanting to skew those negotiations or numbers in my direction, typically have to do more with how good my deals are and how good I am at making them reach a happy and profitable conclusion.

I cannot, in good conscience, give you specific advice on what interest rate you should offer between short-term and long-term money, as I honestly believe this is a moot issue. Industry standards on this topic are clear and available for anyone who cares to look for them. Most investors know they can easily place their money with professional, respected hard money lenders like The Norris Group and earn an easy, effortless 12% on short-term and 9% on eight year financing.

I have found that the more geographically local the investor lender to my specific Target Market, the more familiar they are with my individual properties, my level of knowledge and experience, and successful track record, the more motivated they are to jump on my wagon and the stronger position I hold for negotiating. This typically becomes a “their money is chasing my deals” rather than the other way around.

I hope this helps.

Your friend always,
The Big Cheese
Tony
;D

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Investor funding falls through, now what?

Question:

How can I keep my credibility intact with REO agents when submitting offers if my investor decides for what ever reason not to fund a deal I was expecting him to cover. This could also apply to rehab contractors I suppose.

Is this just the risks that go with using equity partners?…Any thoughts….

-M.

Answer:

To minimize the possibility of destroying your relationship with an REO agent before you even get started, you MUST make sure that you’re investor/partners are solid and committed. One of the ways you can do this is to have a joint venture entity and bank account that they have committed funds to prior to submitting your first offer. However, no amount of legal paperwork or promises are going to hold someones feet to the fire that becomes consumed with fear over their inability to choose wisely. You must spend time with your fellow investors, especially if they’re new to the business, to make sure that they understand the reality of this business and the true profitability of your proposed deals.

The worst thing you can do to yourself is to get anxious and partner up with just anyone because they have a fat bank account. The responsibility of making good decisions falls squarely on YOUR shoulders. You’re the one that has to be aware of who you’re dealing with. You’re the one who’s responsible for your team showing up and doing what they have to do or at least being prepared with one of several back up plans.

If you’re going to hunt bears, you better have more than just one high powered rifle and one bullet. If not, when you’re head’s rolling around on the ground, and your body’s still standing…you’ll have no one to blame but yourself for being way too optimistic.

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Hard Money vs. Private Money

Question:

What’s the difference between a hard money lender and a private investor and does using one have an advantage over the other?

Answer:

Hard money lender – higher costs/fees, higher interest rate, tougher qualifying.

Private investor – Individual, typically no fees, better rates; longer term.

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Does Tony make loans to Students?

Question:

The Norris Group is now offering 9% loans, that have 2yr prepayment penalty, 8 years amortization. Do you make loans to students?

-Student

Answer:

I do not make loans to students. What I do is, on occasion, I will go in on a deal or I will participate, I will facilitate, I will do all those kinds of things. But I don’t make loans to students; I make loans to real estate. And it really has to do with a lot of different elements. To be frank with you, I consider The Norris Group to be the best bet for loans.

If you get into a weird situation in the future where you need to twist and bend things and try to figure out deals that don’t make any sense, Bill Tan is one of the best people for things like that. I’m talking about people that I trust. I don’t suggest names just because they’re out there doing stuff. I don’t accept money from anybody for anything except for what I do. And so when I give you advice on something it’s because it’s solid. The Norris Group, I think is a wonderful company and they’re a no-nonsense company. Bruce is a no-nonsense kind of person. When he makes a decision to make a loan he makes it because it’s a solid loan for YOU AND THEM. So if they tell you to walk on a deal, it’s because they realize you’re going to hurt yourself. So, I recommend them.

I get involved, but first and foremost is the stuff I’m doing. I have people bring me deals where the numbers make sense and yeah I bite down like a pit bull, why not? But, I have to be working closely with people to really understand them and trust them. More times than not, I’ll be honest with you, I’ll show you how to do it so you don’t need me, or you can have someone else involved and pay them. Here’s the reason, I don’t need the money.

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A sweet spot for move-up buyers?

“The peak home-selling season may have ended, but there some buyers are just getting started: those looking to sell a home and trade up. Is now a good time for these buyers to start their search? And what does this uptick in move-up buyers mean for the market?”

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