It is important that you understand that attracting private money and the SEC compliance regulations go hand-in-hand. You must know the rules in your state.
One of the rules is when you can and can’t advertise. You can’t advertise for private lenders unless you have registered with your states division of the SEC.
Therefore, any of the answers below that deal with advertising, you must understand the SEC rules to be able to advertise.
I’m not an attorney nor can I give legal advice so all information I share on the SEC is from my SEC attorney.
- Get some marketing material. I use a Special Report which is a Q&A about private lending.
- The other thing is I would send out some postcards.
- I would also have an audio CD on private lending.
- I also really like using the slide presentation. It’s powerful, and it’s professional.
I started out with people who have CDs and then I realized I could use people with IRA money. Just ask folks that you have a prior relationship with if they would like to earn a high rate of return.
For example: 6 percent if they want monthly payments and 8 percent if they let the money accrue. You need to understand the interest will change over time based on the economy.
A handshake. I don’t want to make it tough for anybody. I want to treat them the way I’d want to be treated. If I tell somebody I’m want do something they’ve got my word and I do it with just a handshake and I expect them to do the same.
If you are in a disclosure state, you need to give them your disclosure. I don’t really give them anything else at this time other than handshake and thank them. I tell them I’ll give them a call and they need to be ready to fund the deal just like a bank does. All other paperwork is handled professionally by your closing agent.
You must give each lender a disclosure statement that covers what your business is doing, how the lenders money is secured, used and paid back. The disclosure statement covers details on the company, you and your real estate program and more. The lender should sign that they received the disclosure statement but that is all they sign. Now at the luncheon and in the audio business card I do have a form that they can fill out letting me know how much they want to loan but it is not a commitment. It just lets me know where there head is on loaning money. My agreement with my lenders is a handshake.
A mortgage, promissory note, title insurance, and hazard insurance policy.
I have my closing agent draw up the paperwork. In Ohio, we can close with an attorney and that is what I do.
If I am paying monthly it’s six percent interest. If the money accrues it’s 8 percent. I set up payments for the 15th of the month. I typically set the promissory note for up to five years because you have to have a term on the note. I also say they will be paid back in 5 years or when the house sells, whichever comes first.
I like all my payments due on the 15th of the month. I have a standard promissory note and down at the bottom of the promissory note I will add a note in that says: "Note, first payment will be $154.11 for 25 days pro-ration, March 21, 2011 to April 15, 2011." This note is above where I sign my name. See "Do you establish terms and payback time on these terms?" for the time terms.
The deed and that’s notarized and recorded. We also have a copy of the promissory note and the Hazard Insurance policy too.
The mortgage and the deed.
- Don’t touch the check (unsecured funds) is one. You have promised the lender the money was secured by real estate so you have to keep your word or it is considered FRAUD
- Number two is you don’t want the money too early because they’re taking it off an interest bearing instrument and moved it over to you and they’re expecting 6-7-8 percent interest and. I don’t take the money until we get ready to close.
- Here’s how I handle it. Let’s say somebody says I’ve $280,000 I’d like to loan you. I shake their hand and thank them and I tell them that I will call then when I find a property they should expect a call from me within the next 30 days.
- You need to get the money started quickly on the new folks.
- So to answer your question, I don’t set up an account for the money. I just communicate to the folks, let them know what’s going on and keep them posted and I might touch base with them between today and the day I get the house and we set up a closing just to make sure that everything’s okay.
All funds go to my attorney before closing and he has an escrow account. The money is held there until we close. I do not touch unsecured money. I’ve promised the lender the money is secured by real estate so you must have a closing to accomplish that. Now when you say commingled funds, I take to mean pooling money and you must REGISTER with your states division of the SEC before you are allowed to pool.
I don’t do that. What happens if they call in I can calculate it, but they have the originals promissory note so they can calculate it also.
There is no tax impact on the borrowed money. So you don’t have to pay a tax on that. When you sell the property and make a profit obviously you have to pay taxes on the profit, but you do not have to pay taxes on the loan because it is not income.
You need to have a mortgage broker license to broker money. You need to check with your state and see what the requirements are. Now if you loan out your own money, you don’t need to do that.
You want folks that have discretionary income. You want to have folks that somewhere along the lines have amassed some funds that they want to invest. People who have IRA money or 401k money. Also you can target folks with certificates of deposit. You should start with your family, friends and associates.
If you haven’t registered then I’d send postcards to folks I have a prior relationship with. I send them a postcard every week for about 3 weeks prior to the luncheon. If you’ve registered with your states SEC, I place an ad in the newspaper and have it run for 7 days to let folks know that there’s going to be a luncheon and have them call in on that ad and I run that ad seven day prior to the luncheon.
"Do you have IRA or an investment capital not currently earning a high rate of return?" or "Do you have IRA or an investment capital not currently earning 8% interest?" If you are going to do a one-on-one meeting, the first statement I gave you where you don’t use a percentage is the one that I would use.
The people who you want to get into the seats are people with certificates of deposit IRA money, people that have discretionary income. Others that would be good are doctors and your title company representatives. People you might do not want in the seats are attorneys (they just ask a ton of questions), or other real estate investors.
I sent them to people with certificates of deposit initially. Now I send to folks with IRA money, family, friends and an associate list. Once again you can’t mail to strangers unless you have registered.
You have a couple of options once you have registered with your states SEC. There are folks selling list of private lenders that have just loaned money in the past few weeks or months. I have that list too. Another way is to go to a list broker; you can buy a list of names of folks in your county with certificates of deposit.
You can go out on the internet and find a bunch of them. But here again, you can not contact that list unless you are registered with your states division of the SEC. You must register with your states division of the SEC to advertise.
It is people with CD’s, people who have bought through the mail.
I received a thousand names for $250.00.
I would mail three postcards to them. I mail them out every Monday for three weeks prior. I mailed out around 1,000 postcards to the same people for three weeks.
When you run a luncheon, you’re going to have around 15 people show up. Now you mail the postcard to folks you have a prior relationship to warm them up before you call them. If you want to send the postcards to strangers you MUST 1st. Register with the Division of the SEC.
ONLY if you have registered with the SEC. You can not advertise in any state until you have registered with your states division of the SEC. Once you have registered then you can advertise.
Depends on the group but I’ve seen roughly 40%.
Some people will come in and test you and once they see that you’re for real they start bringing more. The amounts offered are all over the map.
Here is what you want to say to the lenders: Think of a typical business start up because that is you. Just let the lender know that the first thing you do in a business startup is get a solid foundation of education and you’ve done that (I would hope). You should also, create a credibility kit and list every boot camp or seminar you’ve attended. Created a certificate for each. You could even send that certificate out to the person who ran the boot camp to have them sign it. Include in your credibility kit a letter about yourself, your company, and what your intent is, testimonials from friends, family, etc.
You want to come across first class and professional. The cover of my credibility kit has pictures of houses; I have the book spiral abound with a clear cover on the front and a cardstock cover on the back. (this can be done at your local printer) The next page is a letter from me and who I am, my background, education and what I’ve done. The next page is about the company. I have a stack of testimonials, and a stack of certificates for seminar I have attended. You can also use the Special Report on private lenders and put it in the back of the book. It gives it some size. I’ve sponsored a kids ball team they gave me a certificate.
You want to look nice and professional. I wear a suit and tie. You could wear a white shirt and tie, or a nice shirt and a tie, something contemporary maybe.
Average is 15.
You have two choices: 1) If you are just getting started, looking for property and lenders in your state and not pooling or advertising you are in a exempt category. Now there are 13 states that require that you do what is called a ‘notice’ filing and pay a small fee before you get your 1st lender. 2) You MUST REGISTER, if you want to advertise, pool, go across state lines or go above the thresholds in lenders or dollars. For example: Ohio has a specific exemption (3H exemption) and as long as you target folks only in Ohio and do business in Ohio – it’s called an interstate exemption, and in particular, there’s a state exemption because you’re giving individual lenders a mortgage. You can have up to ten lenders. There are other exemptions at higher levels that require some paperwork (register) to be filed. The paperwork really ramps up big time when you start doing business across state borders. Each state has exemptions and different filing requirements. Your filings are with your states Division of the SEC or the Federal SEC
You can use the slide presentation on a laptop in a restaurant or the office for a one-on-one. I’d guess that roughly half of my students or more just do one-on-ones. That is how I got started.
Yes you need to become a mortgage broker.
What I do is find a new realtor. Get a rookie realtor and what I’ve found over the years is when I work with realtors that have been out there and have a lot of experience they don’t show me the houses that I’m interested in. Train the new realtor. I work with somebody I like because I’m going to be in the car with them for a while. I give them my specifications about what I’m looking for; bank owned houses because I want houses that are empty. I want to go look at houses every Friday from 1:00 to 4:00 to see how many houses he can get me through. You want the realtor to do the research for you. While he is getting the lock box and the door open I’m inspecting the exterior of the property. I have a clip board and worksheet and I walk through the property and it takes me about 6 to 10 minutes to walk through a property we walk back out and I can make an offer on that property. 99% of offers I make the first time get turned down, but the secret is since I’ve done my due diligence, I resubmit that offer every month. And what I find is that in month four, five, six, seven whatever – the bank finally gives the house up.
I do not but roughly 40% of my students are doing commercial deals.
Assuming that you want to get a private loan on this church for a long period of time like 30 years? I’d pay low interest of say six or seven percent and amortize it so the loan pays down.
Yes, I do. I now offer my Private Lending Made Easy Systems in a Canadian version.
I started out with the local real estate investment groups, the REIA’s and those are great places to speak. As far as developing a course, what you want to do is put together a manual on your system and then I’d recommend that you hold a free seminar in your area, run some ads in the paper, invite some people, and hold the seminar, but also record the seminar. What you’re doing is recording your system by going through your manual. This will create your product that you can market.