It is important to understand that attracting private money and complying with SEC regulations go hand in hand. You must know the rules in your state.
One of the most important SEC rules to understand is when you can advertise and when you can’t advertise. You can’t advertise for private lenders unless you have registered with your state’s division of the SEC.
Therefore, any answers below that deal with advertising are general. You must understand SEC rules – local and federal – before you can 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.
[su_tabs vertical=”yes”] [su_tab title=”A. Private Lending FAQs“] [su_accordion] [su_spoiler title=”1. What are the four best methods for someone with no private lenders lined up to acquire them and how would you go about each?” style=”fancy”]- Get some marketing material. I use a Special Report which is a Q&A about private lending.
- Send out some postcards.
- Provide prospects with an audio CD on private lending.
- I also really like using the Powerpoint® presentation. It’s powerful and professional.
I started out working with people who have CDs. And then I realized I could work with people who have IRA money. Just ask folks that you have a prior relationship with if they would like to earn a high rate of return.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”3. What interest rate should I be paying?” style=”fancy”]For example: 6% if they want monthly payments and 8% if they want to let the money accrue. You need to understand that interest will change over time based on the economy.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”4. Once you have a verbal commitment from a lender to loan, how do you secure his commitment?” style=”fancy”]With a handshake. I don’t want to make it tough for anybody I deal with. I want to treat them the way I’d want to be treated. If I tell somebody I want do something, they’ve got my word and I give it with a handshake. And I expect them to do the same.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”5. What, if anything, besides paperwork, do you give a private lender before they give you funds for a deal to assure them that it’s a good deal?” style=”fancy”]If you are in a disclosure state, you need to give them your disclosure. I don’t give them anything else at this point other than my handshake and my thanks. I tell them I’ll give them a call and make it clear that they need to be ready to fund the deal just like a bank does. All other paperwork is handled professionally by your closing agent.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”6. Do you have a written agreement between yourself and the lender?” style=”fancy”]You must give each lender a disclosure statement that covers what your business is doing, and how the lender’s money is secured, used and paid back. The disclosure statement covers details on the company, you, your real estate program and more. The lender should sign off on their acceptance of the disclosure statement, but that is all they sign. <br /><br />At the luncheons and in the audio business card I do have a form that prospective lenders can fill out to let me know how much they want to loan. But it is not a commitment. What it does is let me know where their head is on loaning money. My agreement with my lenders is a handshake.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”7. What paperwork between the borrower and the private lender is required?” style=”fancy”]A mortgage, a promissory note, title insurance, and a hazard insurance policy.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”8. When you do a deal with private lenders, who draws up your agreements?” style=”fancy”]I have my closing agent draw up the paperwork. In Ohio, we can close with an attorney and that is what I do.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”9. Do you establish terms and payback timing on these terms?” style=”fancy”]If I am paying monthly it’s 6% interest. If the money accrues it’s 8%. I set up my payments for the 15th of the month. I also typically set the promissory note for up to five years because you must have a term on the note. I also include in my terms that the investor will be paid back in five years or when the house sells, whichever comes first.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”10. What’s an example of the terms you must include in your agreements?” style=”fancy”]I prefer my payments to be paid on the 15th of the month. I have a standard promissory note. At the bottom of the promissory note is an additional note that says: "Note, first payment will be $154.11 for 25 days proration, 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.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”11. Is there any paperwork the borrower should get?” style=”fancy”]The deed. And that’s notarized and recorded. We also have a copy of the promissory note and the Hazard Insurance policy too.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”12. What paperwork gets notarized?” style=”fancy”]The mortgage and the deed.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”13. Once you receive a financial commitment from a lender, how do you set up the account so that you ensure the cash is there at closing?” style=”fancy”]- Right off the bat: Don’t touch the check (unsecured funds). You have promised the lender that the money was secured by real estate. So you have to keep your word or it is considered FRAUD!
- Number two: You don’t want the money too early because they’re taking it off an interest-bearing instrument and they’ve moved it over to you. AND they expect 6% or 7% or 8% interest. 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 congratulate them and tell them they made a wise decision. Then I tell them that I will call them in 4 to 5 weeks and they need to be ready to wire the money to the title company.
- You need to get the money started quickly on the new folks.
- 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. I might touch base with them between today and the day I get the house so we can set up a closing appointment just to make sure that everything’s okay.
All funds go to my attorney before closing and that attorney 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 that to mean pooling money and you must MUST register with your state’s division of the SEC before you are allowed to pool.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”15. How often do you – and how do you – provide your long-term private lenders with an update of interest earned?” style=”fancy”]I don’t do that. If they call in I can calculate it for them, but if they have the original promissory note they can calculate it on their own.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”16. If a lender gives you $10,000 to invest, what is the tax impact on this investment to you or how do you avoid paying taxes until you have bought and sold the property for a profit?” style=”fancy”]There is no tax impact on the borrowed money. 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.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”17. Once I have amassed the funding that I require, can I charge other real estate investors to use my excess available funding?” style=”fancy”]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.
[/su_spoiler] [/su_accordion] [/su_tab] [su_tab title=”B. Group Presentation FAQs“] [su_accordion] [su_spoiler title=”18. Who is the ideal person to invite to a Private Lending Presentation?” style=”fancy”]You want folks who have discretionary income. You want folks who, somewhere along the line, have amassed some funds that they want to invest. People who have IRA money or 401(k) money, for example. Also you can target folks who have certificates of deposit. You should start with your family, friends and associates.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”19. How do I solicit people to come to a presentation? Invite them personally or through a mailing?” style=”fancy”]If you haven’t already registered them, 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 state’s SEC, I would place an ad in the newspaper and have it run for seven days to let folks know that there’s going to be a luncheon and invite them to call in on that ad.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”20. What exactly would you say to a prospect you would like to invite?” style=”fancy”]"Do you currently have an IRA or other investment capital that is not currently earning a high rate of return?" or "Do you have an IRA or other investment capital that is not currently earning 8% interest?" If you are going to do a one-on-one meeting, the first statement, where you don’t use a percentage, is the one that I would use.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”21. Who do you recommend inviting to a seminar?” style=”fancy”]The people who you want to get into the seats are people with certificates of deposit, IRA money, or other discretionary income. Others that would be good are doctors and title company representatives. People you do not want in the seats are attorneys (they ask a ton of questions), or other real estate investors.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”22. Who do you send the postcards to?” style=”fancy”]I initially sent them to people with certificates of deposit. Now I send them to folks with IRA money, family, friends and an associate list. Once again, you can’t mail to strangers unless you have registered with the SEC.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”23. How would you go about buying a marketing list?” style=”fancy”]You have a couple of options once you have registered with your state’s division of the SEC. There are folks selling lists 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 who have certificates of deposit.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”24. Would you contact a list broker?” style=”fancy”]You can find a bunch of them on the Internet. But here again, you can not contact that list unless you are registered with your state’s division of the SEC. You must register with your state’s division of the SEC to advertise.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”25. What parameters does your list have?” style=”fancy”]It is people with CD’s and people who have bought through the mail.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”26. What was the cost per name for the list you bought from the marketing list?” style=”fancy”]I received a thousand names for $250.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”27. How many times would you mail your postcard for a scheduled seminar?” style=”fancy”]I mail out around 1,000 postcards to the same people every Monday for three weeks.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”28. What is a typical response rate to your postcard mailouts?” style=”fancy”]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 be registered with your state’s division of the SEC.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”29. Do you advertise in the newspaper?” style=”fancy”]You can ONLY do that if you have registered with the SEC. You cannot advertise in any state unless you have registered with that state’s division of the SEC.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”30. What portion of people who attend your seminars commit to lending funds?” style=”fancy”]It depends on the group, but I’ve seen roughly 40%.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”31. What is the average investment they make?” style=”fancy”]Some people will test you at first and once they feel confident that you’re for real they start bringing more. The individual amounts offered are all over the map.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”32. I don’t have a lot of credibility to convince lenders to give me money. What do I do to alleviate this problem?” style=”fancy”]Here is what you want to say to the lenders: Think of a typical business startup, 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 that lists every boot camp or seminar you’ve attended. Create 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.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”33. What else can I use to beef up my credibility kit for the lender luncheon?” style=”fancy”]You want to come across as first class and professional. The cover of my credibility kit has pictures of houses. I have the book spiral-bound with a clear cover on the front and a cardstock cover on the back. (This can be done by your local printer.) The next page is a letter from me that describes who I am, my background, my education and what I’ve done. The page after that is about my company. I also include a stack of testimonials and a stack of certificates from seminars I have attended. You can also use my Special Report on private lenders and put it in the back of the book. It gives the book some heft. I’ve sponsored a kids’ ball team and they gave me a certificate.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”34. What do you wear when hosting a luncheon?” style=”fancy”]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 tie, or maybe something more contemporary.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”35. What is a reasonable number of people to aim for at a luncheon?” style=”fancy”]You should aim for an average of 15 attendees.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”36. Will I need to make any SEC filings or Department of Controller or corporate filings?” style=”fancy”]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 an 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 first lender. 2) You MUST REGISTER with the SEC, 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 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.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”37. I’m not much of a public speaker. So, besides conducting private lending luncheons, where I would have to speak in front of a group, how else can I find private lenders?” style=”fancy”]You can conduct a one-on-one meeting in a restaurant or an office and use my slide presentation on a laptop. I’d guess that roughly half of my students or even more work with one-on-ones exclusively. That is how I got started.
[/su_spoiler] [/su_accordion] [/su_tab] [su_tab title=”C. General FAQs“] [su_accordion] [su_spoiler title=”38. As a new investor I run across situations where I can help some homeowners by offering them a loan with a private lender. Do I need a mortgage license to put a deal like that together and collect a fee for myself?” style=”fancy”]Yes you need to become a mortgage broker.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”39. How can I buy more deals with less competition than I encounter at regular auctions and foreclosures?” style=”fancy”]What I do is find a new realtor. What I’ve found over the years is, when I work with realtors who have been out there a while and have a lot of experience, they don’t show me the houses that I’m interested in. So get a rookie realtor and train the new realtor. I work with somebody I like because I’m going to be spending time with them in the car. 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 afternoon 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 walk through the property with a clipboard and worksheet, which takes me about 6-10 minutes – and when I walk out I am ready to make an offer. Those first offers get turned down 99% of the time, but the secret is – since I’ve done my due diligence – I re-submit that offer every month. In month four, five, six, seven – whatever – the bank finally gives the house up.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”40. I’m looking for commercial lending. Do you get involved in this?” style=”fancy”]I do not, but roughly 40% of my students are doing commercial deals.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”41. I’m looking for the best solution to fund a church purchase.” style=”fancy”]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 6-7% and amortize it so the loan pays down.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”42. Do you have students in Canada?” style=”fancy”]Yes, I do. I now offer my Private Lending Made Easy Systems in a Canadian version.
[/su_spoiler] [/su_accordion] [su_accordion] [su_spoiler title=”43. I have great systems in place that work that are not currently being used in the market. Can you help me develop an audio CD course to sell? I would also like to speak in front of groups.” style=”fancy”]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 first. 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.
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