Jim Ingersoll explains why it can be both beneficial to the private lender and to the real estate investor when they work together.
Private money lenders are looking for safe but lucrative investment deals and real estate can be the perfect opportunity. By connecting with private lenders, both parties are able to benefit.
Mike: Welcome back to the FlipNerd.com REI Classroom where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Jim: Hi, everybody. I am Jim Ingersoll. Welcome back to the REI Classroom. I am really excited to be back with you and share some awesome content with you today.
Mike: This REI Classroom real estate lesson is sponsored by AceBusinessFunding.com.
Jim: There’s a big myth among real estate investors that private lenders really don’t need them because they can go out there and invest in other things like stocks bonds and mutual funds. But the truth is nothing could be further from the truth. There are a lot of people that are really tired of the stock market right now. It’s like riding a bungee cord off a cliff. First it’s kind of fun, but then when you drop and you go up and you go down and you go up, it’s like a roller coaster. And people really get tired of that activity on the stock market. So that’s one reason that private lenders really do need active, strong real estate investors and go out and find great deals right now.
I’ll tell you another one is . . . and a lot of people have pulled money out of the stock market and is considered to be like lazy money; they don’t really know what to do with it. So what do they do? They drop it into maybe a money market account, maybe into the bank, maybe into a CD. But do you know what CDs are paying? Really they are paying less than 1%. You know what the inflation rate is? Is more than 1%. So they’re not even preserving their capital when they’re sitting inside of a CD.
Now, on the other hand, if you’re able to connect with somebody who’s got some money sitting in a CD or sitting on the sidelines out of the stock market and they’re tired of it and sick and tired of that bungee cord jumping, you’ve got some great ways to link together and work together and provide each other with solutions. For instance, are you getting tired of the high rates that you pay to your hard money lender? You get tired of 14% and four to six points, those four to six points, they take tons of your profit out of every deal that you fix and flip. So why don’t you get rid of your hard money lender and replace it with what I call an easy money loan, which is direct from a private lender?
Now, I said earlier that a lot of people . . . literally, trillions of dollars are sitting in CDs right now and earning less than 1%. What if you were to borrow that back and say 6, 8, 10% with 0 points. See, the only people that really understand points are bankers and hard money lenders. If you go directly to individuals like you and like me, they don’t understand what points are so don’t even offer points. Six, 8, 10% and you’re going to eliminate that four to six points. For every hundred thousand dollar loan you do, I just saved you five to six thousand dollars.
So if you do a $200,000 fix and flip, I just saved you over $10,000 by showing you how to connect yourself to people that have money. And that is going to change their life as well because the compounding effect, the difference between 1 and 2% and 6, 8, and 10% is literally hundreds of thousand dollars over a long period of time and that’s why they need you.
Now, what about all you landlords.? So you guys love to create cash flow. How can you connect and help solve problems for people that have some money on the sidelines right now? Well, I’ve got a couple of ways. First, if you’re doing seller financing where the seller is going to be your bank and they need a good substantial amount of down payment, inject that with some private capital so you’ve got it on the front end.
You could also do long-term if you’re able to get 4 or 6 or 7%, probably. But another way you can do it is a way that I like to do is what I call equity participation joint venture investing. That’s where you’re going to be sort of like that show “Shark Tank.” And you’re going to offer pieces of your deal to people that inject the money into your deal.
So they’re going to be 100% passive. They’re not going to do any work. And you’re going to go out there and find a deal, manage the rehab, get it rented. And then you’re going to share some of that cash flow and you’re going to share some of the future profit when it’s sold.
You start talking to people about how to do these types of investments with you and you’re going to open up a lot of private capital and you’re going to do it the right way. This won’t be somebody faking to be a private lender or like a hedge fund, for instance. This will be real people just like you and just like me and that is the reason why private lenders and people sick of the stock market right now really need you as a great real estate investor. I’m Jim Ingersoll and I really hope you enjoyed this REI Classroom today.
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