Need more Cash Private Money


#1

I have the same question as many others, I am out of cash. I purchased 12 mobile homes in under 6 months, All excellent deals and they came from referrals from 2 park managers. These are not Lonnie deals, I do not do those anymore. I have learned the bad way about those deals. I still buy very cheap though 8-12 K each

5 of the homes I purchased were from a tired landlord. 7 K each

The others about 10 K each all less than 10 years of age. Still excellent prices.

I have no more cash to buy, with Rent to Own it will take me a while to make my 10K each back to buy more homes. Any other ideas?

I need to find some private money, I will not pay 14% interest through some lender at an investment club as I only charge 12% interest to my buyers. With lot rent included in the monthly rental amount, I can not make a penny monthly.


#2

I am a park owner who also needs some cash with out the high interest rates. I also am looking for cheap but newer repos in my area. The repo market here in Savannah Ga. is sky high. There are no more new dealers in the county here. This county has upwards of 400,000 people so affordable homes are not so affordable any more.


#3

“I need to find some private money, I will not pay 14% interest through some lender at an investment club as I only charge 12% interest to my buyers. With lot rent included in the monthly rental amount, I can not make a penny monthly.”

This statement goes against everything regarding private money from the lenders aspect! I’m not trying to burst your bubble or hopes for finding private money I just want to inform you about the realities of using it and how it works…

First off a private lender takes a fairly large leap of faith every time they take on a new borrower, they are trusting you to make the payments or fulfill the agreement what ever it happens to be. The LAST thing they want to do is repo the property which is likely outside their local area.

On the lenders end the ONLY thing I’m looking at is how am I going to get the money back if everything goes south, not how I’m going to recover the “potential profit”. You want 10k per deal at something less than 12%, on a day one loss it would take a lender 4 of these loans and 5 years at 12% to recover from that one loss without anything left over for profit… Would you work for free or let someone else use $40k of your money for free for 5 years?

Hard money lenders, private money lenders, or what ever else you want to call them are normally investing in an individual NOT the collateral. Do you have a list of private lender references to increase lender confidence? This is the easiest way get better rates unless you are willing to make it a no brainer with collateral it just takes a long time to build a network. Using collateral you will need to be at 25-50% of the collateral value depending on if there is land included to get what you are looking for.

Let’s say you decide to go the collateral route and need 10k to do the next deal. Just for example lets say you have 2 homes that you paid 10k each for (which is to much in a park IMHO) which is the true wholesale cash (collateral) value of the homes backed by 2 notes totaling hopefully 40k. If a lender gave you 10k secured by these 2 homes they would be at 25% of note value which would allow them to recover their money if 1 note went bad on day one, it also puts them at 50% of the wholesale value which means that if both notes go back they can most likely fire sale both homes even with damage and still break even.

You could likely get what you are looking for under this setup but my impression is that you are wanting 100% of the note value giving them the interest earned… I only know of one person that has been able to pull this off to any degree and it’s a far cry from reliable as of now from my understanding and he’s one hell of a salesman.

If you are doing deals properly and earning respectable returns there is plenty to go around to make the deals happen. Lets say you are buying homes for 10k and selling them for 20k, 12% for 84 months payable $350.05 a month. YOUR yield on the deal is 39.59%, assuming you decide it’s more important to do the next deal than keep your interest rate under 12% you agree to borrow money against the note at 18% with the stipulation that you can postpone say 3 payments over the term in the event that the unit goes vacant. 10k same terms at 18% your payments would be just over $210 allowing you to pocket $140 a month with some level of security that you won’t have to make the payments IF you do your job with the deal. It’s a situation of give & take.

If you can’t give this much your deals are too skinny and you are most likely going to get burned somewhere down the line. The further you stray from Lonnie’s advice in other people


#4

Ryan,

Very nice post. Many people will ignore it or object to it because it is not what they want to hear. I am very careful with partnerships - they can be costly in terms of overhead and complexity, though once you have a nice template to work off of, the economics improve.

The keys with private money are finding the investors, understanding what they want, selling yourself and keeping the trust no matter what.

Most of my investors come from simple face-to-face networking. I never advertise, as that has securities law implications that strike me as too complex to bother dealing with unless the dollars in question are quite high. Chatting with people in coffee shops, on airplanes, at social functions, etc in a very low-key way is generally my preferred route. I do not push the idea at all, I merely mention it, almost in passing, and let someone who is interested pursue the idea if they wish. Often people ask me what I do, and I mention the practice, the courses I’ve written and the RE deals I’ve done since 1999, with some details on RE deals. I mention that I get 8% money from IRA’s (I do other arrangements as well, but that is the one I usually mention) instead of using banks, some people follow up with curiosity as to the ability to use IRA (which I am well suited to discuss b/c of my tax expertise) or as to the RE investment itself. I will follow up with those people, I do not push at all if someone does not inquire. I hate hard sells from either end of the equation.

I will post more as time permits on other aspects…I will say that I often find people who post on finding money or inquire as to same at REIA’s to be very cavalier in their attitude, it’s just a “feel” I get, one that experience tells me is generally justified and absolute poison to a financial relationship. These people would be VERY quick to simply shrug their shoulders in the event of a sour deal and say “You know, it just didn’t work out, sorry”. You can often smell that approach a mile away, most people will run from it without knowing exactly why. Also, most people selling themselves or an investment do a very poor job of finding out what an investor wants and of presenting the deal - little detail, round wishful “guess” numbers and no discussion of back-up plans or risks. Again, leaves many would be investors cold, without their knowing exactly why they have that feeling.

Just some thoughts to add to your own.

Post Edited (06-04-09 01:32)


#5

I agree with John. Ryan you did a great job of explaining a good lender borrower relationship.

I will add another comment that is actually a IRON CLAD RULE / SET IN STONE in my life. LENDERS GET PAID FIRST.

I have borrowed millions of dollars over the years from banks and hard money lenders and I can still get money from most with just a phone call. The exception would be the bank in our current economic environment. On the 1st of every month I write checks to 4 investors and a bank. This lender borrower relationship is the back bone of my business structure. In January of this year I had $3 million to invest and it was all private investor money. I will say my iron clad rule has benefits.

Get the right attitude towards your investors like Ryan explains.You must understand their risk. Honestly ask yourself would I lend myself the money?

On a side note I did not invest the $3 mil either, because the deals I found did not warrant the risk of my reputation.

To those looking for money - find the deal and the money will show up

Rick Ewens


#6

Mike, you have prompted a great string of posts. I can’t help but wonder if you have mastered the financial calculator, and the yield (not interest rate)on your deals. If you are out of puchase money, have deals that you can put together and have a RE club contact willing to lend, But 2% of the face rate is all that is seperating you, then you are stepping over dollars to save pennies.

I’ll add that while negotiating the very best rates that you can obtain is good business, when you hear what others are paying, you really must consider what is pledged (encumbered)as collateral in order to obtain those rates.

I buy MH’s and sell them - creating notes in the process. In order to borrow purchase money for MH’s to be placed in my MHP, I have several choices.There is very little debt on the MHP. I have a paid for house, and self-storage, and other parcels of land. I have a good relationship with local banks and can borrow comercial money at 6.17% or I could finance my house and get a mortgage under 5%.

Either of these choices would result in much lower rates than the rates my investors recieve through the hypothecation of the cash flow of the notes I create. But I choose the private investor route because that method provides liquidity for otherwise illiquid assets. In my view, cross-colateralization leads to investors really having their hands tied, and therefore they are forced to make some really bad decisions. ie:can’t sell an underutilized asset for a good price because it is collateral for MH’s.


#7

Just a few comments to add about computing the return…

I would be amazed if the $10k you used to perform your calculations when purchasing a home is a sufficient number. I would guess that figure did not include an amount for things such as moving, setting up and tying down the home ($1000k or so), any back taxes on the home (most homes around here seem to have some and are in 4 digits at least), any repairs (depending on what kind of product you are selling and what kind of customers you want), electrical hook ups (could include digging new trench, connections, pole, meter box, etc.,… $1k??), plumbing connections (depending on septic or city hook ups but still may have to dig trenches for sewer pipes and water pipes, connections, etc.), new skirting and labor or time (unless by some miracle the old stuff isn’t full of holes… ($400-$500)… Did I miss anything besides permits, ohhh possibly driveway, at $1200-$1500. Anyway, you get the picture. That $10k just went to $15k or $16k or more easily. So, it isn’t quite the 39% ROI as mentioned because those are hard costs that I deal with every day. The price of used homes has approached new homes when purchasing a respectable home (subjective), paying back taxes, and repairing to good shape. All other things are a wash since they are needed whether buying used or new. A deal still has to work for everybody - from us to the investor to the home renter/buyer. I refuse to rent because the down payment I receive is a huge part of the financial equation - not to mention the differences between owners and renters. There have been other posts about working off spreads or margins but that is the bottom line for any business really. Demand is necessary and one part of it but a product has to be built/manufactured/prepared, etc., purchased and/or modified, etc., and then resold or leased to generate income to keep doing it. If the numbers don’t work for all the system will eventually break.


#8

This kind of knowledge can only be acquired from actually experiencing both sides of HM and HML.

Thanks for sharing this great post Ryan,

Greg