Private Money? 1st Position?
Alan Cowgill, Ron Legrand, and the like are talking about using private money ($5,000-$50,000+) to fund deals. They tell the investors they will guarantee the money with a promissory note and a first position mortgage on the property. Where are they buying houses that can be bought, repaired and put on the market for $5,000-$50,000 (still less than 70% of ARV)? What am I missing here? How can they guarantee 1st position? Where does the rest of the money to fund the deal come from when they can't find houses that can be repaired for $5,000-$50,000 and they are all out of investors loaning $60,000+ (Just about the minimum in our market to complete at 2/1 or 3/1 in a bad area)?
I am very interested in this concept but this issue makes it a non-starter, right? If they are doing it, then how? I'm not talking about finding the investors. It is pretty easy to find an investor ready to make 12-15% on their $5,000-$50,000 secured by a 1st mortgage at less than 70% of ARV. The hard part is finding houses that you can buy and fix up for so little money so you can offer the investor 1st position.
If someone can explain this to me in a way that makes sense I will gladly drop 2K on their course.
JohnCl
If I'm not mistaken, those statements used to help you "find" interested private money sources. To get the "first" position, the private lender is required to put up more money. With that being said, there are a lot of foreclosures in my area you can purchase for as little as $20K put $7K in rehab and sell for $37K-$40K, but they are in seriously less desirable areas.
Right. So thats a minimum of 27K in your area. Got it. What about holding costs, marketing costs, the 5K "pad" they speak of, etc?
I guess basically you attract the investor with the 1st postion line and then when they only have 5K to "test you out" you give them a 2nd using the argument "well, if you only put more I could do what I advertised".
Makes sense. After you do a few deals with them, they'll start opening up the floodgates of their IRA, etc. and the real fun starts.
JohnCl
I have purchased Alan Cowgills program and he gives a first mortgage to anyone over 25k and a 2nd mortgage for anyone under 25k.
The small 5k is used for a sub2 or such where not much money is required.
I put an extensive amount of time, energy, and money into finding some private inestors and I have had zero luck. Of course in my area you buy a home for $75k and put 25k into it and sell for 140k. Not many have access to that kind of money and are willing to lend it out to joe somebody even if it is secured. I also tried a program where the investments were only secured by a note and no mortgage which would in a way let me pool money (this was a very decisive plan to get around securities laws).
None of it worked for me.
Now I am in the process of partnering on a few deals. I didn't want to do it because you give up 50% of the money. It just doesn't seem right. However this is working for the time being.
Quote:
On 2004-05-06 10:11, JohnCl wrote:
Right. So thats a minimum of 27K in your area. Got it. What about holding costs, marketing costs, the 5K "pad" they speak of, etc?
You're right. Sorry for being so non-detailed, just trying to make the point that it can be done here - even if sometimes you only take away a few thousand. That market is not for me, however, there are lots of investors working it. As I mentioned, it is a less than desirable area, but from what I hear by the time they slap in paint and carpet they have someone in there. Hey, low cost housing - what can I say?
Quote:I guess basically you attract the investor with the 1st postion line and then when they only have 5K to "test you out" you give them a 2nd using the argument "well, if you only put more I could do what I advertised.
Yep, basically. I think most would agree, before REI we are for the most part "marketing professionals." Before we ever invest in a property we market for people in a position to sell their property, we market for people wanting the property we have, we market the service we can provide and we market for people to put money into what we do. Therefore, it would be safe to say - those of us who market the best, more often than not, find the best deals, sell the most property, and secure the best lending sources - in essence make the most profit. It's just business, ethical business grant you, but business. My private lenders started out with me small, but as you said, I chose my investments wisely and made them money. It is true that over time as our relationships have grown they have opened up into larger more trusting amounts, but it was tough at the beginning. It's all about numbers - the very premise of sales. The more you ask, the more you get turned down, but the more you sale. In addition, I never promised or advertised a first position - I always said, "with a possible first position on real estate" which negates false statements.
Quote:Makes sense. After you do a few deals with them, they'll start opening up the floodgates of their IRA, etc. and the real fun starts.
Yes, as you build a successfull and reliable track record (business relationship) with each of your private lenders it would only make sense. And if it can make cents, it can make dollars!
[ Edited by dmbaker on Date 05/06/2004 ]