Private money lenders are all around. A recent study showed that 22 percent of American workers have at least $100,000 in their retirement fund. With 154 million workers in America, that means more than 30 million Americans have more than $100,000 in their retirement account, being shaken around by the stock market or accepting low fixed returns from CDs/annuities/savings accounts or other investments.
We have numerous ways of finding these individuals, perhaps more ways than we can list here, but allow me to go through the four most common methods for finding individuals willing to lend their money for your next deal.
1. Family and Friends
Borrowing money from family members or friends is probably the most common way for new investors to get started with private money. However, this “low hanging fruit” carries with it some emotional attachments that can make success much more difficult to obtain if things are not done correctly.
Only borrow money from those family members and friends who truly have money to lend. Real estate is risky, and I'd hate to see you lose Grandma Betty's life savings because a deal went sour. Also, keep in mind that—especially with family—it's probably best to let them come to you. Many investors simply refuse to invest with family or friends, but the decision is ultimately yours.
As I mentioned earlier, 30 million Americans have $100,000 or more in their retirement account. These are everyday people you know: your doctor, dentist, school janitor, librarian, accountant, garbage man, and others. The key to finding private lenders in the general public is constant networking.
Networking involves putting yourself out there, letting people know what you do, and talking about your business (and their life/business, as well). If you don’t already have a stack of business cards in your back pocket at all times, get some!
Some of the best "official" places to network can be local real estate clubs, Chamber of Commerce meetings, BiggerPockets, and real estate-related conferences. However, your networking should not be limited only to official networking events; instead, networking should be a lifestyle. Let everyone know about your business and the great things already happening or that you plan to do. Carry pictures with you of recent renovations and purchases. Don't brag, but don't shy away from talking about your real estate successes (or goals, if you are just getting started) either.
Another great way to network is to provide valuable information for free. If you have a local real estate club, ask to speak and share what you know (but please, don’t pitch—simply provide value). If you don’t have a local club, consider starting one. As I mentioned earlier, there is a lot of power in being a “connector” of people, so by starting a networking group where real estate professionals can meet one another and grow, you will gain a reputation as someone to be trusted.
The same effort you put into networking in the real world can be applied online by teaching what you know. You don’t need to be an expert to start a blog and share your story, but if you know how to communicate well online, a blog can be a great way to build up trust and gain a reputation. If the thought of starting a blog overwhelms you, understand that it can be done very simply, very quickly, and very cheaply.
While dozens of tutorials are available online that can teach you how to start a blog, I’d recommend starting by creating a BiggerPockets Member Blog. You can be up and running in just seconds and can instantly have a targeted audience at your fingertips.
4. Public Record Search
Not everyone will be convinced that real estate is a good investment to have in their portfolio, but do you know who are the easiest folks to convince? Yep, people who are already private lenders! A lot of people out there are already lending on real estate deals and may be willing to lend on yours, too. Although you can find these people through the methods already mentioned, you can also take a more direct approach and identify them through public records.
Each time a mortgage is made, the mortgage document is publicly recorded at the local county government. This information can be invaluable to you as an investor because you can use it to find out who the lender is on any property. The majority of lenders will be listed with a bank name and address (Well Fargo, U.S. Bank, Bank of America, etc.), but others will be presented differently, with either a person's name, an LLC name or a trust.
These are the individuals you are looking for. In most counties, you can perform this search online through your local government’s website, though this may involve a fee. If your county does not list this information online, you can simply go down to your county administrative offices and search manually (though this might take a lot longer).
Specifically, you are looking for the “grantee” (mortgage provider) line on the mortgage documents. You want to find grantee lines that have either a person’s name or a corporate entity name (not the name of a bank). These are potential lenders. Doing a reverse address-phone search or sending a letter can put you in touch with these lenders and open the conversation, but use the contact information you find only to build a relationship. Soliciting others at random for money can be both illegal (for you) and annoying (for them).
This article is an excerpt from Brandon Turner’s The Book on Investing in Real Estate With No (or Low) Money Down, available in the BiggerPockets Bookstore.