Approaching Potential Investors

Hello All!

I’ve done a couple of deals already, and am ready to move on up a bit and start using other people’s money. I have access to a handful of potential investors (family/friends/ex-employers), but I’m not sure how to approach them to entice them to fork over some money.

Can you offer advice on how I should position my “offer” to do business with them? And what do investors typically expect in return (percentage, involvement, etc.).
How much should I expect to pay them and when do I pay them?

Thanks a ton!

Howdy Lilbitofhope:

It is best just to start talking with them about what you are doing and what you need help with and then ask how they want to get involved. Do you need just money or money and credit for instance. In a partnership situation the money and credit usually get 50% and the work horse and deal finder gets the other half. This of course should be a little flexible. If it is just money then 12 to 14 % is a good place to start. I just saw an add offering 60% interest and almost loaned them some short term money myself. I recently paid as high as 18% per quarter for $10,000 on a second mortgage. I an currently paying 12 and 14% for hard money loans in first lien position.

You will find it easier to discuss their involvement if you know what they are looking for. Are they retired and want little involvement or do they want to be active and help you hammer nails. Getting a feel for their risk level is important. Some will loan you cash but do not want to risk their credit and others will go in head first to help you any way they can for a piece of the action. It is always better to ask what it would take for you to get involved instead of making an outright offer if possible.

Great advice, tedjr…thanks!

Your response triggered another question for me… i hear the term “hard money” all the time on here…how do you define “hard money”?

Thanks!

Howdy Lilbitofhope:

It is a loan based mainly on the property and not the borrowers credit. Generally 70% of the after repaired value with escrow for repairs. The loans are not cheap costing 4 to 5 points and 12 to 14% interest. They are usually short term also of a year or less.

They are often referred to as asset based loans also,