Should You Partner with Private Real Estate Investors?
Investing a in real estate is a great way to grow your personal wealth portfolio, especially if you’re strategic with the properties you buy. When you don’t have the funds to purchase the property yourself and you don’t want to turn to a traditional bank loan, bringing on private real estate investors is a great option.
What Constitutes a Private Investor?
The term ‘private investor’ refers to anyone that is not a bank that is putting up the money. Because they are a person or a company instead of a bank, you may find that you can get approval for financing from a private investor easier than from a bank. This is largely due to the fact that they can take a closer look at the merit of the property and overall idea for the investment opportunity.
Why Would You Choose a Private Real Estate Investor for Money Lending?
When it comes to investing in real estate, very few people have the cash on hand to purchase properties without a loan of some type. As with any type of loan, there are drawbacks and benefits to working with real estate property investors.
• Provides Earnest Money: When you’re interested in investing in real estate, coming up with the money to fund the investment on your own can be a challenge. Private investors can help shoulder the burden of the finances, especially when you are just starting out in real estate investment.
• Minimizes Risk: When you combine forces with a real estate investor, it helps to minimize your personal risk. Sure, you will be splitting profits from the property with the investor but if the investment doesn’t work out, you’ll be splitting your losses as well.
• More Opinions: Often times, a private investor wants to have more of a say in how their money is used than a traditional bank would. After all, it is their money that’s on the line.
• Can Complicate Relationships: If you are turning to friends and family to act as your private real estate investors, the relationship could become strained in the process. Finances always make relationships a little more complicated so come up with a way in the beginning to minimize any issues that may come up.
How to Connect with Third-Party Investors
Once you’ve decided to go after private real estate investors, you need to decide where to start. The easiest way is to start by discussing the opportunity with the people that are closest to you and working your way out from there. Starting with the people you know will provide an opportunity to get feedback on your pitch. Make sure the pitch is as polished as possible before going to those initial people but don’t be afraid to ask them what you could have done to improve your pitch.
Look For Investors You Know
If you’ve decided to look into private investors, start by talking to your inner-most circle of friends and family members. You might find a like-minded individual who would like to try their hand a real estate investment along with you.
Ask Your Friends & Family for Acquaintances
If your friends and family don’t want to invest their money in your proposed real estate investment, ask if they know anyone that may be interested in the opportunity. You never know who may have a friend or family member that dabbles in investments. Having that personal connection can help get the initial conversation going.
Check Out Professional Investors
If there’s no one you have a connection to that’s interested in investing in your property, look for accredited investors found through advertisements, attending trade shows, and local reputation. These investors will have a more professional approach and you won’t have the added complication of having a relationship that overlaps personally. Large private lenders aren’t associated with a bank but they can work in much the same way. Among the most popular companies are: LightStream, Upstart, LendingClub, and Best Egg.
Make Sure You Look at The Details
Once you’ve discovered private real estate investors that share your same vision for the property, make sure to get a secure contract in place that protects both of your interests. If you go with an individual or a small entity, there’s a little more flexibility with working out the contracts. If you go with one of the large private lending companies, you’re often stuck with the contract they offer. Their interest rates can be as low as four percent or as high as 12 percent, so make sure you know the specifics of the loan before finalizing things.
Private real estate investors can be used to purchase a new property or refinance an existing property. If the first partnership with the investors goes well, you may even find that it will become a lasting business relationship that encompasses many real estate purchases.