Raising money is not a matter of marketing but rather about knowledge and competition. There is a legal side to the real estate investing market yet that is not something that should scare you away from these profitable transactions.
You don’t need a law or finance degree to achieve success with real estate transactions if you can learn some simple equations of how these types of deals work. They aren’t complicated and if you have a calculator, you can determine your profits, your investors returns, and how to structure deals in the future to earn an even larger profit.
Three Components to a Private Lender Deal
These are part of every real estate transaction yet when it comes to investor deals, it can confuse even the most seasoned real estate professionals. Don’t let it become the thing that holds you back in making money; it’s an easy to understand equation. The three parts to every deal:
- The House. Finding a great deal on a house is the first step. Can you buy it for a steal? Can you fix it up? Can you sell it or rent it out?
- The Note- the I.O.U, the promise to pay. Where the money is to be paid? How is the money to be paid? When is the money to be paid? Not a public record. Included in this document is:
- Amount of Money
- The mortgage. The public document that records the note to the house. Simply the legal document. This is the final amount of the transaction, the paperwork that will be signed at the title office or with the real estate attorney. Every state has them and they are fairly simple to navigate. It also includes:
- Amount of Money
At SREC (Strategic Real Estate Coach), we like to use real life examples. Josh Cantwell and his team have worked these deals up and down, backwards and forwards, and don’t just have book knowledge but real life examples to show you just how these types of deals are structured.
Example: We recently bought a house for $52k and received seller’s concessions for property taxes and went to the closing table with $50k. The rehab budget is $32k, meaning we are in the house for $86k.
The recorded public record for this property is $86k as that is the final, total price. That is the mortgage part of the three components. No one will know the breakdown of the price, rehab, concessions, etc. as all the mortgage lists is the total cost. Leave it up to the next component, the note, to fully explain the terms for the investors.
The note will explain the deal: 12% interest, or 15% of the profit, whichever is greater. This amount is fixed, not guaranteed. The note has a 1 year balloon for repayment purposes.
This particular house will be listed for $159,900 as the initial list price. The house may or may not sell for that amount but it could be reasonable to expect $140k, and after concessions, it could bring $128k at the closing table. A transaction like this would be a profit of $46k.
The private lender receives 12% yearly interest on the $86k or 15% of the total profit of $46k, whichever is greater. This particular investor can expect $13,800 ROI on their $86k investment, which indicates a 16.04% interest rate. Private investors make money on these types of deals and are usually very happy with the end result. If the profit percentage ends up being less than 12%, it will automatically go to the note amount and the investor will receive no less than 12%.
The First Step in Finding Investors
Raise awareness for the idea of this type of investing can be as simple as sending out emails, social media links, and even just having lunch with friends who may be interested.
Let us know if you want to learn more and how to raise money for real estate deals? We offer many opportunities for you to learn how to legally and professionally work these deals. You aren’t soliciting friends and family for money, like in other business models but, rather sharing with them simple information. It gives them a chance to be educated about the money to be made on these types of deals.
Email: firstname.lastname@example.org your name, email, and how you prefer to learn. Do you want to travel to a conference in Vegas, watch more videos, participate in real estate boot camps, or maybe just sit with Josh Cantwell and learn the tools he uses on a daily basis for these amazing deals? Let us know!