“Cash is King.” That statement is as true now in this market as ever. With cutthroat competition on any wholesale deal posted in the local Facebook group, the best deals are only available to cash buyers. As real estate investors we need access to cash quickly with low cost and flexibility in terms. The answer is Private Money.
The term Private Money gets thrown around a lot lately muddying its true meaning. It is not the same as Hard Money where professional lenders charge large upfront fees and high interest rates for short term loans. It is also not personal money or access to personal equity like a line of credit. Private Money refers to individuals, often who we know personally, that loan us money for real estate deals. They are not equity partners but receive interest on their money which is secured by real estate - just like the bank.
They could be your friends, family, or business associates. They may be members at your church or parents of your child’s soccer teammate. They typically have money placed in investments other than real estate such as the stock market, mutual funds, CDs, etc. They may even have their money in an IRA or old 401k from a past job.
There are potential lenders in so many areas of our lives and frankly they are frustrated. They are frustrated by the risk involved in the stock market. Did anyone follow the GameStop stock manipulation? They are also frustrated by the low returns they get on other investments. The current rate on CDs is around 4% as I write this. That is less than actual inflation, so they are in essence losing money.
We as investors can offer them a great solution through real estate. Zig Ziglar famously said, “You can have everything in life you want, if you just help enough other people get what they want.” Now is a perfect time to help potential lenders get what they want while helping our businesses grow as well. Here are a few reasons why:
- The stock market has been setting record highs currently sitting above 46,000. Many of our potential lenders have amassed large values in their investment accounts which means they have more capital available to lend us.
- This is also true for retirement accounts with the average 401(k) balance now at $190,000 according to If the individual has changed jobs since opening the account or they hold their retirement savings in an IRA, we can help them with the process of rolling those funds over to a self-directed retirement account. This is not a taxable event for the owner and gives them more flexibility in investment options, including lending on our real estate deals.
- With this rise in market values, many potential lenders are nervous about the volatility in the stock market. They are looking for ways to diversify their portfolio. This is especially true for individuals nearing retirement who don’t know if they have time to leave their money in the market to go through the next correction before they will need to use it.
- Even with interest rates currently relatively high, our potential lenders see most current options that offer returns above the interest rates we pay (6-8%) as highly volatile and risky.
- Finally, confidence in real estate has never been higher. This is continually reinforced by the media and the many programs on Real estate investing is exciting, and many people want to be involved in it but don’t know how. The investments we offer lenders are secured by real, tangible property which is a great value to them.
As you can see, there are many benefits for potential lenders to lend us money. When we present a deal to them, we do not need to “sell” them on the idea, we only need to explain how the investments we offer fit what they already desire for their portfolio and investing goals.
Recently I presented a deal offering 7% interest to a potential lender. Their response was, “I understand what you’re doing and that sounds great to me. I get so tired of seeing the tiny amount of interest I get from my checking account.” We have an amazing opportunity to serve so many potential lenders all around us. We can offer them a new way to reach their investment goals, while building our businesses and reaching our goals at the same time. The current market conditions mean now is the perfect time to get started.
Chad Harris is a full-time buy and hold investor who bought his first 80+ units without any bank loans and host of the True Wealth Investors Real Estate Podcast.