In this article, I’m going to share how a newbie can get a money partner to finance your deals.

The real question becomes how do you convince that person who has the money and the credit to become your partner. When I was starting in real estate, I partnered up with with a CPA who became a money partner for us. Prior to our introduction to this guy, we had already done several deals. We could show him that we had real experience under our belts.

We put together a presentation with our success complete with what we paid for our properties, what we had to fix them up, and what the cash flow looked like.

It’s not essential that you know the individual personally. In fact, I was introduced to that person by a mutual friend who put us together for a fee. Was the fee worth it? Absolutely.

I don’t think we would have been able to put that partnership together if we hadn’t had experience under our belts already.

You can use this approach if you already have that type of experience. All you need to do is put together a presentation like I did that shows people you know what you talking about.

If you don’t have that experience, does that rule out this approach? Absolutely not. You can still put together a deal like this.

It’s definitely not going to be a little tougher sale, but it’s not an impossible sale. I’ve seen my clients put together this type of deal and make money doing so.

What you have to do put together a good presentation. It will need to show the types of the properties that you would be Buying. You will need to put down specific information like purchase price. What you plan to do to rehab the property. You will need to show what the cash flow will be. Get tons of specific details worked out before your meeting. For example, have your contractors already lined up and ready to go.

The one thing that’s different is that if you don’t have a track record it’s going to be a lot easier to approach someone who is family or a close friend who really wants to see you succeed.

If you go in with this type of information and a lot of certainty that you can pull this off – YOU CAN. You’ll have a good chance of convincing your potential money partner to actually become your 5050 Partner.

In this article I’m going to give you my two top tips for getting financing if you are just starting out.

1) Find a Money Partner
The first tip I’ve got for you is to get into a partnership where you are doing all the work involved in the real estate transactions. You find the properties. You supervising the rehab. You provide for the property management.

The other party, your partner, will be responsible for all of the financing. That means they will put up the money and credit to fund the project.

But at the end of the day, you are 50% owner of these properties. The down side is that you are giving away half of the deal.

When I was just starting, for a whole year I bought ten properties with a partner in this manner. These properties were long term rental. I still on those partners those those properties in partnership.

2) Borrow from Friends and/or Family
The second tip is to rely on friend or family as a private lenders. Private lenders are cheaper than 50-50 partners in the long run.

However, most of the time it’s a great for you AND a great deal for the private lender. If they’re looking to make a good return on their money you can be an excellent opportunity for them. For example, if they’re going to the bank to buy a CD, they might only be getting 3% or less. But if you are borrowing that money from your private lender on real estate you can offer them 8% to 10% interest secured with a mortgage.

My private lenders have been critical to me since the banks have tightened up their lending standards.

Are either of these easy? No way. But if you are just getting your start as a real estate investor and want to buy properties for the long term, they represent a great avenue for you to get the financing you need.

The next question is how to approach a prospective private lender or money partner. I’ll leave that to another blog post.

"We want to get a reference letter from someone who loaned us money that we can show to another potential lender.  Would you give us some wording that we should have in a letter that would look good to other lenders?"

Obviously, it’s critical to have many different sources of financing lined up.  You never know when you’ll find a home-run deal that requires money you don’t have to purchase. 

On the one hand, you can have this money lined up in advance so you can take advantage of home-run deals when they come up.  One the other hand, you can just sort of go with the flow and try to get financing lined up when you need it.  MISTAKE!!!

Trust is the name of the game when it comes to getting in with a new lender.  The more good looking paperwork you can show to a potential lender, the better chance you will have in gaining their trust.  When I say paperwork I mean financial statement, references, assets, etc. 

So here is the step-by-step approach that I like to take when approaching a new lender:

1) Get your financials together.  Make sure they are up-to date.  These better include a balance sheet, a profit and loss, and a schedule of loans.  You will also need to provide them with recent tax returns. 

2) Have current reference letters from people in whom you have made good on loans in the past.  Here is where your questions comes into play.  Have that lender put down specific information about the loans you have with them, such as the numbers of loans, the balances, and your pay history.  I’m assuming that they will have good things to say about you.  If you are consistently 2 months behind in your payments, you better skip this one. 

It would also be good if they said something to the effect that they would extend credit to you in the future if asked. 

If you can provide reference from multiple sources, all the better.  I like to include a number of differrent references, from other bankers you do business with, your attorney, title company, etc. 

3) Meet with this lender in person.  Find out where they are at with you. 

It’s important to be proactive.  Don’t wait until you need the money.  Get out there and talk to some new lenders today.

In his article "Self-Directed IRA Investing: Invest to Protect Your Retirement" , IFAZ blogger points out that self directing your IRA funds can make a lot of sense given the current market conditions.  After all, many have watched their IRAs lose 50% or more of their value. 

Many years ago I made the decesion to never again have any of my money in the stock market.  It seemed that every decision I made in terms of investing in stocks was a wrong move.  I decided to keep my money in a vehicle that I could at least somewhat control instead of being totally at the mercy of some publically traded company and the whims of the market. 

I took that money, bought real estate, and then sold the property on terms.  This is giving me a huge return on my money because I nearly doubled the price of the real estate I sold, plus I’m charging 10% interest.  I haven’t actually calculted the return I’m getting, but I can tell you that it doesn’t take that much of a starting investment over 20 or 30 years of that type of investment to have a mult-million dollar IRA account at the end of that 20 ro 30 years. 

So, going back to quesitons my student had about her IRA.  Sorry, but takin cash flow out of your own IRA is a no-no.  That is definitely a prohibited transaction, and the IRS can revoke the tax benefits of that account (ouch!). 

Buying rental property in an IRA is not a good financial move.  For example, you can’t take depreciation on a property you own in the IRA.  There are other down sides, but let’s just leave it at that.  My recommendation is to buy some real estate in the IRA that you will finance out (i.e., the IRA will get the note and mortgage), or simply lend out the money as if you were a hard money lender. 

Passive income is thing of beauty.  You know, I can make more cash flipping properties.  But the income from flipping houses is inconsistent.  Once I have the income stream from a cash flow property established, it just keeps producing like an oil well that doesn’t go dry. 

I flip quite a few of the properties I buy.  It’s good money, but it is work.

In addition to the passive income, you also need to consider how much debt you are paying down.  I prefer to put my cash flow properties on ten year notes (certainly nothing more than 15 years).  There are those who will argue that you should put your properties on 30-year notes, but I’m not one of them. 

Every dollar that you pay down on those mortgages is another dollar that goes into your brick and mortar bank.  It’s just one dollar closer to financial freedom. 

The point we made in class was that piece of paper is just part of the realtors paperwork checklist.  So, get them a piece of paper. Here are a suggestions on where to get those pieces of paper:

1. A hard money lender.  Find out who the hard money lenders are in your area.  Find out which one or ones will provide you with a pre-approval letter. 
2. Do you know a private lender who could write a letter like that for you?  Just because you get a letter from a private lender, it doesn’t mean that it needs to be the source of those funds.  You don’t need to get a different letter for each property in which you submit an offer. 
3. You could also give the lender a bank statement for a line of credit.  If you don’t have a home equity line of credit, you might consider getting one.  This is just as good as cash in the eyes of a lender looking to sell a property.

The point is, just make it easy for your realtor.  Make it easy for the seller to see that you have the money to close.  Then, just keep firing out offers until you get one.