Method of Receiving Funding for Foreclosure Investments

By: Robert Lam

Private funding can pop up in unexpected places

Money may not grow on trees, but it sure pops up in unexpected places. With solid networking, you might just find a seedling delivered right to your doorstep. I learned the value of networking a few years back when I, unbeknownst to myself at the time, became acquainted with a potential private investor.

Like everyone who's new to the world of investing, I thought traditional bank loans were my only option. I wasn't overjoyed with that option, as anyone who's ever sought a loan can understand. Private funding, I realized was the way to go. Without a willing investor standing by, I found that I was losing out on amazing deals that required quick action. Easier said than done, though. Where was I supposed to find private funding?

Back in the spring of 2003, my partner and I was closing on a foreclosure deal, nothing about it (except the money I was making!) seemed particularly remarkable. After a couple of hours of signing papers and dealing with all the legal beagle stuff, we were all gathering our things to leave.

As I was headed out the door, the buyer's mortgage lender stopped me. Let's call him John. John introduced himself and told me how impressed he was by the amount of money I made on the deal. He looked at the numbers and saw that I came out on top when all was said and done.

Fast forward six months, and I found myself sitting across the table from John again. This time I was the one who was impressed. Now that I knew John, I paid more attention to him during the closing and observed that he was the consummate professional. I made sure to pay him the compliment as we were leaving. There you have it, mutual admiration.

We exchanged business cards, and John expressed an interest in getting together for lunch. We made plans, and over our pastrami on rye, John asked if I was looking for private investors. My response was a hearty "Yes, always!"

John talked to me about the interest rates and share of the profits he wanted. The numbers were higher than I had hoped for, but he was one of my first private investors so I took it. The main benefit of working with John was that he was willing to go LTV (Loan to Value). That's one reason why private funding is more beneficial to real estate investors than bank loans.

I pay my private lenders 9% interest on a first lien. I prefer paying monthly interest only payments supported by the income on the property but I can pay principle and interest if needed. Interest only payments keep my lenders entire investment working and they make more money. I pay my private lenders 11% interest on smaller second liens. I prefer to have their interest accrue with no monthly payments. My investor can earn interest on interest and I can avoid a negative monthly cash flow.

I prefer making no payments on a first or second lien when rehabbing a property that I expect to be sold and cashed out within 6 months.

I prefer my note payments are due on the 15th of each month allowing the properties income to help cover the payment.

My minimum investment is $10,000.

So, what's the moral of this trip down memory lane? As a real estate investor, you never know where you next source of private funding might come from. Networking is always touted as an essential component of any business, and here's proof of why that's true. Be friendly, gracious, and always put your best foot forward. You might just be impressing the person who's going to fund your next big foreclosure deal.

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