I have had a lot of people ask me questions about private money. I’d like to seek clarification on a few points. First, “private money” is not the same as “hard money.” Yes, both hard money lenders and private money lenders are people or companies that have money to lend on real estate deals. However, hard money lenders are in the business of lending, so they are always looking for new potential borrowers. Private money lenders are not in the business of lending, so potential borrowers have to seek them out.
Here are the four best types of people to talk to when you are seeking a potential private money lender for your real estate deal:
1. The Professionals
This includes employees and self-employed individuals who have had to work hard to secure a high paying occupation. Some examples include doctors, attorneys, accountants and engineers. Even if they can get to a place where they take home a lot of money, they are still on the E and I side of the CASHFLOW Quadrant, so they are trading hours for dollars. This means they usually do not have the time or focus to figure out how to invest any excess cash they have.
2. The Entrepreneurs
Many business owners struggle, but some become very successful. Many of these successful entrepreneurs are in the S or B portions of the CASHFLOW Quadrant. The S’s are almost always busy managing employees. And the B’s can be busy overseeing the managers who are managing the employees. Either way, they have a money problem … they usually don’t know where to park their extra cash so that it can grow safely.
3. The Wealthy
Whether they earned it or inherited it, some wealthy people get to a place where they do not know how to make their cash continue to grow in a secure manner, so they either do something stupid or they do nothing (which is also stupid). You can show them how they can be your lender. Their cash will earn a good rate-of-return, and the real estate will secure the loan through proper documents such as a promissory note and a mortgage, deed of trust, or security deed.
4. The Retirement Accounts Holders
There are many ways that someone’s retirement account can be your lender (or your partner). Retirement funds are usually run through a Self-Directed IRA. There are several types of retirement accounts that can be used, but all of them usually require the expertise of a Self-Directed Custodian. Still, when the proper rules are followed, a retirement account can make a nice profit by lending to you on your real estate investments.
It is very important that you are aware of the state and federal laws that may regulate how you approach a potential private money lender. There are right ways and wrong ways. (You don’t want the S.E.C. breathing down your neck.) So, the next step you may want to take is to have a quick meeting with your attorney … hey, maybe he or she would even be interested in being a private money lender!
- Jonas Taylor is a financial expert and experienced writer with a focus on finance news, accounting software, and related topics. He has a talent for explaining complex financial concepts in an accessible way and has published high-quality content in various publications. He is dedicated to delivering valuable information to readers, staying up-to-date with financial news and trends, and sharing his expertise with others.
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