Becoming Your Own Bank

“Money is better than poverty, if only for financial reasons.” – Woody Allen

Susan was the last to report. With no small sense of accomplishment, she told the room of 227 attendees that she had managed to secure $1.5 million in commitments from private lenders. When we added the commitments obtained by other students at my recent Private Money Bootcamp in Las Vegas, the total was over $73 million.

It’s always gratifying to help beginning and seasoned investors alike get past one of the hurdles slowing their progress: not having enough money to do their real estate deals. In all, over the last few years, my Private Money students around the country have reported acquiring financing commitments of more than $425 million!

And it doesn’t just work for houses. Last year, one of my students, Robert Anderson, used private money to purchase a $1.8 million apartment building. He used one of the techniques I teach to structure the deal so that he had no payments until the property sold.

He sold it eight months later for approximately $3.3 million. After paying the bank back the loan plus approximately $255,000 in interest, he walked away with a $1.2 million profit for himself. And that was Robert’s first real estate deal.

Of course, I use these same techniques myself. I’ve bought over 200 homes and small multi-unit properties since my first real estate deal back in 1995. Today, my team and I buy an average of five to seven houses a month. All of it is done with private money.

I wouldn’t have it any other way.

  • With private money, you can do all-cash deals… scooping up bargains that are off-limits to investors who depend on bank financing.
  • You provide your lenders with a high-yield, safe alternative to the stock market.
  • You don’t have to wait three or four weeks or more, as you do with bank loans, so you can buy under-market deals from sellers who need to sell now.
  • If you’ve quit your job to become a full-time investor, the bank quits you. That doesn’t happen with private money.
  • You set the terms of the loan, not a bank
  • Every successful deal creates more funds for your next deal. Your lenders want to put their money to work with you again, and often refer other potential lenders to you.
  • You don’t have to deal with providing the stacks of tax returns, applications, and endless forms required by banks
  • When you buy a property at a good enough discount, you can borrow the entire purchase price from your private-money lenders, plus closing costs and repairs. That’s not going to happen with a bank.
  • You never pay the outrageous fees set by hard-money lenders
  • You can structure some deals so there are no monthly payments. (I’ve done this with about half of mine.) This solves potential cash-flow problems on major rehabs or luxury homes

Those are just some of the benefits. And the best part is that, once you understand a few key concepts, building your private-money network is easy.

But there are a few things you have to make sure you do right first.

Marketing and Presentation Skills Are Key

You need to know how to market for private money. There are things that will work, and things that won’t… and things you can say, and things you can’t.

You need a clear, credible, and benefit-filled presentation. If you just try to “wing it,” you may end up turning a potential investor off by coming across as someone who is unprepared and not serious. And how many times can you “go back to the well” once you’ve made a less-than-favorable impression?

As you expand your private-money network, you need to make sure you’re following all state and federal rules and regulations. In most states, you can build a network of a few dozen lenders without filing a bunch of paperwork. Go beyond that number, and you must do the filing. Cross state lines, and there are other docs to file. And there are regulations to follow if you “pool” money.

Those rules and regulations apply only when you cross certain thresholds. And they’re not too cumbersome if you just take the time to understand them and do what you’re supposed to do. So here are a few pointers…

Keeping in the Good Graces of the Securities & Exchange Commission (SEC)

When it comes to complying with SEC regulations, you will be in one of three situations.

1. You don’t have any private lenders, but are ready to jump in the water and start bringing them on board.


First, you need to do the following:

1. Create your disclosure document to be handed out to lenders.
2. Understand your state’s SEC compliance threshold.
3. Find an SEC attorney and let him in on what you are doing.
4. Complete your disclaimer statement.

Whether or not you have to file with the SEC depends on how you decide to operate.

  • If you are going to work with family, friends, and associates and stay under your state’s compliance threshold, you don’t need to file.
  • If you are going to advertise, pool money, work with strangers, cross state lines, and/or go beyond your state’s compliance threshold, you’ll need to file with your state’s SEC office before you approach your first private lender. (You will also need to notify your state’s SEC office before you get your first private lender if you are in one of 10 states that require you to do so.)

2. You have a few private lenders, but are under your state’s compliance threshold.

You need to do all the above, plus complete a form to let the SEC office look back to see what you have been doing.

3. You are over your state’s compliance threshold, and have made a mess.

In this case, hire an SEC attorney and let him guide you through the jungle. You won’t like it, but I believe it’s better to put all your cards on the table face up and take your spanking rather than wait and hope you don’t get in trouble.

The bottom-line…

You’re dancing with a gorilla. Why take a chance? There are rules on how to play the game. The SEC controls the rule book, and they are there to protect the consumer, not you.

The easiest way to be in compliance is to take the appropriate steps before you secure your first private lender and start your business off on the right foot.

I find that many real estate investors are scared of the SEC. If they would only follow the rules from day one, they wouldn’t have anything to worry about.

[Ed. Note: Alan Cowgill is the president of Integrity Home Buyers Inc., and is the nation’s leading speaker on private-money financing. Join Alan on a teleconference call this July 24th as he reveals private-money financing techniques you can use to purchase any type of real estate.]