“Brother, can you spare a dime?” – Yip Harburg

I probably left over $1 million on the table during my first years as a real estate investor.

I remember the four-unit I could have gotten for $160,000 that sold for $300,000. The duplex a block from the heart of downtown, not yet listed on the MLS and offered for a song at just $120,000. It would be a quarter-million-dollar property within two years. And I can’t forget the renovated triplex that cash flowed like an ATM and was available for $165,000 – about 25 percent below comparable properties and in the middle of a rapidly improving (and appreciating) neighborhood.

I knew these were among the best deals on the market. But I didn’t even make an offer. I was in the middle of another deal each time, so my money was “tied up.” And there was no way the bank was going to lend middlin’-credit-me money for two properties at the same time.

So I hoped the deals would wait while I tried to scrape together more savings, looked for a partner with good credit for the bulk of the down payment, and got ready to make a joint application for another bank loan.

But the deals didn’t wait. Each of these six-figure winners passed by me like fastballs thumping into a catcher’s mitt.

I never even got the bat off my shoulder.

But that was before I understood the concept of private money.

Today, I realize one of the keys to snatching up the best deals on the market is being ready. That means having your cash ready to go. But most investors do it backward, just like I used to. They spend a lot of time finding the deal. Then, once they do, they go out and try to get the money.

Often, that works. But sometimes you lose extraordinary deals because you simply can’t move fast enough.

So wouldn’t it be a lot better if you had your funding lined up all the time? And not just for the down payment, but for the entire purchase, rehab, and closing costs? And not just for one deal, but for as many cash-flow, under-market deals as you could find?

I think so. That’s why I’m in Dallas – along with about 200 investors from all over the country – at Alan Cowgill’s “Where to Get the Money Bootcamp.”

Alan has been a real estate investor for the last 12 years, but his business really took off once he figured out how to develop a network of private lenders. Today, he buys and sells, on average, five to seven houses a month – more than he used to do in an entire year. And he has more money available to him than he can use.

As Alan detailed to us yesterday, here are just a few of the key benefits of building your own network of private lenders:

  • Cash is king in a rising foreclosure market, which we’re facing today in much of the country.

Sellers in pre-foreclosure often can’t wait the 30 to 45 days or so it takes for a buyer to get a bank loan. Yet, if you set up your network of private lenders correctly, you’ll be in a position to close in five days or less in many cases.

  • Private money allows you to do deals many banks won’t touch.

This is especially true with non-performing apartment buildings. These are buildings that may be largely vacant because of neglected repairs or bad management. If you know what you’re doing, you can buy them at big discounts and make the repairs, bring in new management, or both. The result is you can create instant value in the property to the tune of hundreds of thousands of dollars. Then, once the building is performing at 90 percent occupancy for six months or more (“stabilized,” as bankers refer to it), it becomes much simpler to lock in competitive-rate, long-term bank financing and pay your private investors off if you so choose.

  • Private money allows you to do “short sales.”

In a nutshell, a short sale is when you get a purchase contract on a property that has little or no equity. Then you create equity by negotiating a significant discount on the mortgage. This is a huge area of pre-foreclosure investing. But once the bank agrees to discount the loan, they’re going to want you to come up with the money in 48 hours or less. That is only possible with your own cash, ample credit lines, or private money.

  • You don’t need excellent or even good credit to build up a network of private money lenders.

You do need to learn how to find good, undervalued cash-flow deals. But you don’t have to deal with the hassle of credit scores, bank applications, tax returns, etc. Your first network of private money lenders can come from friends, family, and associates. And if you follow Alan’s guidelines, they’ll be well protected and you can begin investing in undervalued properties even if you haven’t yet built up your credit.

  • You’ll never have to pay the sky-high rates and fees of hard-money lenders.

Hard-money lenders will lend up to 100 percent of the purchase price as long as you’re buying at 65 percent or less of the appraised value. Trouble is, they often charge twice the going bank interest rate and huge fees and prepayment penalties that can equal 10 percent of your purchase price.

  • With private money, you – not a bank and not a hard-money lender – set the terms. So you structure your loans in a way that makes sense for the deals you’re doing.

Alan also covered in detail how some of the documents should be handled to successfully fund a deal with private money, including the note, mortgage, lender’s title insurance, and hazard insurance. He showed how money in individual retirement accounts (IRAs) can be used by private lenders to fund your deals, and he showed how your lenders can easily convert their IRAs into self-directed IRAs that are capable of making mortgage loans.

He covered much more than I can possibly do justice to in this short space. But here’s a simple action you can take today that can make a big difference in your real estate investing career:

Make a list of potential private lenders for your real estate deals. And keep educating yourself on how to identify good-value, cash-flow real estate deals. When you put the two together, you’ll be able to provide people with a much higher return than they’re getting in their savings accounts, T-bills, or CDs. And you’ll do it with an investment secured by real estate bought at a good price. Last, but not least, you’ll never again have to pass up an exceptional opportunity in real estate … just for a lack of money.

Tomorrow, I’ll share more of the private money techniques Alan’s divulging at his Bootcamp.

Justin Ford is an active investor in real estate and global stock markets. He is also a veteran financial writer. He has published, edited and written for over a dozen international investment newsletters, including launching the US version of the Fleet Street Letter, the oldest continuously published newsletter in the English Language. He is the author of Seeds of Wealth, a program for getting children to adopt good money habits from an early age. He is the editor of the Seeds of Wealth Quarterly Investment Update Bulletin. He is a contributing editor and author to a number of books on personal finance, including Michael Masterson's Automatic Wealth and Dr. Van Tharp's Safe Strategies for Financial Freedom.

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