Find Private Lenders Now CHAPTER 1. Want You To Know. 10 Copyright 2010 Find Private Lenders Now, LLC All Rights Reserved

1. The Importance of Private Lending Having the ability to fund all of your projects with private lending is critical to your success in the Real Estate investment business. There are three great reasons for relying exclusively on private investors to fund your real estate deals. First, by utilizing private lending you free yourself from having to come out of pocket for such things as Down Payments, Rehab Costs, and all the costs associated with acquiring a piece of Real Estate. Secondly, and one of the most powerful aspects of utilizing private lending, is to be able to get cash at Closing when you fund your projects. When you are utilizing traditional methods of investing you re coming out of pocket to fund those projects or properties. Utilizing private lending typically allows you to get a check at Closing. A third benefit of utilizing private funds is that you never have to deal with the Banks, you don t have to worry about having to qualify for a loan, and you don t have to worry about getting your property acquisition costs back by having to refinance the property, or having to sell the property when your initial goal was to create a rental for your long-term portfolio. 2. Traditional Methods Banks Banks are very difficult to deal with. You ve got to make sure you have the money to pay for a loan. This takes time, and it s what everyone 11 Copyright 2010 Find Private Lenders Now, LLC All Rights Reserved

else is doing. You will have to come up with a Credit History, fill out applications, qualify for the loan, obey all the bank stipulations, and complete unbelievable paperwork. You have to jump through a lot of hoops. You are also looked at as an investor, not a home owner. When you re utilizing bank funding for investment properties you can expect to pay a higher rate of interest than if you were just buying the property for your own home. You are going to have to come up with a down payment and you are going to have to fund the rehab projects yourself. This process is much more capital intense (your capital) when you utilize anything other than private sources of capital. Private funds makes your life easier, less complicated. Mortgage Companies Mortgage companies are the same as Banks, but with the higher funding fees and all the stipulations that are associated with the Banks. If you are a full time Real Estate investor wanting to go get a loan, all the typical red tape of going through a bank also applies to a mortgage company. They look at you as if you are an unemployed individual because you don t really have a track record or constant influx of cash coming in month in and month out. You have a whole bunch of paper you have to work through. It s complicated. Also, the mortgage companies are starting to tighten up now. The interest rate squeaks up a little bit, and the money isn t as accessible as it once was. Both Banks and Mortgage Companies will allow you to do only so many loans per institution; and have a total number of loans you can show on your 12 Copyright 2010 Find Private Lenders Now, LLC All Rights Reserved

Credit Report. This makes it more cumbersome to finance Real Estate utilizing those traditional methods. Hard Money Lenders Hard Money Lenders are another way to finance deals; however, utilizing Hard Money Lenders is costly, and most of us wish we didn t have to use them. Many times the Hard Money Lender will only allow you to fund 65% of the after repaired value (ARV). But guess what, if you are using hard money for renovations, they can decide to only give you the money for renovations in increments, through escrow. Next thing you know that rehab that you were going to have on the market in 90 days, took you six months, while you painfully make those payments. Many Hard Money Lenders will lend you money at a 65% after repaired value with fees of sometimes as much as 3 to 5 points per transaction. In other words, if I were borrowing $60,000 I d have to come out of pocket with fees of $1,800 to $3,000. In addition to those points or fees, interest rates can be as high as 13%, 14%, or 15% per year. Anyone can be a hard money lender, anyone with money can lend you money as a hard money lender, therefore, they can set any rules they want, i.e. points, interest rate, terms of loan. He who has the money makes the terms, and you either abide by them or they say, next. Hard Money Lenders can play an important part in assisting Investors to acquire Real Estate. Typically, Hard Money Lenders are utilized only if you do not have your Private Lenders lined up quickly enough, or the Private Lenders are in the process of getting their funds gathered up and you have a tight closing window of say one or two weeks. Let s say you don t have 30 13 Copyright 2010 Find Private Lenders Now, LLC All Rights Reserved

days to get money shifted around, either from their institution to yours or from their IRA funds to the third party administrator, that s when you may want to utilize hard money lenders, as a bridge loan. Certainly you d want to pay off that loan as quickly as possible, utilizing Private Funds. To avoid the mistakes that I have made, have a clear plan and multiple Private Lenders in your database, so that you can skip the Hard Money lender all together. This is a real-life example of what can go wrong with Hard Money: If a man or woman has money (hard money lender), and they want to lend it to you on a property that is worth $100,000. Typically a hard money lender will lend you money at 65% loan to value. So what does that mean? The property is worth $100,000. They re going to lend you $65,000. If you bought that property for $52,000, and it needs some renovating, because as investors, we know that we buy properties at a discount because a lot of times it s a distressed situation. Maybe the house has some distress issues. Maybe it has something called deferred maintenance. Maybe there are some things that haven t been done, haven t been taken care of on that property. Because we bought it at a big discount, we all know that we have to now invest money back in it to breathe life, I call it breathing life back into these houses. You ve got to fix the gutters, upgrade the kitchen, upgrade the plumbing, or maybe fix a problem with the electrical system. So, if you bought that property for $52,000, and it needs renovating, let s say $13,000 in renovations, now we re at 65% loan to value. However, the hard money lender is not going to say, hey, Jason, here s $65,000, see you later. You re 14 Copyright 2010 Find Private Lenders Now, LLC All Rights Reserved

going to borrow that $52,000, and then they re going to escrow the $13,000 for the renovations. They re not going to just give you all the money for the renovations, they re going to escrow that money. So when you start renovating, you are coming out of pocket with your own money. Also, this house that you bought for $52,000 the hard money lender is going to charge you fees to borrow his or her money. There s something else. Think about this. The fees that you have to pay are anywhere from three to five percent of the loan amount. If the loan was $65,000, that is $3,250 in fees. So right out of the gate, your fees are your costs to get that money. It costs money to get money, $3,250 just to get the funds to fund that deal. They re going to lend you the $52,000 to acquire it, and then you ve got $13,000 to renovate. Then, the hard money lender, because he who has the money makes the terms, he s going to lend you that money for renovations in escrow. All of a sudden, you bought it for $52,000, you hit a home run! But you use hard money on it, then all of a sudden the project that you thought would run no more than $65,000, has increased to $72,000, and you now have $72,000 in that deal. You re $7,000 over and above what you thought it was going to cost to acquire and renovate that property. You know what? That s too bad, just the way it goes, I know because this happened to me, $7,000 was buried in that deal, and the chances of getting it back are slim, unless you have an exit strategy of selling that property. 15 Copyright 2010 Find Private Lenders Now, LLC All Rights Reserved

Exit Strategies Exit strategy means, when you acquire property, are you ultimately going to rent it? Rent to own? Or are you going to sell that property? What is your goal? What happens is, a lot of us will buy those properties, utilize the hard money on it, then, all of a sudden this phenomenon happens, I ve got that property, I said, I m going to have to put another four or five thousand into it. I miscalculated the renovation of the kitchen. But you know what? We justify it. We justify investing that extra money because we say, hey, it s going to be my property. It s going to be a long term hold. I don t mind putting a couple of extra bucks in it. But if you put $5,000 in that and you did it five times, you re now out $25,000 after tax dollars. How many people can stand to have that money just go bye-bye? That money is now buried in that real estate. So, with hard money you have those high fees to acquire the money, high interest payments and someone telling you how you are going to run your business. They re telling you that they re going to lend you 65% loan to value. The property is worth $100,000 and they re only going to lend you $65,000. They re basically controlling your business. I don t like that. When I was in the corporate arena, I had enough of being controlled. They told me what to do and how to do it. Who was that person that designed that electronic leash, the Nextel? I used to love when that thing would beep. It would tell me to go do this and do that. It had control of my life. 16 Copyright 2010 Find Private Lenders Now, LLC All Rights Reserved

So what you have to get clear on is, don t let somebody control how you run your business. The key of investing in real estate is to create something for yourself, to create something for your family and to have the confidence. But what ultimately happens is, because we get into this property, into this business, we buy the property, we utilize hard money, you re exit strategies get compressed from rent to rent-to-own, you either have to sell that property to get your money back, or now you ve got to re-finance it. Why would you have to refinance it? If we re paying the hard money lender $850 a month, but I m renting that unit for $875, is that a good spread? No, the payments are too high, so I have to refinance. Guess what? When I refinance it I have another set of closing costs. What does that mean? You just waved goodbye to $6,000. If you did one house a month, $6,000 times 12 month is $72,000, if you did that for five years, you have waved goodbye to $360,000. There goes your dream home. Hard money, that s what it costs. Everyone complains about $3 a gallon for gas, but you will light a match to $6,000 on each and every deal.don t do it. 3. Other Sources of Funding Credit Lines Credit Lines are another way to access capital to purchase Real Estate. I call them my Rich Uncle. If you re living in a house that is worth $200,000 and you have it paid down to $100,000, then you have in essence a credit line, an available Home Equity Line of credit of close to $100,000. Even if it was only $80,000, you have that money available in your Real Estate that you could utilize. This is inexpensive money, cheap money, and I utilize it to shore things up. 17 Copyright 2010 Find Private Lenders Now, LLC All Rights Reserved

You could also utilize a Credit Line from an investment property. If you have an investment property, say it was worth $100,000 and you had it paid down to $50,000, you could leverage that equity for liquid cash. Along with first mortgages, credit lines have become more difficult to obtain, and do require paperwork. Credit Cards Utilizing Credit Cards is another way to fund short-term. If you need a down payment on a piece of Real Estate you can get a cash advance on a Credit Card. Keep in mind however that Credit Card companies have tightened up their rules and restrictions recently, particularly on cash withdrawals. It is not that easy to just go out and take money off the Credit Card to invest for a down payment, so check out the rules on the cards you plan to use. Business Partners Business Partners are another source that you can access to purchase Real Estate. However, utilizing Business Partners is going to cost you more money than probably Mortgage Companies or Hard Money Lenders and they are probably going to want a bigger piece of the action. They want to make sure they are compensated well, and some may want to take control. You might be paying them anywhere from 25% to 50% of the profit dollars while you are doing all of the work. This is sweat equity, you are doing all the work while they are controlling the business because they think because they are funding the deal, they have the right to control all the funds. 18 Copyright 2010 Find Private Lenders Now, LLC All Rights Reserved

Ultimately, you re not getting back the return you thought you were. So with Business partners you lose a big part of your profit and your control. Your Cash Some of these properties that I have, I have funded myself, I just pay for them cash. Do you like hearing that? Absolutely. It shows strength. If I m talking Joe, one of my private lenders, and he feels like I m really sweating and I need to get that money, he may feel like I have some real issues going on. But I say, You know, Joe, a lot of times when I fund my properties, I work with private lenders and there s many times I just fund them myself, I have my own cash. That s strong. Here s why that might happen, sometimes when I buy these properties my private lender s funds aren t quite ready to go. I ve already talked to Beth s uncle, who has a lot of money, and he has IRA funds, but he has to take that money from Van Guard and transfer those funds over to Equity Trust, or the third party administrator of his choice. I don t care if its IRA funds or he writes a check, money is money. But, sometimes it takes three weeks to a month, sometimes longer. So, in the process, I ve got to use either hard money to do a bridge loan, which gets me from this point, with no property, to now I ve acquired the property. Or, I ll fund those deals with my own money, get into them, and then immediately refinance it with a private lender. 19 Copyright 2010 Find Private Lenders Now, LLC All Rights Reserved

4. Limitations *Need to qualify *Down payments *Rehab Expenses *Closing Fees *Holding Costs Whether you are using the above methods of financing Real Estate (Business Partners, Credit Lines, Credit Cards, Hard Money Lenders, Mortgage Companies or Banks), you are going to need to qualify. You are going to have cash out of pocket in down payments and Rehab Expenses. You are going to have Closing Fees and Holding Costs making it very cumbersome and taking a lot of your profit dollars right out of the deal. The cash required out of pocket to fund projects using these more traditional forms of financing could actually cost you $10,000 to $20,000 on one deal. That would include your down payment, closing costs and rehab money. Multiply that times 10 houses, now what are you going to do? You have to have money to do a rehab now and then, otherwise you wave goodbye to some great profit dollars. Most people hate rehabs because they can t fund them, private money is the way to fund them and make great profits. You ve got to have the mindset that if I m doing a $25,000 renovation, then I m going to get $50,000 back, or if I m doing a $13,000 renovation, I m going to get $26,000 back. Anytime I do a renovation, I don t do the work. I don t swing the hammer. I m a delegator. 20 Copyright 2010 Find Private Lenders Now, LLC All Rights Reserved

If you are one that likes doing your own renovations, I have advice for you, find another hobby. Find something else that you want to do. I say this because, many years ago when I started I knew guys working as laborers for a contractor for $3 an hour. A buddy of mine did that for six years. Three dollars an hour, and by the time he was 21 years old, he said, I m out of the labor business. It was insanity. If you re doing your own work and you re doing your own labor, you are saying to yourself that you re worth $15 an hour. If you re doing your own work because you feel like you can t afford to hire a contractor then you re not buying the property right. You ve got to look at your time, because it is so valuable. Working for $15 an hour doesn t do it. Find another hobby. Have enough money in the deal that you can delegate that part of that project to someone else. You have to be looking at what your time is worth, me, my time is worth at least $250 an hour. Because if I sit down and spend two hours and I find a property, I can make $10,000 on it. Then I spend another hour and a half to find a private lender, and all of a sudden I ve got five hours in a deal and I make $10,000 on it, divide that by five. That s $2,000 an hour. But if I m out there swinging a paint brush or a hammer, or I m standing in line at Home Depot, and I ve got a shopping cart, and I ve got ceiling fans and lights, and paint brushes, I m telling myself that I m worth $15 an hour. It s insanity. I have a lot of energy, but I get tired too. If I m out there doing those mundane projects of swinging a hammer or thinking about things like, how come that doggone countertop is not level, I m shooting myself in the foot. If you re doing renovations yourself, go find another hobby that you and 21 Copyright 2010 Find Private Lenders Now, LLC All Rights Reserved

your wife or your girlfriend or your boyfriend or your loved one can really enjoy. Just ask yourself one simple question, are you worth $2,000 an hour or $15 an hour? 5. Benefits of Private Money Buying homes with cash allows you to make all cash offers, which gives you a bigger discount acquiring properties and it also allows you to close quickly. Most importantly you get some of your profits back when you acquire the property. Buying with cash allows you to buy with discounts. Buying homes with private money provides nearly unlimited funding. It allows you to do more deals which will make you more money. It is critical to get private money because you re going to have positive cash flow. In any business that you start, I don t care what business it is, whenever you start a business, it takes money to get into business. If you start a burger shop business, it takes money to acquire that piece of real estate, the franchise, the inventory, the burgers. If you re in the business of selling dresses, it takes money to have the inventory. We will get into this business, and we will think it doesn t take money. It takes money. It just doesn t take your money. It takes somebody else s money. OPM: Other People s Money. The beauty of having private lender funds, or OPM, is you have Cash Flow. If you were sitting here right now and an investor said, hey, I have $500,000 and it s liquid. That s great, but you know what? You buy three houses and you float it with your money, now you re out of money. 22 Copyright 2010 Find Private Lenders Now, LLC All Rights Reserved

Once you recognize and understand the technique of securing private funds, you will never have cash restraints again. 6. Positive Cash Flow Number one, pay yourself first. Because you are utilizing private funds you are going to have more money at closing than is needed to finish the deal. You ll leave the closing with cash. For example, if a piece of property is valued, after repair at $100,000 and the property was acquired for $55,000. After a $10,000 renovation you now have a total of $65,000 in that piece of Real Estate. Find a Private Investor to place $75,000 or 75% loan to value on that house. $75,000 comes in at the closing, less the $55,000 for the property and $10,000 renovation cost, which allows you to walk out of the closing with $10,000 in your pocket. That is $10,000 tax-deferred monies. Using this system you actually make money when you buy. If you multiply that concept by ten or twenty properties you can see the revenue stream. Because these monies are loan proceeds they are tax-deferred. You win when you buy and the beauty of the private funding program is that you will not have the challenges of making those monthly payments. Because you will have money in your account from the closing, and not just any money, but other people s money, and from other closings to help offset out of pocket expenses to make those monthly payments. 7.You Create the Terms of the Deal 23 Copyright 2010 Find Private Lenders Now, LLC All Rights Reserved

With a Private Lender you are going to have the flexibility to make your own rules instead of following somebody else s. Flexibility means you can decide to make Monthly, Quarterly or Annual payments. This is a tremendous benefit of private money, you create the terms of the deal. I want to get really specific about this. We ve talked about hard money: he who has the money makes the rules, right? How about this one? He who borrows the money from private lenders sets the stage. He who borrows the money: you make the rules. If a private lender is lending me money, and I told him or her about my business, that I buy properties, I renovate them, and I fund these properties with private lenders, that means I make the rules. I want to make a brief point that will help you when you are out there talking with people, potential private lenders, telling them about your business. When somebody asks me how my business works, I always say, It works great! A lot of times when we talk to somebody about their money, we get nervous. A person can sense that. If you re nervous, if you re uncomfortable, if you re not confident, they re going to feel that. But if you re feeling good and you re positive and you re having fun, lighten up in your sales, your business will brighten up. It just will. Have fun with this business. When I m out doing deals, when I m out structuring real estate transactions, I m having fun. My private lenders love me because I have fun with them. I don t get stuck up and stuffy and nervous. I want them to feel good. I want my private lenders to feel good about lending me money, I control that. Back to utilizing Private Lenders, it is a lot less paperwork. traditional transactions with Banks or Mortgage Companies there are In 24 Copyright 2010 Find Private Lenders Now, LLC All Rights Reserved

typically forty or fifty pages that have to be signed. There s a lot more documentation and paperwork and higher attorney fees. But with private lenders, it is a smoother transaction, and because you are creating the terms of the deal you really do not have to Profit Share. Take special note of that: There is basically no profit sharing with your Private Lender. With Private Lending you make all the decisions rather than consulting with a Profit Sharing Partner. Because of their vested interest, a business or sharing partner will always wonder what is going on, giving you input and wondering what type of a profit they are going to be generating with you. The beauty of a Private Lender is that they are PASSIVE. They are Passive in the role of getting their checks; there is really nothing for them to do. They put the money up and they go about their business taking care of their own lives while you manage your business and pay them Monthly, Quarterly or Annually. The best part is that Private Lenders are happy to work with you because they know their investment is secured with a real, appreciating asset rather than a risky, fluctuating stock. You make all the decisions. 8. You Create an Endless Supply of Money Money for these deals is truly endless. Let s not lose track of the fact today there is Four Trillion Dollars worth of cash invested in IRA Funds. Investors with money parked in low yield IRA s would love to be utilizing those funds on something that has asset value such as Real Estate. It is possible to self-direct IRA s to allow you to put first mortgages on such things as residential real estate purchases. Second mortgages can be put on 25 Copyright 2010 Find Private Lenders Now, LLC All Rights Reserved

properties, for Rehabs and subject-to properties, and also for maintenance on properties. Yes, there are always maintenance issues with Real Estate. When tenants move out you need money to freshen up those properties, whether it s carpet or paint or perhaps some maintenance that has been deferred. Something always comes up, you are going to have monies and have funding available to take care of those problems. Another great strategy is taking a second mortgage against an investors IRA on properties waiting to be sold. Say you have a property that is worth $125,000, you have a first on it for $80,000. Because of the equity spread you still have the ability to have a second mortgage on there of $20,000. That $20,000 second mortgage allows you to pay some of those maintenance and carrying costs. But you must obey this rule of thumb: When you have a second mortgage on a property the mortgages should never total any more than a maximum of 80% loan-to-value. In other words, if your property is worth $125,000, the combined total of both mortgages should not exceed $100,000. In this example if you have a first mortgage of $80,000 that allows you to put up to a $20,000 second mortgage on that property. Now here s the real beauty of this strategy: You may come across someone who says Hey, I don t have $80,000 to invest with you, but I do have $20,000 I would like to invest in this program. You could take that $20,000 and put a second mortgage on a property that has a nice equity spread. Try that with a bank! 26 Copyright 2010 Find Private Lenders Now, LLC All Rights Reserved

And don t forget about commercial purchases. Having the endless supply of funding allows you to look at some commercial properties where you are going to have a bigger return, a bigger profit dollar to run your business and lifestyle. 9. Building Your Foundation Why are we spending so much time on the basics? To gain knowledge. Don t be held hostage by your lack of knowledge. It s OK that you didn t know, but now you re learning all of these things. I wanted to get into some of these details and the reason why I m going over some of these basic points, for some of you seasoned pros who have been investing in real estate for a long time, and for the new folks, is so that you understand. You have to get the belief of why private money is so critical. Once we go through this foundation work, and I build this structure for you, you re going to be able to put the skyscraper up. Years ago a good friend of mine sold laser systems. He worked on 50 story skyscrapers. The part that was most frustrating for him, and he s an A-type person, he s got a lot of energy. He wants to see things happening. He s a lot like me. Right now, I want instant results. We all live in that instant gratification society. We want to drive through, and have the burger waiting for us. We all get spoiled by that. And what happened to him back in the 90s, when those buildings were coming out of the ground, it was a slow process. It took a long time. They did the major excavation. Then they had to come in and pour the concrete, and the rebar. That took months and months and months. Building that foundation took so much time. 27 Copyright 2010 Find Private Lenders Now, LLC All Rights Reserved

Then, all of a sudden, it was like magic. I remember driving by with him and him saying, There s my building. there s my building. All of a sudden these buildings started coming out of the ground. As the steel started coming out, there s the first floor, the second floor, and before you know it, you go by two weeks later and they re on the tenth floor. One day, pulled up in front of this building, and we walked up to the service elevator, grabbed two hard hats, and took that elevator up to the fiftieth floor. When that door opened up, you re looking at a blue sky. They only had half the floor down, and guys were hanging off the steel columns. You could see welding sparks flying. But what a view it was. It was amazing. It was magnificent. I am sharing this analogy with you so that you can see that the foundation is so critical. Unless you have a solid foundation, in concrete and bedrock with rebar, those buildings never would have gone up 50 floors. They would have gone up 12 floors and fallen over. That s why I m going over these basic points in great detail. They may seem mundane to you, and you may think you already know this, but the key is for you to get the solid foundation. Once you get the solid foundation and you get the belief and understanding of what private money is, you re going to be able to communicate it. Without that, you re just going to be going through the motions. 28 Copyright 2010 Find Private Lenders Now, LLC All Rights Reserved