Found private investor...have some concerns - Posted by Tyler

Posted by TJ_MI on December 10, 1999 at 14:09:01:


Found private investor…have some concerns - Posted by Tyler

Posted by Tyler on December 08, 1999 at 23:05:54:

Hello friends…

Had a good day today.

About 3 weeks ago, I got a call on one of my “Fixer Upper” ads from an older fellow (sorry, Jim). I could tell right off the bat, that he wasn’t a RE investor. After some questions, I found out that he was really just someone who had inherited close to $200k and was looking for a place to invest it.

I quickly switched hats and started telling him how I work with investors…giving them an EXCELLENT return on their investment, safely secured by Real Estate.

I couldn’t help but chuckle at his enthusiasm over (yeah I know I’m generous) a whopping 8-9%!

When I saw that these numbers were turning him on, my determination to keep him on the line really started to grow.

So after educating him bit on some different scenarios, I told him that the next step would be for me to just call him when I had a specific deal to work with.

Three weeks later.

I called him on Monday, to tell him that I’d found a property that I was looking to put private money on. I had found a 85-90k ARV property, and put it on contract for 56k. I told him I wanted 60 (which would cover purchase + repair costs).

We met at the property yesterday.

Now, I should point out that he is completely foreign to RE investing. He really has no grasp of what market values are on the properties in our area.

He starts out playing very safe. Makes a couple calls on my business (information, etc.) before we meet. On the phone asks LOTS of questions. He’s being very cautious…and it’s showing. After all this is the most money he’s seen in his life! He’s in his 60’s and has received an inheritance of about 200k (ok I already said that).


We meet at the property, I show him around, we talk, we go to coffee.

I show him comps, show him the title report, copies of old checks from previous deals, etc. You get the idea…I sell myself, the deal, my business, and my game plan.

I had 2 phone conversations with him after this.

Then tonight he calls me. He says that he has decided that he “want’s to work with me”. Evidently he put in a request this afternoon to have his funds transferred out of the trust account, into his savings.

He’s ready to roll.

We agreed on 9% (Call me a nice guy). No fees. No appraisals. No points. No bull.

Bottom line is, the guy trusts my judgement on properties. He’s not worried about anything like LTV or me having cash in the deal. He’s not asking for P&D reports, P&L reports on the corp, or anything of the sort! (Although I did show him my personal credit report only cuz I have good credit)
I’m sure the guy will even make the loan to my corp!


Obviously I’m stoked. This is great! But, it’s so-hassle free, that I have to wonder if I’ve covered all my bases (and my assets). I have to wonder if it isn’t quite as easy as having the title company just create a note between him and I, and him bringing the funds to close.

Are there any agreements that we should have outside of escrow to protect my relationship with him?

Do I have any liability concerns with him (outside of the note on the property)?
Do I need to worry about anything to do with securities laws because of the way we made contact (my company’s ad)? Is there anything the law would require that I give him in order to make a private loan to me?

This is new ground for me, so I just want to make sure there’s nothing that I’m overlooking.

I really appreciate any input I can get from those of you who work with these types of relationships.

Thanks in advance…looking forward to Atlanta!!


Private investors - Posted by Carmen_FL

Posted by Carmen_FL on December 09, 1999 at 19:58:44:

I know Ron LeGrand has a course specifically on finding private money, and then what to do when you find it (he actually tells you how to prospect). I got a set of tapes for less than $100, with some good ideas. One that sticks out is to get a good insurance policy on yourself, which would pay off the investors if you should happen to pass on (your heirs would then get the properties free and clear) - adds to their comfort level. He also mentions using the services of a company such as Mid-Ohio Securities (click on the banner above) - they have a program whereby your investor would be able to do deals within a self-directed IRA. I wish I had better recall of all I heard; all I know is it gave a good synopsis of just the situation you are mentioning, and several options on how to best set it up.

This won’t be a popular answer but… - Posted by Ben

Posted by Ben on December 09, 1999 at 19:06:11:

it could save your butt if the deal goes sour. Advise
the investor to retain independent counsel and put it in writing that “Mr. investor has retained independent legal counsel, has reviewed and inspected all documents, is aware of all the risks, including the loss of principal, etc, etc.” On the one hand this is the easiest way to scare off the investor but also the best way to protect yourself, if anything does happen, the lawyer will take the heat.

When you have more time - Posted by Katie

Posted by Katie on December 09, 1999 at 11:03:27:

Carleton Sheets has a course called “Creating Quick Wealth with Partners”. He covers a wide range of issues including Securities and Tax Laws. It’s worth the money.

Re: Found private investor…have some concerns - Posted by Jim IL

Posted by Jim IL on December 09, 1999 at 10:47:28:

Just wanted to say, “Congrats”, sounds like you have a great find.
I can relate somewhat. I also recently met an investor who has cash.
My investor however had already used some of his money to buy RE. But, he did it alone, got bad deals, lots of hassles, and lost a few dollars.
He called me from my web page advertising (YAY, it works), and wanted to see if I’d help him find a place to buy and then “manage it” for him.
I quickly informed him that I was not a RE agent, broker or Realtor, and that was something they would do.
I then told him about some “other ways” we could work together, and he liked what I said. The security issue was vital.
So, I’m now “on the hunt” again for some REO’s to buy.
The good news is that it is December and many lenders want the books cleared by year end. (Did my first deal this time last year with an REO.)
I already talked to my attorney, and he basically said the same things Piper told you, and also told me that I should treat my new investor with “kid gloves”.

I take that to mean the same as the other post above, "Under Promise and OVER deliver."
He is already preparing a “disclosure agreement” for us to sign, prior to any deals going thru.

The funny part is that I actually ran ads a while back looking for money partners, and got ZILCH, and then out of the blue found this guy. (well, he found me.)
So, we will slowly build a relationship, and go from there. He wants to start out “small”, and only invest $150k to start. In my area, that could be 4-5 deals, if we buy right.
Good luck to you,
Jim IL

Re: Found private investor…have some concerns - Posted by DougO(NM)

Posted by DougO(NM) on December 09, 1999 at 10:44:42:

I totally agree with Jim and John. ALL of my deals are private money. Always make sure they get paid, ESPECIALLY if and when you don’t. Never fall into the trap of thinking it’s your money ! (At least until you’ve given the investor all of their funds back with interest) Also, you said that he was having the funds transfered from a trust to his savings. Most of my deal money comes directly from trusts, the trust makes the loan. When an investor is older, to me it makes sense for us to help them think about such options, especially if they aren’t used to doing business this way. It helps protect you both. For you, you want a satistaction of mortgage and/or note when you’ve paid the deal off. What if he passes on before that is done ? Trustees can sign, no fuss no muss. Also, the time you’ve spent educating him and building a relationship could go away when he does, or continue as long as the trust does. For him, the Investment decisions he makes today won’t have to be a “burden” to his wife or kids. They won’t have to learn much except how to cash checks and look to see that you’ve always made your payments as promised. Treat this man with respect and always do whatever you can to protect him and his family. And make him a TON of money !


Underpromise and Overdeliver !!! - Posted by JohnG

Posted by JohnG on December 09, 1999 at 09:36:40:

I would only add to what JPiper has to say :
Underpromise and overdeliver.

Too many times new(er) players want to take full advantage of an investor. Your post sounds a little like you are salivating over the keyboard as you type.
Remember, there really is no free lunch.
Look after your investor; make your payments on time; full disclosure of the deal and you will have a partner for a long time. Good luck !!

(P.S.) When we start out we place 90% of the value of a deal on the money and 10% on our value in finding and closing the deal. Later, the numbers reverse - the money is only 10% of the deal and we provide the 90% value. There is way more money looking for good deals out there than there are good deals. Hence, the 99.9% who have their money tied up in mutual funds etc.and they really know nothing of the market !!!

Re: Found private investor…have some concerns - Posted by JPiper

Posted by JPiper on December 09, 1999 at 07:25:40:

Obviously you want a note and deed of trust.

But if I were you I would want an additional document. Let?s call this document a disclosure document for lack of a better term. As I visualize it this document would set forth some of the known risks?.which this investor would acknowledge. I?d have your attorney help you with this. Further, I?d want to collect some financial information from the investor, along with statements regarding his having had time to do his due diligence, that he is sophisticated enough to do his own evaluation of the investment, that he has had time to seek outside counsel from his financial advisors regarding the investment, etc etc. Again, have your attorney prepare such a document.

For guidance on what this document might include, I?d take a look at a securities prospectus. While these can be quite intimidating?.they will give you guidance on how to disclose risk. Unless this document scares both of you it probably isn?t sufficient. Further, private offerings routinely include investor information, level of sophistication, etc. The purpose of this information is that if your deal ever goes bad, you hopefully have removed his ability to sue because you didn?t disclose, because he wasn?t sophisticated enough, he didn?t know, etc. None of this will probably ever be an issue unless the deal goes bad?.but don?t ASSUME your deal will never go bad either.

Take care of this guy. Give him some of the routine protections that any lender would expect. There should be insurance on the property, with the lender named as mortgagee. There should also be title insurance?.the lender to receive a lender?s policy. Give him an amortization schedule. You?ll use this guys money up quickly?..but he?ll also be a great reference. THE best source of private money is from those people that this guy refers to you. ALWAYS make your payment ON TIME.


Legrand Tapes - Posted by Tyler

Posted by Tyler on December 09, 1999 at 20:04:27:

Thanks, Carmen–

I think I remember those tapes in the Legrand “3 pack”. I’ll go dig those up and see if I can get anymore ideas…


“Trust Money” - Locating??? - Posted by TJ_MI

Posted by TJ_MI on December 09, 1999 at 14:35:23:

Doug O,

Would you please share one or two of the techniques you are using to find the individuals with Trust Fund money you invest with? I Thank You in advance for the information.


Re: Found private investor…have some concerns - Posted by Tyler

Posted by Tyler on December 09, 1999 at 11:52:11:

Thanks, Jim.

That’s exactly what I was looking for. I want to make sure that I’ve covered myself from him ever being able to say “I didn’t know…”.

I’m doing my best to protect this relationship, as I know it’s one of the most important contacts I’ve made since being in the business. I’d really like to treat this money almost like a “credit line”. If I can get him to turn the funds around in a matter of days, I’ll be able to react on deals much quicker. After the deal is closed and finished, I could turn around and refi, and then kick him enough money to keep him happy and wanting more. The idea of no hassles–no questions funding really gets the wheels spinning for me.

I’ll get going on the disclosure docs right away.

Thanks again, Jim…

Re: “Trust Money” - Locating??? - Posted by DougO(NM)

Posted by DougO(NM) on December 09, 1999 at 19:03:39:

I didn’t set out to find “trust money”, it just happens that many of my investors have their assets held “in trust” Most of my investors are investors as well, they’ve just been at it longer, hence the need for estate planning and the use of trusts is one of the best tools for that. Some are successful in business other than real estate and some I don’t know where the money comes/came from, but I know I have to send the checks to one of the larger trust departments in the country… The best I can offer is to do whatever you can to find out who the older investors and successful business folks are in your area, and if possible take them out for a beer or lunch. Remember, the kind of person you are looking for is described in the book “The Millionare Next Door”. (Not the hot shot in the Beemer with the Armani suit and Rolex) The CREO Convention and other such meetings are often good places to find such folks. 2 months ago I was at a conference in San Diego and met an 85 year old man that needed to spend $50 Million in 180 days. Talk about some serious problems ! I would have liked to help, but he needed something that is out of my league. I pointed him to some guys I know that work for several of the largest REIT’s, they were in a posistion to help him spend that money better than I. It’s all about getting out there and finding out who is who and what they do. Once you find one, it’s funny, they all seem to have friends. One of my mentor’s hails from a small town, he tells the story of how he got his Dentist to invest with him, but made him “promise” not to let anyone else know about the arrangement, he’d be awful embarrassed if folks found out how “much” interest he was paying. He says that within a few weeks he’d heard from several other Dentists and Doctors in town. (Think he planned that?) I do. People like to talk.