How to Get Money For Your First Deal
As an experienced real estate investor and now also a private lender, I often get asked the question: "If I am a newbie and lenders don't want to lend to newbies, how can I get money for my first deal?"
Looking back over my 10 years of experience and knowing what I know now, here's how I would get money for my first deal.
1) I would focus on finding good deals. If the deal is good, the money follows. I would make a lot of offers and put out a massive direct mail campaign to out of state owners of vacant properties.
2) I would work with rehabbers & landlords and tell them I am their "great deal finder machine." How will I find these rehabbers & landlords? I will spend the majority of my time networking online (BP, Meetup, LinkedIn) and offline (REIA's, Landlord associations, live meet ups, cashflow 101 groups, Rotary club, Chamber of commerce, etc). Instead of me borrowing money without any experience, I will first focus on "gaining" the experience by working with rehabbers & landlords. Wholesaling a couple of deals first will help me gain experience and be familiar with property values in my area.
I met one of my private lenders because I spoke in front of a REIA meeting and I told everyone I have 11 wholesale deals. I never rehabbed a house before but the private lender I met viewed me as experienced because I have a lot of wholesale deals and every time there's a REIA meeting, I always get off my chair and speak in front of the group about the deals I am getting.
3) Talk excitedly about real estate investing to everyone in your network. I talked with my family, relatives, friends, colleagues at work and even strangers I met. My very first investors were my colleagues at work who wanted to get into the action because they got swept by my excitement and energy level. Of course, I put their money into good deals (again, see #1 above).
4) Only after you have a couple of deals, then that's the time you will approach hard money lenders or the banks. These institutions want to see you have experience and skin in the game. As a lender, I want my borrowers to have 10% or more skin in the game and I only lend money to investors who can show they have done at least 3 or more deals.
5) Lastly, have organized financial records (Income Statement and Balance Sheet). I was able to borrow $5M from a bank for a 100+ unit apartment building because I operated as a business and not as a "real estate hobbyist". Obviously, you can't borrow $5M for your first deal from a bank but starting right now, even if you have not done a single deal yet, learn how to be organized in your financial records already. It will impress on your prospective private lenders that you know how to handle money and it will make them feel at ease about lending you money.
So, the above 5 things are what I would do...knowing what I know now...if I am a newbie and I want to get money for my first deal.
What about the other experienced real estate investors out there? How did you get money for your first deal?
Great post thank you for sharing :-)
Wendell,
What Real Estate Investor book or course would you recommend for someone who is starting out?
@Steven Stokes , agree with you. There's a lot of newbies who want short cuts. I bought my first deal after seeing and making offers on 50 houses. Diligence is key to success.
@Elizabeth Joiner , you are very welcome. Where in Chicago do you invest? What do you specialize in (wholesaling, fix-n-flips, lease options, etc.)?
@Felicia Russell , you are very welcome also. Try Meetup.com also. But don't forget BP. There are a many BPers conducting live or face-to-face meetups.
@Peter Abreu , I read "Quick Turn Real Estate" by Ron Legrand when I started.
These are some great insights for getting started in the Real Estate business and really excited to join the bigger pockets community.
@Richard Roberts , you are very welcome. And welcome to BP Nation. This is an awesome community where you will learn a lot from very smart and experienced investors. The key is to participate and contribute to the discussions. Ask as many questions as you can and provide some answers also. Your effort in helping others and participating in the forums will pay off big as you meet good people who will make you money.
Thanks for the great post and advice. I'm absolutely new to REI and it looks like wholesaling is great not only for generating cash but developing experience and credibility. I can't wait to get my business started and your post was really motivating!!
Great post!
Wendell, I have not done any deals but I'm going through the strategy for my first. It's going to be a multi unit on the north side of Chicago. Between three and four units. I'm looking at properties under 250k.
Hello @Elizabeth Joiner, your first deal...sounds exciting and scary at the same time. Please keeps us posted as to how it all pans out. I'd be interested to hear your strategy and the outcome of the deal once it's all said and done. Good luck!
@Elizabeth Joiner and @Xavier Y. , let's meet since you both are from the Chicago area. My real estate office is in Downers Grove. I want to help you and give you some pointers so you don't make the mistakes I made.
Originally posted by @Wendell De Guzman:
@Elizabeth Joiner and @Xavier Y. , let's meet since you both are from the Chicago area. My real estate office is in Downers Grove. I want to help you and give you some pointers so you don't make the mistakes I made.
Thank you, Wendell. I appreciate your support and for lending a hand. Unfortunately, I'm out of town for about 2 weeks for work. I'll PM you when it gets closer to the date of my return. I'm guessing the week of March 10th at the earliest. We can set up a time then to meet at your Downer's Grove office. Looking forward to meeting with you.
Newbie, this reply is to the James B. post. I know that I have read some of these post but cannot figure out how I missed this one. Anywho, this was an awesome testimony. It's probably one in a million, and I say that because everybody's starting up testimony will be different and unique in/of its own. Eureka! It was worth the length of words and it is also good for BP's members and for the site as a whole. Thanks for sharing it:).
Wendell,
Thank you for your kind offer. However, I do have a mentor and investors backing me up so I'm well supported. I do appreciate the offer. Thanks for the forum as well, it was helpful.
Great post Wendell !!
@Wendell Isn't it kind of a catch 22 having to show deals you've done to get money you need yet need the money to get your first deal?
@Arthur Mayer , find a good deal and the money follows.
Thought I would bump this thread as I am on the other side of this lately. Here is what I finally had to send one contractor from another state who sent me a link and unreadable comps to a random home from Zillow which he hasn't inspected as far as I know. I had a call with this contractor as well as quite a few emails. I hope this might help someone out there looking for PML and what a PML might need included to take ACTION:
"I can't read the comps too well as they get distorted when I zoom in. I believe I see listed properties @ $137/sf and solds @ 120/sf? This puts value $270K-$317K??
I hope I don't come across as rude but here are the facts for me right now: I'm not in a position to 'review' potential projects from here in Michigan (don't have the time nor local market knowledge). To make a decision I need the complete marketing package of a home you have ready to go:
- Purchase price,
- exterior and interior pictures
- rehab estimate & break-down
- comps
- projected sales price & TOM
- carrying costs
- HML costs
- closing costs, etc.
If you are not sending something like this to potential PMLs I'm afraid you are going to burn them out with emails, ideas, etc.
Please forward me something like this when you have one (under contract). If I am not committed I will do that project as long as there is $xK profit potential within four months or less. Please consider using something like this as you will get better results with PMLs: http://www.biggerpockets.com/flip-analysis "
I'm sure this gent will not want to work with me anymore (especially if he sees this post) but an investor needs clear, accurate, and concise information to move forward on a project. Again, I hope this helps someone out there looking for PML. Have a great week!
@Wendell De Guzman Excellent topic! Thank you for always being so willing to teach and share your knowledge.
Pyrrha
@Shawn Holsapple As you suggest, self control is key, but these are some very simple actionable steps everyone can follow.
Thanks for the read. As a newbie, I appreciate experience and the advice.
Originally posted by @Jabari Brooks:
Thanks for the read. As a newbie, I appreciate experience and the advice.
You're welcome @Pyrrha Rivers and @Jabari Brooks!
this post was right on time! I'm not too far from you I reside in Evergreen Park Illinois and my brother and I are partnering to get our first deal off the ground. It's funny because I told him your name he said he already talked to you and referred a client to you. We're thinking to start off wholesaling is the best route to raise capitol and right now we're in the process of creating a list of absentee owners. Any help, guidance, or partnership you can provide would be greatly appreciated!