by Julie Broad

We just received the LONG OVERDUE quote on the cost to excavate that pesky tree that has grown up through our basement and out the window of our Toronto tri-plex and I have to say that I am crapping my pants (And not in a good way Ms. Steph Davis). The quote came in at $20,000. This does not, as far as we can tell, include the cost of a new window or the other important things like a new wall and fixed flooring that would once again make that room habitable for our tenants. Yes … the words that come to mind are not for this family show.

So … let’s not dwell on that … instead let’s move on to talking about how we’ll probably pay for this mess … I’d love to tell you that we have a giant bank account full of cash that we’ll just use to cover the cost but the reality is that every time we end up with a big chunk of change we invest it in a new property. We like to send our money out into the world to make more money. It’s why all our tenants have larger TV’s than we do … but that is a topic for another day.

We’re going to pay for this disaster with private money. Specifically in this case we’re going to use the RRSP funds of some folks who have contacted us with a desire to invest in mortgages using their self directed RRSP’s (you can do this with your self directed IRA’s too my American friends).

Rather than refinance the property or get a loan from the bank we’ll use the RRSP funds as a second mortgage to get the money we need. We’re also redoing a big section of the roof as it’s begun to leak. And that will be approximately $7,000 assuming everything goes smoothly. Happy happy joy joy!

All I keep thinking is:

• Thank goodness these vendors take VISA because at least we will get Aeroplan points to fly somewhere wonderfully warm and relaxing in the winter
• And, look at the tax write offs we’re going to have this year!!

WOO HOO to private money.  Not only can we make the repairs with this money but our Private Money Lenders make a great return on their money….and because this particular property is a great cashflowing property, it easily covers the 11% we’re paying to our Lenders. It’s a win-win for everyone.

I hope that most of you can use your private funds to get new deals and not repair the ones you’ve already got, I know you’re likely to eventually need some money so I thought I would share an excerpt from the September 2010 Canadian Real Estate Magazine article that I wrote on getting private money for your deals. If you’re in Canada please do check out the full article because I tried to pack it full of tips to help you out. For now … here’s an excerpt:

Finding Private Money for Your Deals

Quick – you need to get $10,000. What do you do? Many folks will either turn to their parents to borrow the money or they will head to their local bank for a loan. Eventually the bank of Mom and Dad grows tired of financing their child’s exploits (or runs dry!) and the local bank determines that you don’t fit their ideal client checklist. Now what?

And what if you need $200,000 to finance the majority of the purchase and the bank isn’t working with you?

For us, as financing has become increasingly difficult to find from the conventional sources, private money has become the answer.

And thankfully – we’ve become friends with Patrick Riddle – the best teacher we’ve found on the subject of finding Private Money – so we’ve been working on mastering the art of attracting private money for our deals.

Private money is simply money from an individual (instead of a bank or credit union). It’s different than hard money. Hard money lenders finance deals for real estate investors as a business. They are more sophisticated in their investment terms and will typically seek quick repayment at high interest rates. With private money you can have more control over the terms of the loan. You can offer terms that suit your needs and offer a good return for your private lender.

The easiest way to find private money is to call your favourite mortgage broker and ask if they have any private lenders. Most mortgage brokers work with a few wealthy folks that have money to lend or they will refer you to a mortgage broker with private money connections. If you have decent credit and the property generates a solid cash flow you should be able to find money this way, but that money is expensive.

We prefer to find friends, family or fellow real estate investors that might have money to invest. And to do that we follow a pretty simple process for finding private money.

First, understand that you’re NOT asking people for money. You are presenting an excellent opportunity for the right person to make a great return on their investment backed by a cash flowing asset.

If you are uncomfortable with the idea of presenting an opportunity, start out instead by asking people for their opinion of the real estate investment opportunity. People love to give their opinion so that will disarm them and help you be more comfortable with the conversation.

Second, make a list of the folks you can speak with. If this is your first time talking to others about making money with real estate, start by making a list of people you know. Focus on:

• People who know, like, and trust you.
• People who know a good deal when they see one.

Notice what is NOT on this list? Nowhere on the list of criteria is the assumption that they have the money to get involved in one of your deals.

Here’s the biggest piece of advice I can offer you: Never assume you know someone’s financial situation.

In our culture, we don’t openly discuss our financial situation with many people. Often people you think should have a lot of cash kicking around for investment don’t have much at all. They spend every penny on ‘doo dah’ that makes it look like they are wealthy but in reality they are actually living pay cheque to pay cheque. Even more important to know is that someone that you may disqualify from your list may be sitting on a pile of cash.

Third, make the call to set up a time to get a coffee or buy them lunch. Yes, when we call up a friend we haven’t seen in five years and ask them to have coffee sometimes we hear “Alright, what are you selling?” It happens. Get over it. Most of the time it’s fun reconnecting with folks you haven’t stayed in close contact with.

Fourth, prepare and present. Spend time catching up. Ask about mutual acquaintances, family and what they are doing. That will give you time to relax and get into the groove. Once they start asking about you then flow into the conversation about the opportunity you have available. You want to be prepared for this, but you probably don’t want to whip out a formal presentation to run them through. If you’re presenting a specific deal at that time, review the loan specifics (including annual return, time frame, payment schedule, and options for early repayment or extension) and confirm that your lender wants to get started. Presenting to potential private lenders is where our pal Patrick Riddle is a true master.

(NOTE: If you want to check out his latest program on private money and watch a video on how he found 36 private lenders in less than half an hour you can check that out right here. To this day we continue to study what he teaches carefully as we refine and perfect what we’re doing.)

Once you’ve secured the private lender, the hardest part for most people is over. If you remember you’re presenting an opportunity – one that is a much better fit for most people’s investment objectives than any mutual fund in the world – and you stop prequalifying people before you talk with them, the process of finding private money lenders gets so much easier.

The best part for you is that you can help your friends, family and fellow real estate professionals grow their wealth while you’re growing yours. Does it get any better than that?

For more delightful real estate investing stories, advice and resources plus a great Real Estate Investing Starter Tips Guide – get our free newsletter!!