Fund Sourcing – Family, Friends & Informal Investors
One source of short sale funding frequently overlooked by investors is the use of private funds from family, friends and informal investors. While you may have heard that business and friendship don’t mix, there are several reasons why private funding is coming back into vogue.
1. Great rates for all involved. As a short sale investor you may find private funding provides more competitive terms than commercial lenders especially in today’s tough economy. Lending caps, seasoning requirements, properties in need of extensive repairs and other challenging situations may make it all but impossible to obtain favorable terms. Private funding not only helps bridge that gap but provides meaningful returns for those lending the money. Instead of socking their hard earned cash into Treasury Bonds (currently at negative yields after adjusting for inflation), private lenders can put their money to work without excessive risk.
2. Flexible terms and creative financing. Interest rates and returns are only half the picture; when it comes to private funding flexible terms and creative financing are also powerful incentives. Have more time than money? Consider a profit sharing scheme where you foot the labor and they help with the cost of renovations. Interested in long term rentals? Perhaps start-up financing in exchange for an annual percentage of profits will be the winning combination. Think of new ways to create a win-win situation for everyone.
3. Altruistic motives. Don’t undermine the power of the human heart. People have a nearly inborn need to feel as though they are making a difference in the lives of others…especially those they care about. While it can be frightening to tell others of your hopes, dreams and desires of leaving behind a stress-filled life and depressing career don’t be surprised to find others are more than a little enthusiastic to help you realize your dreams.
4. Success from the sidelines. Everyone enjoys being on a winning team and investors are no different. Provide a full rationale behind your investing style, current and past portfolio and future short sales strategy. Chances are, if it is able to withstand the scrutiny of an average banker your friends, family and associates will be interested in earning a bit more on their lackluster gains by investing in your (and their) success.
Bottom line – financial loans are financial opportunities in disguise. Learn how to add this to your current investing strategy to open doors that may otherwise be beyond your current reach. It’s a great way to grab those profitable but hard to finance short sale properties.
