Private Lending for Real Estate
Real Estate Investors:
How to Develop a Business Plan and the Top Four Mistakes to Avoid
Some of the other things to avoid in terms of your business
plan are what to do during a business downturn. If our
environment today doesn’t teach us this, you have got to
plan and understand what happens in a worst-case scenario.
Making the Numbers Work during a Business Downturn
With private lending, the scenario that you have got to
explain to people is what the house is going to rent for,
and if a private lender is involved in it what his interest
payments are going to be each month. Let’s say to make the
math real simple a private investor lends you $100,000 and
let’s just say at 10% to make the math easy, so, $10,000 a
year, $850 per month.
That investor is going to say, “The interest on my loan is
going to be $850 per month.” You need to be able to
demonstrate that once you’ve got that property up and
renting that you’re not only going to be able to afford his
$850, but obviously you’re going to be able to afford to
pay the taxes and the insurance and all of that.
You would be able to demonstrate that the rent maybe is
$1,100 or $1,200, but even if you had to accept a much
lower rent, let’s say $1,000 on that particular property
just by way of an example, but that $1,000 worst-case
scenario still covers that private lender’s interest
payments. You’ve got to bring that home to that person.
You’ve got to be able to demonstrate, “Hey, I think with
the market right now it could rent for $1,200, but I
understand it’s a weak market. Maybe I can only rent it for
$1,100. Maybe I can only rent it for $1,050. Maybe I can
only rent it for $1,000. But even at that number, $1,000, I
can still make your payment, and I can still pay the
property taxes and the insurance.”
You’ve got to be able to demonstrate that, and that’s a
possibility and there’s nothing wrong with bringing it up
and telling them, “Weird things happen, the markets go
crazy, but even in the worst-case scenario I can still
cover your payments.” Be able to demonstrate that as part
of your business plan.
Using Fancy Language
The other thing we see a lot is using fancy language.
Again, your private lenders may not necessarily be real
estate investors. Don’t necessarily assume that. The
private investor could just be a businessperson. It could
be a retired person.
I have retired nurses as private lenders. They don’t know
the first thing about real estate. That’s not what they’re
into. They’re looking for a higher return on their money
than they’re currently getting at the bank or the CD or the
money market, but they do not want to become real estate
experts.
They’re assuming that I’m the real estate expert. They
don’t want to have a business plan that has a lot of lingo
in it and a lot of language about lease options and all
that stuff. Just be careful on how much lingo you use. Keep
the language fairly simple so a non-real estate investor
could at least understand it and appreciate it.
Lack of Attention to Detail
Probably the last thing, which is true of a lot of things
in life, believe me, is attention to details. You’d be
amazed at how many resumes I get. I get a lot of resumes in
my business, and how many misspellings are on resumes and
formatting mistakes are on resumes.
Business plans are no different. We get business plans with
misspellings. We get business plans where the column
numbers don’t add up.
Proof of the Business Plan
You have to believe in yourself and your business enough to
spend the extra time and proof your thing. If you need to,
have two or three other people proof it. Make sure that
enough attention to detail is spent to make sure spelling
and footing mistakes are all removed from your plan.
Obviously, as an investor, if I’m sitting there and your
columns don’t add up, it’s going to concern me that your
attention to detail isn’t going to be particularly high.
Again, don’t let simple mistakes like that catch you. Spend
some extra time.
You can have me proof it. You can have somebody else proof
it, whoever. Just make sure that the whole thing is thought
through and somebody else reads it to make sure it makes
some sense. Those are some big mistakes, or big errors,
that we see quite a bit.
—————————————————-
I invite you to learn more about Private Lending and get my
new FREE 20-page eBook titled “Discover the Secrets of How
to Fund Your Real Estate Deals with Private Lenders!” by
clicking here:
http://realestatewealthtoday.com/FREE-eBook.html
Mike Lautensack is a full-time real estate entrepreneur and
creator of the Private Lending Presentation Kit.
http://realestatewealthtoday.com/Private-Lending-Presentation-Kit.htm
Leave a Comment