It’s Thursday morning, July 4th. I’m sitting here at The Crema Coffee Shop in San Jose (California) getting ready to write my blog. I’m enjoying and thinking about the Independence Day holiday. I see so many things to be grateful for, especially when I hear all the news reports around the world where people are still fighting and dying for their freedom. It’s easy to get bogged down in our own little urgent and challenging world but it puts things back in perspective pretty quickly when we look at what freedom really means to each of us. Happy Independence Day!
So, on to business….
Hard Money Brokers as a Source for Highly Profitable Debt-Equity Deals
I get calls from investors asking how they can find more deals where they can share in the profits of the project. They have money to lend but aren’t finding the quality deals as easily as they once did. So, how do we find more debt-equity lending deals?
We are in a unique time in real estate. It’s true that those really sweet deals we saw a couple of years ago aren’t quite as plentiful anymore. But even though real estate prices have gone up substantially here in the Bay Area of Northern California, as well as other parts of the country, there still are some really good solid opportunities out there.
From my experience over the past 32+ years of real estate investing I have found that no matter what the market conditions are there will always be hidden gems. These gems will be tougher to spot but there will always be a certain amount of great deals out there.
Finding the Gems
So, how do you find them? From my experience, even when supply of “good deals” dwindles, it’s a matter of digging where most other investors aren’t and maybe digging a bit deeper than most are willing to do.
Over the next few months we’ll add different ideas and approaches on this blog site for finding those deals where others may not be looking. As always, I’d like to hear your thoughts, ideas and comments to make this an interactive process for everyone.
Reviving the Deal
So how do we find profitable and safe deals while working with hard money brokers, including deals that have borrowers very willing to share in the back-end profits? From experience we know hard money brokers have certain criteria they need to meet when lending their investors’ money. There are always going to be a certain amount of deals that, although the broker likes them, they can’t quite get them to qualify. Many times it is because the borrower doesn’t have enough cash or maybe because the borrower’s credit score is lower than their investors have set as minimum criteria. Maybe even it could be the borrower’s experience level. In a lot of cases those deals never get funded. That can be opportunity knocking.
Initial Discussions with Broker – Its About the Relationship
When initially approaching and introducing yourself to hard money brokers you may want to keep it light and put word out that you are open to looking at any deals the broker has that didn’t quite work out to fund. Initially though, it’s less about digging into a specific deal and having the immediate solution than building the relationship and credibility with your broker. Once rapport is built and specific projects are discussed, by listening closely to the broker, you can usually find out bits and pieces that are clues to the possible solution. Was it issues with the borrower? Was it issues with the property? By having a clear picture of what the issue was for the deal not qualifying you can work to resolve that particular issue or set of issues.
Finding the Solution
Of course not all deals can be recovered, but many can. For instance, if it was because the borrower didn’t have enough cash maybe the solution could be to help the borrower bring on a cash partner. Or maybe it is because the borrower doesn’t have enough “skin” in the deal for the hard money broker to feel comfortable. Possibly a collateral partner would be the solution.
Again, the idea is to solve a problem by identifying exactly what the risk is that made the deal not go through and work to mitigate or control that risk.
When working with your broker to find a way to safely fund a deal that everyone thought was dead you become a hero not only for the borrower but also the hard money broker. I can assure you (from my own experience) when that hard money broker comes across a similar deal you will be the first one they will call. You may well be on your way to a long-term relationship with the broker and have a reliable source of great deals coming your way for a long time.
Watch for upcoming discussions where we’ll share more ideas for finding solid deals.
In the meantime, please comment and share your thoughts.
As always, Happy Lending!