Business: Using Private Money to Build Wealth in Real Estate

In this episode, Sam dives deep into the powerful strategy of using private money to build wealth through real estate investing. Whether you're a seasoned investor or just getting started, understanding how to leverage private money lenders can be a game changer for scaling your portfolio and achieving financial freedom. Sam defines what private money is and how it differs from other financing methods. You'll learn where to find private lenders, how to build trust, and what to say to confidently raise private capital—even if you’re new. If you’ve ever felt limited by access to funds, this episode will show you how private money can open the door to more deals, more profits, and long-term wealth.

Chapters

• 0:00 Introduction to Private Money
• 1:45 Types of Funding Options
• 4:01 Who Are Private Money Lenders?
• 7:48 Wholesaling to Flipping Journey
• 11:20 Interest Rates and Deal Structure
• 16:16 Packaging Deals for Investors

Transcript

Sam: 0:02

Hello and welcome to episode 50 of the Freq Show. I'm here solo, nobody at the mic, so I'm just going to put that over there a little bit, running a solo episode. Today we're going to talk about private money and how you can leverage private money to build wealth in real estate. To build wealth in real estate it's a super important topic and one that is constant in our business, and one that, if you are interested in real estate, building a real estate portfolio, getting into flipping or commercial real estate, any of those things you're going to need to understand private money and how that works. So I guess the best way to start is to define what is private money as it relates to real estate investing. There are different options to fund your deals. There are different options to fund your deals. You can go the traditional route through a bank, a traditional bank. You can go through institutional lenders and they have loans that are focused on real estate investors doing flips, rental properties, those sorts of things. So they're very tailored to real estate investors and we use those all the time. They're very valuable. We use Kiavi as the main one. We've worked with a number of institutional lenders over the years, but as of the last couple years. As of the last couple years, I would say eight out of ten of our deals are funded through Kiavi At some point in the process. They're super easy to work with. They have a great interface, great website where you can go in and just punch in the details of the deal, get your rates, get your terms, those sorts of things, and the process flows easily. You have to have some experience in order to be approved by them and work with them, but it's a really good option for funding your deals. And there are a number of different institutional lenders out there and they all are usually in the same range when it comes to rates and those sorts of things. For flips, they're normally around 10% to 11% right now. Refinancing 30-year terms are normally in the sevens somewhere, depending on the leverage that you're using for that deal. But that's a good option. That's not what we're talking about today. Today we're talking about private lenders. But that's a good option? That's not what we're talking about today. Today, we're talking about private lenders.

Sam: 2:47

Private lenders are friends, family, loose connections, other investors, basically anyone who has capital, money sitting in the bank that they need to deploy and earn a solid return, at the same time, having that capital secured against a real estate investment. So those are the two aspects that are appealing to private money lenders is they're going to get a solid return anywhere from, on average, 8% to 12%. Sometimes it creeps up a little bit higher, but you kind of want to stay in that range. If you are the operator, the one doing the flip, the one borrowing the money, you don't want to overpay, but the market dictates and sometimes if you're in a pinch and you just got to get a deal funded, you may be paying 13%, 14%, 15%, but you want to avoid that if possible. And so I'd say, on average it's somewhere between 8% to 12%. So they're going to get a solid return and their money is going to be secured to that real estate asset. So they have that fixed asset that's not going anywhere, that's always going to be worth something and it's nine times out of 10, well, I'll say 99, 100 times out of 100, going to be worth more than the amount of money that they're lending. So if you're buying a house for even numbers $100,000, and that private lender is willing to lend $75,000 to buy the house and do the work that's required, they're only going to be leveraging that asset at 75%, which makes it a super secure investment for them. There's 25% of equity where, if the market shifts or something goes wrong or you can't pay them back, they can take that asset and have that asset. That's worth $100,000 and they got it for only $75,000. So that's why it's a secure investment for them and they're going to get that solid return at the same time, and they're not necessarily riding the waves of the stock market, which you know can be beneficial at times here lately not so much. So it's a more. It's a steadier, a more secure, less volatile asset for them to lend against.

Sam: 5:18

So it's going to be friends, family, loose connections, people, uh, that refer you to other people that you've been sharing what you're doing. Hey, I'm doing these deals, I've done a flip, I'm doing my second flip and they're starting to talk to people. They know that have capital that's kind of sitting on the sidelines ready to deploy. That's one of the best ways to get private money lenders is through loose connections, word of mouth, someone referring you to someone else because it's so much easier then going up to Bob, introducing yourself and say, hey, this is who I am, this is what I'm doing. Do you want to lend me some money or I've got an opportunity for you, versus Bob's friend coming to him, who already has that established relationship with both of you, and saying my buddy Sam over here, he's a great guy, he's doing these projects. I know you've got some money that you've been looking to invest. That might be a really good option. So those loose connections are super important in this process.

Sam: 6:26

But you're going to have to do both. You're going to have to put yourself out there. You're going to have to go have conversations with people that you don't know, post on social media about what you're doing and also telling your friends, telling your family, so they can get you those referrals, that word of mouth referral for those private lenders. So all of those different avenues you want to pursue. Because it is kind of a chicken and the egg situation. If you're just starting out, do I need to go raise the money or do I need to go find a deal? Well, you need to do both, because if you got the money but you don't have anything to do with it, you're kind of stuck and you're at risk of that money going away somewhere else. If you got a deal and you can't fund it, that deal is going to go somewhere else. So you need to be doing both at the same time and when you get one, you're just going to have to hammer the other and figure it out. That's just how it works. You just got to go and figure stuff out in this business. There's no way around it. So that's a little bit about what is private money.

Sam: 7:33

Who are the private money lenders out there? When we first started out, in order to get some experience and build a reputation, we started out wholesaling, and if you're unfamiliar with what wholesaling is, you're basically just selling a contract on a property. If I go out and there's a property that's worth $100,000 and I talk to the buyer maybe they're being foreclosed on or they inherited the house and it's just sitting there wasting away I put it under contract for $70,000. And then I go find a flipper and I sell it to that flipper for $75,000, $80,000. And I make that spread between what I put it under contract for and what that investor or that flipper buys it from me for. And so it's an easy. I won't say it's easy because it's not. You got to go out there and hustle, but it is a low risk, low exposure way to start getting experience in the industry, understanding what makes a deal, what doesn't make a deal, and starting to build those connections with other investors and that sort of thing while you're making money. So it's a great place to start, great place to start building knowledge and experience and building your network. That's how we started out. We did that solid for probably a year to two years and then we started transitioning into flipping and buying rental properties once we had a foundation and better understanding of how things worked and how to structure deals and how to go about it. So then we started flipping.

Sam: 9:03

What you will learn quickly in this business or any other entrepreneurial endeavor, is cash is king, and you always want to try to protect and maintain as much liquid, as much cash as possible of your own money, because things are going to pop up that are unforeseen. You got to pay living expenses, you got to put food on the table, so you want to try to safeguard your money in that process. Make sure you have your cash available for those things that are unforeseen as well as just to get by. So by leveraging private money and using other people's money to get them a solid return on a solid investment. You're able then to go out and do more deals and not strap yourself to the gills, to where you're just struggling to get by. So it's very important to have those relationships and build those relationships over time. That way you can start to scale up and do more deals. You can leverage institutional money with private money so you're not having a lot of your capital tied up in all of your deals and you just scale from there. It gives you the ability to scale, so you want to have both of those relationships. It gives you the ability to scale, so you want to have both of those relationships.

Sam: 10:23

The other thing with private money is just the flexibility and the ability to act fast. You know we talked about having the money and not having the deal. It's so important to have the money to be able to jump on the opportunities because, as you know, the real estate market, while it's slowed down a bit, it's still hyper-competitive, especially finding a deal. If it's a deal, it's going to move and it's going to move fast. So having that private money ready to deploy and ready to jump on it is imperative and oftentimes if you got the money, you're right there You'll get a better deal on that opportunity than if somebody who's going to have to wait 30 days to close that sort of thing. You can move fast. So flexibility and ease of use and speed to close is super important.

Sam: 11:13

When it comes to private money, now we talked a little bit about rates, rates being anywhere from 8% to 12% On average. That 8% 9% those at least in our business are going to be more along the lines of rental properties that are performing rentals. They're already cash flowing and that private lender is willing to kind of set it and forget it and start collecting mailbox money. They're willing to put it in for three years, five years, whatever it is, and just let that sit and earn a solid 8% 9% interest, which is more than they're going to get sitting in the bank and it's tied to that asset. So those lower 8% 9% rates those are going to be rental properties in most cases. Then when you start flipping, you're probably going to be paying anywhere from 10% to 12% because those are higher risk. They're shorter terms. On average we paper everything for 12 months and when I say paper, I mean our promissory note term is for 12 months and we're probably going to get it back to them within six to eight months, once that project is complete and it sells. So they're going to get the money back and then they're going to have to redeploy it. Hopefully you're going to have another opportunity for them and be able to roll it into that next opportunity. But they still have that transition period where they may get their money back and then it's just sitting there for a month, for two months, not earning interest. So you're going to be paying a little higher interest rate for the shorter-term, higher-risk loans.

Sam: 12:55

Sometimes, if you're in a bind I've done it 15%, 13%, 14% and a point. Two points still make sense because there's still a good profit in the deal. So sometimes you will be paying a little higher interest rate, but again, it's what the market dictates. If I got somebody that's only willing to lend at 15% and I got somebody else at 12%, the guy with 12% is going to get you know, get the opportunity. So, but vice versa, if I don't have that 12% guy, all I got is this 15% guy, but I still really need to do this deal. Well, I'm either going to risk it and, uh, keep pushing to try to find another lender, or I'm just going to go ahead and get that deal done Um um.

Sam: 13:38

So, as far as the structure goes, there are two main documents that you'll most likely be working with. The first is the promissory note. Promissory note outlines all the terms of the agreement the lender, you, the investor and the owner of the property. What property is the loan tied to? What is the interest rate that they are going to receive? How long is the term? Again, usually for flips we're papering. When I say papering, we're putting everything on the promissory note for 12 months. Usually that gives us enough time to do the project, have it sit on the market for a couple months and then go through the sales process, which usually should be all in. We're at that eight-month mark, but then that still gives me four months to adjust. If something came up during the rehab period or the property's not selling Now, I can go start trying to refinance it. Whatever it is, usually that 12-month range is going to give you enough time to adjust if you need to.

Sam: 14:40

So that's the promissory note. That's the first thing. That's the agreement between you and the lender. The second is going to be the security instrument, and the security instrument is what actually ties their money to the property. It's called different things in different states. In South Carolina it's called a mortgage. In Georgia it's a security deed, but that is what's actually recorded at the county and ties that lien to the property. So both of those are very important and need to understand both.

Sam: 15:18

Private money is fantastic. It's going to enable you to do more deals. It's going to enable you to get the deal in the first place because you can move quickly, and it's going to enable you to scale. Make sure that you keep your money close. Don't over leverage yourself. Don't do what we've done before and get in a position where all of your money is tied up in a property.

Sam: 15:44

Go out, offer opportunities, and this is another good point. When you are going out raising private capital, you are offering an opportunity. You're not asking for money. You're offering a fantastic opportunity for someone to get a great return on their investment while having it secured against real estate. So always position yourself as you are offering the opportunity. You're not out here begging for money in the streets Okay, it's hard work. You're out there hustling. You're going to build experience over time, experience over time, and the more you do this, the more comfortable and confident you're going to be in presenting yourself and your opportunities to your lenders and just never forget that that you're offering an opportunity because you're the one that's going to go out there and do the work. So you're not over here begging, and if they're not interested, well somebody will be. So you just got to keep pounding the streets, keep networking, keep putting your story out there, and it will come, I promise you.

Sam: 16:48

The last thing that I'll say, or the last thing that I'll talk about, is how do I package the deals for investors at this point. So what I will do is I have my underwriting spreadsheet, which basically, I plug all the information in the property beds, baths, square footage, what interest rate I'm willing to pay, what I expect it to sell for, price per square foot and then I put my scope of work what are we going to do to the property? Flooring, siding, roof, plumbing, electrical, everything in that scope of work I detail out in the spreadsheet, and then I get my full scope. This is what's going to cost me. I also have my carry cost in there. You can't forget about your carry cost and your closing costs and that all rolls up to show this is how leveraged that property is going to be by taking that loan. So that's all on there. Then at the bottom I put the comps that I'm using. These are the houses that have sold recently and this is what I expect this one to sell for.

Sam: 17:58

I do a video, I go through all of that information. I'll pull up the comps on Zillow. I'll talk through each of the comps, how they differ from ours, how they're the same and how I expect our project to turn out, really put color to the deal so that the investor can take, or the lender can take that video, watch it and they have a full understanding of this is the investment opportunity. And obviously, like I said, I include in there what their ROI is going to be and what they should expect through the term and what they should expect to make as a return on this investment. And what that enables me to do is, as opposed to picking up the phone and calling 50 different private money lenders, I do one video and it's a very thorough walkthrough of the opportunity and of the deal. I do that one video and then I can send that to 50 different private lenders and usually, you know, nine times out of 10, somebody that I send it to is going to want to fund that deal and that just is a time saving. It's an efficiency to where you're not going out there and having to have 50 conversations. You can do it one time and provide it to the lenders and then they can ask you questions from there. So it works for me. It also shows that the thought process, my thought process and the project and there's a level of confidence that I think it gives the lender and seeing that you've thought through the deal and you've done your diligence and that sort of thing. So that's just a just a pro tip, if you will. So that's just a pro tip, if you will. So that's it Again, a lot of information.

Sam: 19:52

But it's imperative to build your network. Private lenders are a crucial part of that network. So make sure you're always, always building your network of private lenders. We have a good bank of them at this point, but we're always having those conversations and bringing new lenders in for our opportunities. So always, always, be building that network.

Sam: 20:08

The question I'll leave you with if this is something you want to pursue and you want to build your portfolio, build your wealth in real estate, you're going to need private money lenders. So who are 10 people? Go, pull out your phone, go through your phone who are 10 people in there that you can shoot a text message to and say hey, I don't know if you know this, but this is what I'm doing. If you know anybody who has capital on the sidelines that wants to get a solid return against real estate would really appreciate it. If you connect me, you're going to have to put yourself out there, just how it is. All right, good luck.

Sam: 20:50

Live on purpose. Live on frequency. Thank you so much for listening to the Freq Show with Sam Thurmond and me, Jaclyn Steele Thurmond. We would love to connect with you via our website, beckonliving. com, and on social media. You can find us on Instagram and TikTok @beckonliving and you can join our email list to receive uplifting messages, podcast and business updates and discounts on high-frequency products just for our freqy community.

Sam: 21:19

Cheers to high-frequency living!!