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The following article appeared in the November 2008 issue of the NoteWorthy Newsletter.  It is part two of a two part series (click here to read part one) Call (800) 487-1864 to request a sample issue, and be eligible for the introductory subscriber price of $58/year.

“Customers are where you find them” – Unknown.

“Fall Down Seven Times; Get up Eight” – Japanese Proverb

Part Two of a Two-Part Series – Finding Private Investors

Last week our McKinley Mortgage CA office received two sidewalk signs; our office fronts a busy street and I was frustrated that our large office sign (on the building) wasn’t getting us prospects. I eagerly set up the two signs along the street – one says “Cash for Notes” and the other “Money to Lend”. (McKinley is licensed to lend hard money in addition to brokering seller-financed notes). Walking back to the office I chided the team – “Any calls?” Of course not, BUT WE DID GET ONE 4 HOURS LATER. And I’m pleased to report we are getting a call per day and believe we’ll get 1-2 new funded deals per month based on those two simple marketing “channels”. How easy! Hidden customers.

“Customers are where you find them”.

Many private investors are in your own town and region with millions to invest. They are middle- to late-aged business owners and real estate investors who have these values-thrift, wisdom, accuracy, trust and usually large families. Their age is typically 60+ and they want your 12% notes. To locate them, you want individuals with investor knowledge (i.e. sophistication) and the money (i.e. they are accredited or “qualified”, meaning a net worth of $1MM+ and/or income of $300K+/yr). By ONLY selling notes to “accredited investors”, your risk is very low (as long are you are experienced and honest). Here’s the recipe-
1) Advertise in the classified newspaper of your town/county:
12.5% Yield
1st Trust Deed
Principals Only
123-4567
NOTE-you must own a real note-selling a “non note” is illegal.

2) Take their calls (some will be “looky loos”) and send them a short application. Explain that just like a large company such as Goldman Sachs or Charles Schwab, you are a finance company and have to make sure applicants have both the money and the knowledge. Real investors will understand your reasons; pretenders will not (and this protects them and you!).

3) When the prospective private investors return the completed application, review it to make sure they are knowledgeable (i.e. real estate investing experience and/or a business owner) AND have the money-$1MM+ net worth and/or income of $300K+/yr.

4) Find them good notes and they will stay with you for a long time!

Is it that easy? Yes. Here’s the hard part, NEVER forget that…your private investors are always #1. Said another way, always be willing to cancel a note sale RATHER THAN compromise your private investor in any way. I call it “taking one for the team”. Here’s an example: A note seller contacts your office and you have opened escrow to close and fund the file with a private investor. It’s a nice commission for you – $5,000.00. Two days before closing the appraiser contacts you stating he made an error and the actual property value is $25K less than he stated. You quickly rationalize that your note seller needs to sell, you need a commission, and after all, if the appraiser made one error in judgment maybe he just made another one?

STOP- your first commitment isn’t to make note sellers happy, or to make a commission (though both are key). Remember the rule above-Investors are #1. Therefore, you pick up the phone, give your investor the news, AND LET HIM DECIDE if a $25K lower value kills the deal (it may or may not). Is this clear?

Finally, another attitude to develop IF you wish to successfully work with private investors long-term is this: Investors underwrite the note (i.e. judge and/or choose to invest). You do not. Your main job as the broker is to gather the facts, (i.e. due diligence) that can be forwarded to the investors. This is largely your job as a broker; to gather facts. However, never forget that you don’t judge the notes (i.e. underwrite). Your investor does. This is good for many reasons:

A) It’s not your money that is at risk.
B) It’s possible to become emotionally “out of line” and become negative about a note when your investor’s decision seems irrational (this happens to me when I see pictures of poor quality improvements that nonetheless have significant equity).

That’s enough soapbox, but remember those two key areas are a foundation to your success.

For more information, contact my office (I ask you e-mail me directly so my team in AK and CA can assist you. I’ll give you an overview of the McKinley system for both finding and working with private investors). What do I ask in return? First, please find a way to give back to our fine profession yourself some day. Giving and contributing beats receiving every time!
Second, contact McKinley and Alaska Financial Company to fund your good notes when you have so many all your private investors can’t buy them!

Regards,
Tobias (Toby) J Preston, President
www.akfinancialco.com