Important Information You Need To
Know Now About Private Money
My name is David Lindahl, 14 years ago I owned the broke owner of a landscaping company and was living in a one bedroom apartment. I wanted a better life, so I started buying small multi-family real estate. Using other people's money, private money, I started with small three family properties and built an empire of over 6,000 units, mostly using private money.
In that time I've raised over 33 million dollars in private money. In raising so much private money, I've learned some valuable lessons along the way that I'd like to share with you. These lessons hold true for all forms of real estate; single family, multi-family, land development and commercial.
Who is Dave Lindahl?
If you need a refresher on my background, I was a burned-out landscaper 14 years ago. I had:
- No money (OK, that's not totally true; I did have a whole $800 in the bank);
- No time (that one is definitely true, because each night after a full day of grunting dirt and railroad ties around in my landscaping business, it was all I could do to pop a cool one and collapse in my chair in front of the TV);
- No experience. My family didn't know anything about real estate. In fact, I got the "Dave, you're making a big mistake!" speech when I mentioned real estate.
I didn't "luck into" a fortune. I instead made it using tested and proven systems I developed over time. At first they were crude, but I hate making the same mistake twice, so I got better fast.
One of the key areas I focused on throughout my 14 years of doing real estate is attracting private money. In 2007, I attracted over $33 million in private money to fund 11 deals with a market value of $87 million. I now control over $160 million in real estate across the country.
The most important lesson I've learned about private money is 50% of the people who say they will give you private money to fund a real estate deal won't give you the private money when you need it.
That means, they will give you the commitment to give you private money when you get a deal and then when you get a deal, for some reason or another, fifty percent of the people who committed to give you private money will come up with an excuse as to why they don't have the private money to give you.
So what do you do? You overfund your deals. If your goal is go to out and get yourself a million dollar piece of real estate that would require you put down 20% and 6% closing cost, you'll need 26% or $260,000 of the million dollars in private money ($1,000,000 x .26 = $260,000).
Now you know that you need to get at least twice as much private money commitments because 50% will not give you the private money when you ask for it. So you go out and get $620,000 in private money commitments and $260,000 will actually give you the private money.
But wait, there's more… of the 50% that will give you the private money, 20% percent of that private money will fall out, just before the closing! Yes, they will need their money back or for some reason they will not be able to transfer the private money to you!
This means you must oversubscribe your deal, meaning of the 50% who say they will give you the money for a specific deal, which will equal the $260,000 you need. Your really need commitments of 20% more to cover yourself when people can't get them money to you in time, this means you must get $312,000 in final private money commitments ($260,000 X 1.2).
What happens if all $312,000 of private actually comes in? Tell your investors, first come, first serve. He who gets their private money in first gets in the deal. Yes, you can give a commitment but your only in the deal when your private money is transferred.
What I just told you is going to save a couple of future deals for you and a lot of sleepless nights.
Bob Bowman from Orlando took my advice, used my private money techniques to secure almost 2 million dollars in private money. He used that money to buy a 144 unit apartment building in Dallas, Texas. He took no money out of his pocket, split the deal with his private money investors and now gets a positive cash flow of $4,100 a month.
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