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Private Money Cash Outs

1. Disclosure – you must disclose to your private investor where their funds are being placed.This is just a good business practice and required if you want to earn a reputation that will net you seven figures (or more) in private money sums

2. Banks aren’t loaning their hard earned money – they are loaning money created out of thin air by the “money multiplier” effect of fractional deposits (part of Federal Reserve banking), they are loaning shareholder money and they are loaning depositor money. The banks lending decision would be a lot different if their loan approval committee members were loaning their own funds instead of somebody else’s. You cannot think of your private investor and the bank in the same context. One is an institution, the other a person.

Downside protection. Going back to our example, lets say that you weren’t able to sell the house for $180,000. Maybe the appraisal gods didn’t like the house. Who knows.

So you have to sell the house for $160,000. Well, that’s still not bad. $20k profit after paying back the lender. But, we forgot about…ancillary costs of ownership. Holding costs, taxes, etc. It’s never a good idea to run your investment properties close to the “red line.” There is an entire graveyard of investors who over-borrowed with private investor money who are now driving semi-trucks and wondering what hit them.

Raise as much private money as you need (which includes a cushion) but no more than a project can reasonably handle. Better to take that extra $20k and invest it in another property.