I should probably apologize for the title. I guess i have developed a bit of a flair for the dramatic. See… Melissa and I have spent SOOO much money in boot camps, home study courses and coaching… not to mention just getting our business off the ground and running… that we’ve actually out leveraged ourselves and now we can’t get any money from traditional lenders! It’s not that our credit is ‘bad’ … there are actually no derogatory marks on our credit at all! No bankruptcies, no liens, no charge-offs, no collections… and we’re keeping up with our payments!

Our problem is not uncommon… many real estate investors (and small business owners / entrepreneurs for that matter!) can’t borrow money from conventional banks because of the sheer amount of activity on their personal credit. For every credit inquiry that an individual has on his / her credit report… a small business owner will have 10, and it takes up to 2 years for those inquiries to drop off! This is part of where we’ve gotten stuck…

Melissa and I actually went though Dave Ramsey’s ‘Financial Peace University’ several years ago, and used the ‘debt snowball’ to completely eliminate our debt. It was challenging, and rewarding… but it did not teach us how to build wealth! When we started working with Robert Kiosaki’s materials… we realized that there was a difference in the ‘law’ that was taught by Ramsey, and the ‘Grace’ that was taught by Kiosaki. Kiosaki believes in using debt as a tool to accumulate assets. Ramsey believes that debt is a sin.

So… after going through FPU (Financial Peace University), I literally had a zero for a credit score… i had NO credit! I was actually proud because we managed to run a small business without credit for 5 years, but truthfully… its growth was seriously hindered by the lack of leverage, and it would have been a lot larger had we used debt as a tool to grow.

After reading Rich Dad Poor Dad, Cashflow Quadrant, and OPM (other people’s money) along with attending RichU (Robert’s seminar track) … Within the last several months… Melissa and I have opened about a dozen credit cards, asked for limit increases on several of them, and have used these cards to pay for our education and business startup. *wheee*

Now we’re watching as our credit scores drop because of the number of inquiries, our debt to income ratio (for reportable income), and outstanding credit balances. keep in mind that none of these things would be an issue if we were talking about business credit, but because we’re talking about personal credit… it is measured with a totally different stick. The business is actually making the payments on our cards (and paying for our cell phones, car payments, cable / internet, etc… ) … but the credit reporting agencies don’t know and don’t care about that.

Another issue that real estate investors run into is simply that conventional banks are hesitant to loan you money for investment properties / rehabs…. and if they do, the terms are usually so outrageous that it makes little sense for the investor to use them. Hard money is always an option… but hard money is really expensive!

So we’ve started a 4 part plan to fix our money / credit problem:

1) we’ve started working with a business credit building company (www.bcscredit.com) in order to establish credit for our business, obtain a business line of credit for it, and move our current business debt off our personal accounts. This will fix our personal debt to income ratio and open credit balances, but it’s going to take some time to establish credit under the business name, and meanwhile… we’re missing opportunities for deals that we’re coming across that we can’t take advantage of!

2) We’re also working on increasing our income by focusing on wholesale real estate investment, so we’ll be able to pay off our debt quicker with less risk.

3) we’re applying for grants that are specifically designed to help small business owners who have used their own personal credit to startup and build a business.

4) we’re starting to market to private money investors / lenders.

Really it’s #4 that I wanted to write about… because I think that this is the one area that will help us with growth long term, and I think it is something that anyone reading this should apply to their own real estate investment business if they can relate to the rest of our story.

Private money investors / lenders are basically just individuals with money that is just sitting not doing anything. Maybe it is in a low yield CD paying 3% annual… or perhaps it is in a 401k and losing money! We’re wanting to help those folks see a higher rate of return and get their money working for them, and so our program pays 10-12% with a back-end bonus. It basically turns an individual with money into a bank.

Our program for private money investors / lenders is a loan that is secured with the property that we acquire for rehab. It is very low risk for the private money lender because it is secured with a 1st mortgage on the property. We’re also very motivated to make sure that the private money lender is taken care of because we want to be able to continue to work with them and make them (and us) more money!

If you are just getting started in your real estate investment career / business… private money is a key area of focus that you want to work on because it will only help to accelerate your growth!

Despite the title… there really isn’t any ’secret’ to private money. Take 5 minutes to write down all of the people that you know directly or indirectly who have money or who may know someone who has money. Start with friends and family, and then move outward from there to your doctors, attorney, accountant, insurance agents, mortgage broker, etc…

One thing you will need to keep in mind is that it is actually illegal to solicit people who you don’t already have a relationship with for investment opportunities, so if you don’t know any of these types of folks.. start hanging out where they are, and get to know them! Find a connector… someone who knows a lot of people… and get them to introduce you to some of the people who they know.

Another thing that you’ll need to keep in mind is that unlike conventional lenders who want to know your credit score, income, etc… private lenders want to know YOU! They will want to know your personal story, where you are coming from, why you’re doing what you’re doing. They will also be interested in the deal, but more importantly… they are going to need to ‘like’ you before they will do business with you.