You’ve just funded your first handful of private money deals and now you are hooked! If you’re like me, you fell in love with the act of sleuthing out a loan request and doing your due diligence on the borrower, their project, and the property being used as collateral. It is like a 1000 piece virtual puzzle with a handsome monthly reward at the end of it. In fact, your enthusiasm for private lending has become so infectious now you have friends, colleagues and family seeking you out to place their funds into a secured private money loan for passive income.
But with success comes more obligation. Finding one or two deals to place your own money is the (somewhat) easy part but how do you create consistent deal flow when your capital sources are limited? Most private lenders looking to scale shy away from traditional advertising channels for fear of not being able to fulfill loan requests with capital from your growing sources. The age old problem of supply and demand, right?
Here are some affordable ways to create more deal flow to help you find deals to fund with OPM (other people’s money) as you continue to build your private lending practice.
Newspaper Classifieds: One of the least thought of ways to advertise is through the local newspapers. We started out using a simple ad in the Financial Services section of the classifieds in the local Seattle Times newspaper. The ad simply mentioned that our family had money to lend, credit and income were no problem. Name and phone number. It cost $100 an ad and the response was incredible.
Craigslist Classifieds: This is an inexpensive way to reach real estate investors and small business owners seeking alternative financing in your local communities. In testing out a number of different ads, ones we wrote that came across as more personal and individual received higher responses than those that sounded corporate or business-oriented. Depending on the region/location, it can be around $5-10 a week in more densely populated markets versus $5-10 a month for smaller, more rural, markets.
Social Media Real Estate Investing Forums: This is one of my best sources of qualified leads; particularly on Facebook. Our market in Washington State has around a half dozen active forums for real estate investors. This is where you can really shine if you are willing to provide some value add and take time to establish yourself as a thought leader. I would steer away from doing this on a national platform as there is too much noise from spammers and scammers and you may find it difficult to differentiate yourself from those putting out their best rates and promises. Best part of this strategy, it’s free.
Local RE Investor Associations and Meet-Ups: Look into real estate investor associations or landlord associations in your market. Become a member, attend meet-ups, and spread the word that you are a private lender. Word travels fast when new capital comes to town. And if you are so inclined, look into becoming a vendor member where you can pay a small amount to sponsor a meet up or advertise on their website for additional exposure.
Title Farm List and Direct Mail Campaigns: Direct mailers can be an extremely expensive but powerful way to target pre-qualified borrowers. Your local title representative can access a multitude of public data points and produce a farm list of property owners to send letters, postcards, or another paper-based medium of choice. You could mail to multi-family property owners, owners who have mortgages or deeds with hard money lenders, absentee owners, etc. and then drill down even further by location, zip code, and even neighborhoods.
Real Estate Industry Referral Sources: One of the best ways to improve deal flow is to have others who will recommend you to their clients. Referral sources like real estate brokers, mortgage brokers, and other hard money lenders can be a great way to generate repeat business. You would be surprised how many agents do not know about private money and would be grateful to know your services exist as a way to help them close more deals. The same goes for mortgage brokers who have clients who cannot qualify for another loan but could use some alternative lending options.
Property management companies are another great way to generate repeat business because 100% of their clients are already pre-qualified since they own rentals already.
Regardless of where you decide to market for more deal flow, you must make sure you define and understand who your target customers are. There may be more than one customer profile but for each created, you will need to define what they “look” like on paper, where and who they hang out with and what they need from a small lender like you. Once you’ve determined who your primary target audience is you can begin strategizing how to reach them with your service offerings.
In addition to defining your target customer audience, you should spend some time creating your unique value proposition. This encompasses not just what you offer in terms of products and services, but truly defining what differentiates you from your competitors. For example, are you going to position yourself as the value player with the cheapest rates and terms? Will you go to market as the leader in customer service and speed of funding? Perhaps you want people to seek you out for your creative financing solutions not provided by hard money lenders with capital restrictions.
In the book SCALE by David Finkel, which I highly recommend, he discusses market position like choosing a parking space. Why pick a stall with a competitor already in it? Determine which parking space is free and let that be your competitive advantage. In other words, what are your top 3 to 5 strengths that set your company apart from the competition. What are the top 3-5 things that your market wants that would trigger them to work through you instead of another lender? And, most importantly, what parking spaces are empty and not owned by any of your competitors which you can take advantage of when marketing through the channels identified above?
If you choose to employ any of the strategies above, I would love to hear from you about your successes and challenges. Finding your marketing sweet spot is an iterative process and will take many tries to get it right. With any luck, you’ll become more crystal on where your best opportunities lie through the process and where to limit your efforts.
Published on Bigger Pockets Finding Qualified Borrowers to Increase Your Private Lending Deal Flow (biggerpockets.com)