How To Create A Credibility Packet For Private Money Lenders

Jun 10, 2014

If you’re serious about commercial real estate investing, you’ll eventually reach the point where you need to find additional funds to finance your next project.

While some investors turn to banks, for others, bank mortgages aren’t an option, either because of nonexistent credit, or because they view you as a credit risk. The solution for many investors is to find private money lenders to invest in their project.

While finding private money lenders requires some fancy footwork, convincing them to lend their hard-earned money is even harder. And while there are numerous factors involved in securing private money lenders, establishing your credibility is one of the most important.

WHO SHOULD USE A CREDIBILITY PACKAGE?

There’s quite a bit of disagreement on whether or not a credibility kit, which is a collection of documents designed to prove your credibility as a real estate investor, is even necessary.

Many investors argue that the best way to prove you’re a reliable person is through your actions alone. According to this camp, a catchy intro page and a bunch of graphs will go nowhere to impress the experienced lender. Instead, they emphasize the importance of getting to know, like, and trust each other. Doing that will naturally provide CONFIDENCE that you’re an investor who’s in it for the long haul, and are worthy of a loan.

Before you dismiss the idea of having a credibility package, however, you might want to consider first who your audience is. If you plan on approaching seasoned lenders for funds, then a credibility package would probably do more harm than good. If, however, you plan on approaching potential private lenders with some – but not a lot- of experience, than a credibility package given at the right time might be a good idea.

WHAT’S IN A TYPICAL CREDIBILITY PACKAGE?

credibility package private money lenders

Although the actual contents of a credibility package can differ depending on your target audience, there are several essentials that should be included:

  • Business statement
  • Investor’s background and previous work experience
  • Transaction Flow Chart, which sums up the buying and selling process, and what you plan on doing with the money.
  • Spreadsheet of the properties owned along with addresses, purchase dates, purchase prices, sales dates, sales prices and holding days.
  • Purchase and sales escrow closing statements
  • Before and after pictures
  • Any press clippings which mention you or your properties
  • Credit Profile with credit scores
  • Robust economic analysis
  • Letter of Credit from Bank showing all accounts are in good standing
  • Phone numbers of attorneys they can call

Of course some of the items above might not be necessary if a lender is an older person whose last real estate transaction was the purchase of their house 40 years ago. However for some investors, particularly corporate types who are used to seeing presentations as part of their businesses, would definitely expect a credibility package.

In the end, the choice is up to you.

As long as you don’t forget to nurture a personal relationship with a potential private money lender, credibility packages are still a good way of standing out from the crowd.

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