My ‘Foot in the Door’ Private Lender Strategy (Avoiding the SEC Smackdown)

2015-5-26-260Welcome to another session where I answer specific questions from one of our members. I feature questions here that I believe will be of great interest to all of you on our team. This question from Jim Myers fits that description perfectly. The question has to do with how to make that first contact with a private money lender.

Jim says he already has a list of private money lenders, but he wants to know how to approach them and not get the smackdown from the SEC. So, he asks,

“What about SEC requirements?”

patrick-round-240Patrick’s Thoughts…

This is a great question that Jim has presented. Staying in compliance with the SEC is a serious matter. Let’s take a look at how we can all stay on the good side of the law.

Staying in Compliance

The first no-no to abide by is not to send a letter soliciting investment capital to someone that you don’t know. If you have a list of private lenders with whom you have not established an ongoing relationship, make no mention that you have investment opportunities. Also, make no promise of certain rates of return on investments. That’s considered what’s called a general solicitation. In other words, you are soliciting capital from people who you don’t know yet.

First Approach

Since you’re not allowed to make a general solicitation, this means that your first approach is merely to get your foot in the door. I have two different strategies to make this happen, and for that I use two different letters.

  1. The first one I call the Friendly Meeting Letter. (Here’s a sample for you to use.)
  2. And the second I call the Buyer’s List Strategy Letter. (Lucky YOU! Yet another sample for the taking.)

Either one, or both of these, can be used to get your foot in the door with the private lender and start building a relationship. At this point, you’re just getting to know them.

With letter #1, essentially, you introduce yourself as a real estate investor, then mention that you saw through your research that they are too. Attempt to set up a meeting, either face-to-face or by phone.

With letter #2, again you acknowledge that you realize that the person is involved in real estate investing just as you are. Now you go on to explain that you often have good deals come up and you’re wondering if they’d like to know more about that. For an interested investor, this information can be very compelling.

2015-5-26-rulesAs you can see both are quite simple and to the point, and yet they both comply with SEC regulations; and both of these provide perfect avenues for that initial approach.

I actually created a detailed video a while back that explains my proven 3-step process for getting all the money you want and need for your deals. You can tap into that information right here!

Add to that (which most of you know about), I have given heaps and heaps of information in my Private Money on Demand Course. Check this out as well!

Marketing Focus

Always view your marketing as a strategy to get your foot in the door and not to present one of your deals. Once the initial contact has been made, then you can begin to get more specific and fill them in on the details of how you work with your private investors.

One marketing technique that I use is to have a powerful message on the back side of my business cards. It reads: “Learn the Secret of Earning Higher Returns by Real Estate.”

That’s what I call using the education angle with your marketing. It’s safe (legally safe, that is), and it’s effective. You’re merely stating that if anyone wants to know more about private lending opportunities to get in touch with you.

Specific SEC Regulations

The SEC has something they call the rule of 45. What this refers to is cold calling or attempting to solicit a stranger to invest in your real estate deals. As I’ve already mentioned, the SEC frowns on that.

They require that there be a 45-day waiting period in which you must have been in contact with that person on at least three different occasions. These three contacts can be by email, direct mail or phone. The stipulation is that at least one of the three must be in person or by phone within that 45-day period.

As you can see, you cannot describe particular offerings until you’ve established an ongoing relationship with this person. Also you will have verified that they have the resources to be a private money lender.

In your general marketing, be aware that you must never use terms like “guaranteed investments,” or “specific rates of return,” or “safe investment opportunity,” or even say that you have investment properties.

Not-So-Scary SEC

This should give you safe ground to cover, Jim. Big government agencies like the SEC can sometimes be scary, but not when you know the ins and outs of what they require. As you look over the stipulations covered here, you’ll see they’re not that difficult to comply with. And once you begin to follow them, the SEC won’t be scary at all.

PS: If you want to get up to speed on the SEC’s newest rules on general solicitations here’s a great write-up by Realty Mogul that you can check out.

PPS: And here’s yet another great buyer letter that we’ve given you previously: JP’s ‘DRIVE-BY’ Cash Buyers Letter

What’s Been Your Experience?

If you’ve had any firsthand dealings with the SEC (good or bad) please weigh in. We’d love to hear and learn even more. Just leave your comments below.


No comments yet... Be the first to leave a reply!

Leave a Reply