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Money Brokering

We’ve discussed using other people’s money. Now we’re going to take it
to the next level where it will become an entire business for you. Instead
of borrowing money from the bank, you can become the bank. What do
banks do? They take money in the form of deposits, paying 1 to 3 percent
interest, then turn around and loan it out at 7 to 18 percent—and
credit card companies charge up to 29 percent interest. Have you
noticed that banks and insurance companies have the biggest buildings
and the nicest lobbies? They do because they’re taking your money,
holding it, and lending it out. Stop letting the banks make all the money;
you can learn to be the bank. You’ve learned how to analyze, verify, and
find good deals. If a house is worth $300,000, it’s a very low risk to buy
it for $180,000. It’s also low risk to lend $180,000 on something worth
$300,000. Why? Because if people don’t make their payments, you get
something worth $300,000 for $180,000.


By the way, your IRA cannot do “self-dealing”—that is, you can’t lend
your IRA money to yourself, but you can lend money on your own
deals, or you can get other people to lend you money, and the rates of
return can be rather high. You could use your own, but it’s even better
to use other people’s money (OPM). Find people with a lot of money
who aren’t making much in their IRAs or 401(k)s or their investments,
then offer them returns that are higher.
Start out by asking what kind of return they make now. If they make 7
percent, offer them 8 percent. If they make 8 percent, offer them 9 percent.
If they make 10, offer them 11 percent, but don’t go too high or
you’ll scare them away. So set up a business once you learn how to analyze
property, then find other investors and offer to lend them money.
One of the biggest difficulties for investors who like to buy property to
fix up and sell is that they’re always out of cash. Even if you have good
credit and a good business record, it’s difficult to borrow money on a
house that needs repairs. Yet most of the motivated sellers and good
deals we find are on properties that need repairs. Half the roof is gone,
or the floor has sunk, or the windows are missing. A person goes to the
bank and says, “I’d like to borrow $50,000; the house is worth
$80,000.” Yet the bank or the mortgage company often won’t lend
money on houses that are in poor condition. They may escrow the
money, but it’s going to take 30 to 45 days to close because of all the
paperwork, checking credit, gathering tax return information, and so
on. Then, the week you’re supposed to close, they might want more

Cash is king, quickness is queen. The more cash you have, the more deals
you’ll find. The quicker you’re able to close, the more deals you’ll complete
and the more money you’ll make.


paperwork. In the meantime, your motivated seller may disappear.
You’re better off to deal with cash.
One way to help people, including yourself, close more quickly is to
have access to large amounts of hard money or private brokered money.
Every state is different; check with your own state regulatory agencies to
make sure you’re not violating any rules or laws. If you borrow money
at 8 percent, you lend it at 11 or 12 percent. At what interest rate would
the bank lend to a real estate investor who has decent credit? Generally,
between 6 and 8 percent, but rates change constantly.
A lot of hard moneylenders charge 5 to 10 points up front when the regular
banks are charging 2 or 3 points, because the banks take a long
time and may not close the loan. When banks are charging 9, 10, or 11
percent interest, a lot of hard moneylenders are charging 11 to 20 percent.
Is that fair to the borrower? If the numbers work for the borrower,
it is. If borrowers could lose a good deal otherwise, it is. Say they find a
house that’s worth $300,000 for $140,000. They’re going to buy it, fix
it up to sell it, and make over $100,000 after their repairs. For this to
happen, the house has to close in two weeks, yet the bank said it’s going
to take a month to close and they may not even grant the loan because
the house needs repairs. As a hard moneylender, you offer to charge
them 10 points and 14 percent interest. Is that fair to those who are


borrowing the money? Yes, because if they didn’t have that money, they
wouldn’t be able to do the deal.
We tell people in the hard moneylending business that if you can go
somewhere else or have the cash on hand, don’t pay the extra points and
higher interest rates. But most hard moneylenders are always low on
money because there’s so much demand. If someone would lend you
money at 10 percent and you make 15 percent, how much do you actually
make? Five percent. Five percent of $100,000 is $5,000. If you borrow
the money and the lender doesn’t charge you any points and you
charge 10 points, that’s $10,000. You’ve just made $15,000 by putting
together the person who needs money with a person who has money.
Investors like you usually start out borrowing money, buying small
properties, and renting them out. That works fine, but after a while, you
get burned out dealing with the tenants. Then you graduate to the next
level: buying houses, fixing them, and selling them, and that’s great, too.
You may make a lot of money and it works out well, but you’re dealing
with contractors, and the houses don’t sell very quickly.

making good money, but with lots of headaches. At this point, some
investors graduate and learn that they can wholesale properties and
make money just for finding good deals, so they start doing that. Then
they learn about lease optioning and do that. Then, after 10 or 20 years
in the business, if they’re not either rich and retired or burned out,
almost all investors get into paper. And you can, too.

Borrowing When You Have Bad Credit

Here’s how you can get on the right
track to borrow money even if your credit has been damaged.
Credit Repair
Credit repair is illegal the way most people present it. The only people
who can legally and ethically repair your credit are yourself, a credit
counseling service, and possibly your attorney. Credit repair is so
important because it affects what you pay for money—for your cars, for
your life insurance, for property. When you’re buying property, it affects

your ability to borrow. When you’re selling property, your buyers’ credit
affects you. Half of all real estate contracts fail because the people can’t
qualify for financing, and knowing about credit repair will help not only
you, but also your buyers.
I’ve had so many buyers who think they are unable buy a home because
their credit is awful and they have no down payment. Then, 60 days
later, they’re buying a home because we helped them qualify for the
down payment. We have also helped them increase their credit or use
some creative financing techniques to take possession of the property.
Let’s go over some of these. This will help you buy and sell.

About half of all credit reports have a mistake in them, so you need to
get a copy of all your credit reports. People can call credit companies
and request copies of their credit reports. They’re also available at
www.shemin.com. Get a copy of yours and look it over. If there are
mistakes, you need to write in and have those taken off. You can do that
yourself, or you can hire an attorney or someone to represent you.
Challenge whatever bad information is in the report, and keep challenging
it until it’s removed. Under federal law, the credit reporting agencies
have 30 days to respond, and sometimes they don’t have the workers or
the time to research and verify the information. If they can’t do that
within 30 days, they have to remove the offending words.

Understand that the law also says these companies don’t have to react to
frivolous claims, so there’s a little leeway for them, but what often happens
is that credit repair companies just keep challenging the facts (e.g.,
the date is wrong, the amount is wrong, this isn’t mine). Simply for lack
of people power, a bad rating may be softened. That’s what so-called

credit repair companies do—they keep challenging and challenging and
challenging.
If an incorrect report isn’t fixed, you have the right to request the original
loan documents. A lot of people don’t know that, and sometimes
they can’t produce them. That might also remove the credit problem.
Certain bankruptcies are not reported accurately, and sometimes the
bankruptcy courts don’t respond when the credit repair companies call
them to verify. Some people have told me that even bankruptcies may be
removed just by challenging them. Again, credit rating companies don’t
have the time to respond. However, the challenges can’t be frivolous.
But who decides what’s frivolous? A lot of people find that, just by challenging
a report in writing, items are taken off.
You can do this yourself or you can get a professional to help you. Lots
of credit repair companies say they can do it. Some of my buyers have
tested one service that’s actually run by attorneys. It’s called
www.CreditLawyer.com. I am not affiliated with them, but I’ve seen
people get real results because they work with real attorneys. They’re on
the Internet, they charge $50 a month, and they usually work with people
for three to five months. (Also, see the section about residual income
in Chapter 2, “Systems for Success.” It discusses a company called Pre-
Paid Legal Services, Inc., which provides its members with attorneys
who have achieved good results for some people because they know
how to write effective letters.)
Get a copy of your credit report, check it, and challenge anything that’s
incorrect. Challenge anything you don’t think should be on there and
keep challenging. Make sure you do it with all three of the major credit
bureaus, Equifax, Experian, and Trans Union.


Do things that improve your credit, and don’t do things that hurt it. Be
very careful about who checks your credit. When you lease or buy a car,
sometimes the dealership sends out requests to eight or nine finance
companies and checks your credit eight or nine times. All that activity
knocks down your credit score. Ask everyone how they check your
credit and how it will affect your credit score.
If you have a special situation that affects your ability to pay your bills
(e.g., divorce or illness), you can write a nonemotional explanation, up
to 100 words, and attach it to your credit report. Understand credit so
you can help your potential buyers.