***Guest Appearance
Credits to:
https://www.youtube.com/@TheSourceCRE
“Finding Investment Capital in Private Money with Jay Conner”
https://www.youtube.com/watch?v=MV3Ed6buyfI&t=26s
In a recent Raising Private Money podcast episode, Jay Conner joins Jonathan Hayek, a former teacher turned commercial real estate investor, they share invaluable insights about private money lending. Their discussion shed light on practical strategies, community involvement, and building trust-based relationships to secure private money for real estate deals.
Emphasizing Simplicity and Flexibility
No-Penalty Approach: A Win-Win Situation
Jay Conner highlighted the simplicity and flexibility of his private money program. Unlike traditional banking systems, his approach eliminates penalties for early repayments by lenders. Over the years, he has had only two small notes called due early due to medical emergencies. This flexibility benefits lenders who prefer to keep their money generating returns rather than having it returned prematurely. Jonathan Hayek concurred, noting that his lenders also favor keeping their money invested for continued financial benefits.
Securing Loans: Importance of Legal Documents
Promissory Notes, Trust Deeds, and Mortgages
A pivotal aspect of securitizing loans involves proper documentation. Jay explained the roles of promissory notes, deeds of trust, and mortgages in protecting both lenders and borrowers. Promissory notes capture all loan specifics, such as borrower details, loan amounts, interest rates, and payment schedules. Deeds of trust or mortgages grant lenders the authority to foreclose if borrowers default. Adding further layers of security, Jay emphasized adding lenders on insurance and title policies. These additional protections ensure that both parties’ interests are safeguarded, making the investment process transparent and trustworthy.
Identifying Suitable Borrowers
Understanding Who Should and Should Not Borrow
Jonathan Hayek queried Jay about scenarios where private money lending might not be appropriate. Jay addressed the question thoughtfully. Not every individual or situation aligns with private money lending. Traditional banking or hard money loans might be more suitable for some. Jay cautioned against borrowing private money without a thorough understanding of real estate. Investors must comprehend property valuation, management, and rehabbing, making decisions based strictly on mathematics rather than emotions.
Building Thriving Networks
Leveraging Business Networking International (BNI)
One of the keys to Jay’s success in securing private money has been his involvement with Business Networking International (BNI). BNI’s structure allows only one representative per profession in each chapter, fostering trust and encouraging referrals. By joining BNI as a real estate investor, Jay unlocked the potential of a robust network quickly, securing millions in private money.
Community Involvement: A Trust Booster
Principle of “Givers Gain”
Jay and Jonathan underscored the importance of community involvement in gaining trust and attracting private money. Engaging with local organizations like the Chamber of Commerce, Rotary Club, church groups, and Real Estate Investing Associations (REIAs) not only builds visibility but also trust. The principle of “givers gain” is central; by serving and giving to the community, individuals earn trust, making it easier to forge investment relationships. Jay’s active volunteering and consistent networking have established him as a reliable and giving individual, hence attracting significant private investments.
Consistency in Lending Terms
Clear, Reliable Borrowing Practices
Jay’s success is also credited to his consistent lending terms since 2009. He offers a straightforward, no-frills approach: 8% annual interest, no origination fees, points, or extension fees, a two-year loan term, and collateralized loans up to 75% of the after-repair value. This consistency has built immense trust among his private lenders.
Understanding and Educating Lenders
Shifting Mindsets for Long-term Benefits
Jay has a unique approach to securing private money by educating prospective lenders. By positioning himself as a “private money teacher,” he ensures that lenders understand the concept thoroughly, making the money chase him rather than the other way around. His proactive education strategy means setting terms and rates himself, without directly asking for funding. He elaborates on different types of lenders: Private Money and Hard Money. Private money comes from individuals’ funds, offering flexibility and pre-existing trust-based relationships, unlike institutional hard money lenders, who typically have higher interest rates and fees.
The “7-Day Private Money Challenge”
A Step Towards Mastery
To further assist individuals in understanding and securing private money, Jay introduces the “7-Day Private Money Challenge.” This initiative offers detailed training through daily short videos, guiding aspiring investors through the intricacies of private money.
In conclusion, this episode reiterated the essence of building long-term, trust-based relationships within various community groups and consistently maintaining clear borrowing practices. Jay Conner’s journey affirms that with the right knowledge, mindset, and community involvement, securing private money for real estate deals becomes a robust and rewarding strategy. Reach out to learn more about the enriching world of private money and begin your journey toward financial independence and success.
10 Discussion Questions from this Episode:
- Understanding Terms: Jay Conner mentions a “no-penalty approach” for private lenders. Can you explain what this means and how it benefits both lenders and borrowers?
- Importance of Documentation: Why are promissory notes and deeds of trust or mortgages critical in securing loans according to Jay Conner? How do they protect the interests of private lenders?
- Flexibility in Lending: Considering Jay Conner’s flexible loan terms since 2009, how does his approach differ from traditional banks and hard money lenders?
- Networking Benefits: How has Jay Conner utilized Business Networking International (BNI) to secure millions in private money? What aspects of BNI contribute to building trust and growing one’s network?
- Community Involvement: Discuss the principle of “givers gain” that Jay and Jonathan highlight. How does volunteering and community involvement lead to investment opportunities?
- Appropriate Borrowers: In what scenarios does Jay Conner suggest using traditional banking or hard money loans instead of private money? What characteristics make someone more suitable for private money lending?
- Educational Role: Jay Conner emphasizes the importance of educating potential private lenders. How does this education build trust and ensure smoother financial transactions?
- Risk Mitigation: What strategies does Jay Conner implement to mitigate the risks for both the borrower and the lender in private money lending?
- Mindset for Raising Funds: How does Jay Conner’s mindset and confidence play a role in attracting private lenders? Why is having an abundance mindset crucial in this context?
- Lessons from Experience: Jay Conner shares his journey of shifting from bank financing to private money. What key lessons did he learn from this transition, particularly during the global financial crisis in 2009?
Fun facts that were revealed in the episode:
- Jay Conner raised $2.15 million in private money in less than 90 days in his local area without directly asking for it.
- Jay Conner’s private lenders include ordinary people like school teachers and civil service workers who had never heard of private lending before.
- Jay secured millions in private money through connections made at Business Networking International (BNI) meetings.
Timestamps:
00:01 Raising Private Money Without Asking For It
04:41 Steve halted funding due to the financial crisis.
06:22 Learned about private lending, raised $2.15 million.
13:00 Private money flexibility vs. institutional hard money fees.
16:22 Focus on growing your network for success.
19:36 Join local BNI for networking and leads.
22:30 Volunteer sincerely; rise within community; become valuable.
24:17 Consistent interest rates despite market fluctuations since 2009.
29:21 Lenders prefer trusted borrowers over idle money.
31:34 Payment frequency, cash flow, promissory note, mortgage.
36:25 Don’t borrow private money until knowledgeable and prepared.
40:09 They prefer active involvement over being a lender.
Connect With Jay Conner:
Private Money Academy Conference:
Free Report:
https://www.jayconner.com/MoneyReport
Join the Private Money Academy:
https://www.JayConner.com/trial/
Have you read Jay’s new book: Where to Get The Money Now?
It is available FREE (all you pay is the shipping and handling) at https://www.JayConner.com/Book
What is Private Money? Real Estate Investing with Jay Conner
http://www.JayConner.com/MoneyPodcast
Jay Conner is a proven real estate investment leader. Without using his own money or credit, Jay maximizes creative methods to buy and sell properties with profits averaging $67,000 per deal.
#RealEstate #RealEstateInvesting #RealEstateInvestingForBeginners #Foreclosures #FlippingHouses #PrivateMoney #RaisingPrivateMoney #JayConner
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Transitioning from Traditional Banking to Private Funding: Jay Conner’s Journey
Narrator [00:00:01]:
If you’re a real estate investor and are wondering how to raise and leverage private money to make more profit on every deal, then you’re in the right place. On raising private money, we’ll speak with new and seasoned investors to dissect their deals and extract the best tips and strategies to help you get the money because the money comes first. Now here’s your host, Jay Conner.
Jonathan Hayek [00:00:30]:
Listeners, we will get to introductions. But before we do that, I am sitting here with Jay Conner. And, Jay, I wanna ask you, to tell us something that you believe about raising private money that might surprise listeners.
Jay Conner [00:00:43]:
Oh, my lands, Jonathan. When it comes to the world of private money, here’s exactly something that will surprise your listeners, and that is you can raise 100 of 1,000 dollars and 1,000,000 dollars in private money just like I have without ever asking anybody for money. And people ask me all the time, they say, Jay, how in the world do you have $8,500,000 in private money that you just moved from one real estate project to another without ever asking anybody for money? Jonathan, I want to dig into that topic while we hang out together here on your show.
Jonathan Hayek [00:01:19]:
Listeners, welcome to The Source of Commercial Real Estate, where we talk to the experts in commercial real estate so you can grow your business, find a competitive advantage, and use real estate to live the life that you want. I am your host, Jonathan Hayek. I’m a former public school teacher who found financial freedom through residential real estate investing, and now I’m focused on larger commercial properties, particularly small industrial ones. And today, I have the privilege of talking with Jay Conner. Jay has raised 1,000,000 dollars in private money. He’s known as the private money authority, and we are going to get into the specifics of how private money can benefit you in your real estate portfolio. Jay, thank you so much for joining me today. How are you doing?
Jay Conner [00:02:06]:
Jonathan, I’m fantastic right here in Eastern North Carolina at the beach where the sun is shining. The temperatures are about 86 degrees. We got a beautiful south wind coming off the ocean, and I’m enjoying life in this world of real estate and using private money to fund my deals.
Jonathan Hayek [00:02:26]:
Well, Jay, I’m happy to be talking with you today. Why don’t we start the conversation with you telling us a little bit about your background, how you got started in real estate and using private money, and what your work looks like today?
Jay Conner [00:02:40]:
Sure. Well, my wife, Carol Joy, and I have been investing in real estate, primarily single-family houses, but we’ve also done several commercial deals. We’ve got a shopping center that we built up from the ground up. Condominiums, townhouses, and single-family houses rehabbed over 500 single-family houses, all using private money. But, you know, Jonathan, it didn’t start that way. It never does, does it? We started investing in single-family houses in 2003, full-time. We’re in a very, very small market. Only 40,000 people is our total market.
Jay Conner [00:03:20]:
And from 2003, Jonathan, until January 2009, the very first 6 years that we were in the business, I relied on local banks’ institutional money to fund my real estate deals. That’s all I knew to do. When I had a deal, all I needed to do was to go to the local bank, get on my hands and knees, put my hands underneath my chin, and beg and lift my skirt so the banker could look at my assets and my verification of income and my credit score and decide if I was going to get the funding or not. They were in control. They were in the driver’s seat. The lender at that time for the 1st 6 years, set the interest rate. They set the length of the note, etcetera. They made all the rules and you know, that’s what most people are accustomed to.
Jay Conner [00:04:08]:
That’s all they know is, you know, you have to play by the lender’s rules. Well, Jonathan, I have discovered, and it probably has happened in your career as well, there’s a pivotal moment that comes along. There’s something that happens in your business that changes everything. And, here it was. In January 2009, I was sitting here at my desk. I had 2 houses under contract to buy. And I called up my banker. His name was Steve.
Jay Conner [00:04:41]:
And Steve and I, had been funding my deals for 6 years. We had a great business relationship and I called him up. I told him about these deals that were under contract to buy, and I learned just like that over the phone that my line of credit had been shut down. I said, Steve, what in the world are you saying my line of credit’s been shut down? And, by the way, this was with no notice. He says, Jay, don’t you know there’s a global financial crisis going on right now? I said, No. But now you’ve just given me a global financial crisis by cutting me off with no notice. I said, why are you cutting me off? He says, well, we’re just not loaning money out to real estate investors anymore due to what’s going on in the markets. So, Jonathan, I put the phone, back down on the receiver and I sat here for a moment and I asked myself a very important question.
Jay Conner [00:05:36]:
This question that I’m going to share with your audience right now will help you fix any problem in your life, whether it’s financial, personal relationships, or health, it doesn’t matter. And here’s the question I ask myself. I said, who can help me with my problem? And immediately, I thought of Jeff Blankenship, a good friend of mine, and Carol Joys, who was living in Greensboro, North Carolina at the time, investing in real estate. And I called him up, and I told him that I had just been cut off from the bank and lost my line of credit. He said, well, Jay, welcome to the club. And I said, what club is that? He said the club is being cut off at the bank. I just lost my line of credit last week. I said, well, Jeff, how are you gonna fund your deals? He said, well, have you ever heard of, private money? I said no.
Jay Conner [00:06:22]:
He said, have you ever heard of self-directed IRAs and how people can use their retirement funds, to be private lenders to invest in your deals? I said no. And so because of that conversation, I learned about private money. I learned about how people can use their retirement funds to be passive real estate investors. And Jonathan, I put my program together and I raised $2,150,000 in less than 90 days right here in our little local area. And so that was the biggest blessing in disguise that I’ve had in this business of being cut off from the local bank. And so, you know, I mentioned, when you first started visiting with me about how I’ve raised all this private money without ever asking anybody for money. Here’s the answer to that question as to how in the world that happened. I became what you were, Jonathan before you got into real estate.
Jay Conner [00:07:18]:
I became a teacher. And I put on what I call my private money teacher hat. And I simply started teaching people in my network, my connections, what private money is. And by the way, when I say private money, I’m talking about individuals, human beings who are loaning money from their investment capital and or their retirement accounts to us real estate investors. So, I just simply started teaching people what private money is and how they can earn high rates of return. I started employing what I call the direct method and the indirect method of teaching people how to attract money. And so, since that time in January 2009, I’ve continued to teach people what private money is. You know, here’s what’s interesting, Jonathan.
Jay Conner [00:08:07]:
I’ve got 47 private lenders right now that are funding our deals and not one of them had ever heard of private money or private lending until I put on my teacher hat and taught them what it is. And I taught them my program as to how they can get these high rates of return. And so, you know, what I love about this world is when you start teaching people that have never heard about this world of private money, it puts you in the driver’s seat. You don’t have to ask for money. The money chases you. And there’s no negotiation. You set the interest rate. You set the terms.
Jay Conner [00:08:46]:
And you, as the borrower, make the rules.
Jonathan Hayek [00:08:51]:
Really interesting stuff, Jay. And before we go on any further, you alluded to, sort of the definition of what we’re talking about, but I wanna get really clear on what we mean by private money. There are lots of people who have lots of different different definitions for private money. But when we’re talking about private money, are you also including hard money in this, any just nonbank lenders, or what exactly do you mean by private money?
Jay Conner [00:09:20]:
So what I mean by private money is non n o n, non institutional money. By the way, I say make as many relationships as you can with as many people. Some of my best friends in the world are hard money lenders. They’ve used my techniques and strategies to raise more private money for investors to invest in their funds. It’s all the same money. Whether you’re raising money for, you know, your hard money fund or you’re raising money for, apartments or, you know, commercial deals or you’re raising money for single-family houses, it’s all the same money. It’s a matter of, you know, what’s being structured and what they’re investing in. So, in answer to your question, Jonathan, my world of private money that I’m talking about is doing business with individuals.
Jay Conner [00:10:14]:
Noninstitutional money. People who are using their investment capital and or their retirement funds to invest in our real estate deals. And these are all ordinary people. For example, of the 47 private lenders that we have that are investing in and funding our deals. I’ll give you one example of a couple that are from Mississippi. I’m in North Carolina. They’re in Mississippi. They are both, just like your former career, Jonathan, they are both retired school teachers from Mississippi, one of the states that, unfortunately, school teachers are paid the least amount in the nation.
Jay Conner [00:10:56]:
And this couple has got $1,250,000 with me in our deals from being retired school teachers in Mississippi. What’s the point of that story? All my 47 private lenders, not one of them had ever heard of private money or self-directed IRAs until I taught them about it. And number 2, they are ordinary people. Who are my private lenders? They are school teachers. I got another school teacher right here in Morehead City, North Carolina that’s one of my private lenders that’s going to be retiring next year. They are, civil service workers. I’ve got 2 private lenders that have retired working civil service. These are ordinary people who don’t know what to do with their money to get high rates of return.
Jay Conner [00:11:47]:
Now, there are 3 categories of where you find private lenders. People that are in your connections. People who are in what I call your expanded market because your connections are going to run out. So how do you expand your network? The third category is existing private lenders. This past Saturday, I was a keynote speaker at a self-directed annual, self-directed IRA annual conference. Well, in my lands, over 70% of account holders at a self-directed IRA company want to loan money to us real estate investors. But guess what? I can’t put on my teacher hat and teach them private money because they already know what private money is. They’re already loaning money out.
Jay Conner [00:12:33]:
So, now if I borrow money from those people, which I can, that’s a negotiation process. I’d much rather be borrowing money from people that I have taught what it’s all about to where it’s not a negotiation process, to where they are just loving the program that I’m offering, and they become involved. But those are the 3 different categories as to where you find private lenders.
Jonathan Hayek [00:13:00]:
I like your, differentiation between, you know, institutional type lenders where you go to them and they tell you the rate and terms versus private money. You are telling the private money lender what you’re willing to offer, and what types of returns you’re willing to offer. And I’ll add that private money has been instrumental to me, as I’ve built my portfolio. And then the differentiation that I make between private money and hard money is, you know, hard money is more institutional. You call up maybe an 800 number or something, and you have to give them, you know, information about your deal. And they’ll tell you, okay? Well, we’re at 12 and 2 or 15 and 5, and they tell you the terms. There’s, you know, there’s often very high interest rate, accompanied by, very high, origination fees, and you don’t have a preexisting relationship with with that hard money lender.
Jonathan Hayek [00:13:58]:
It’s more transactional versus in my experience, private money has been with friends and family. And it’s more of a conversation. You have a preexisting relationship, and you’re saying, hey. This is the deal. This is what I can offer if you’d like to invest in it. And it’s more of a, you know, a collaboration and a cooperation towards, towards a common goal. And so I think I agree with you that private money a lot of my private lenders that I’ve used have also been unaware that this is a thing. They’ve had money sitting in checking accounts, large amounts of money sitting in checking accounts, not knowing what to do with it.
Jonathan Hayek [00:14:37]:
And then just like you said, you teach them and you bring them along in the process and you invite them, into an opportunity. And sometimes it works. You know, sometimes they agree. Sometimes sometimes it’s not the right time, and and that’s okay. But, yeah, I just wanna, yeah, echo that private money has been instrumental for me in building my portfolio. So can you talk me through, let’s say somebody’s listening to this and they say, yeah? I mean, it must be nice to be Jay. It must be nice to be Jonathan and have a bunch of rich family members looking to throw 100 or 1,000 dollars around.
Jonathan Hayek [00:15:19]:
I don’t know anyone with money. I don’t have anyone in my network who has any money or would be willing to lend. What do you have to say to those people?
Jay Conner [00:15:28]:
Well, first of all, I don’t believe them. And when someone says all my people are broke or I don’t know anybody with money, what I’ve discovered, Jonathan, is most of the time what they’re saying is I don’t know anybody with money that I’m comfortable talking with, is what they’re saying. Right? So we got to get comfortable. Right? And how do you get comfortable? You get comfortable by getting uncomfortable, by becoming comfortable with being uncomfortable. Right? Anything you do for the very first time, of course, is going to be uncomfortable. So what do you say? Well, first of all, you know, one of the first things, people ask is, Jay, how do I start? How do I how do I start? I tell you how you start. You start raising private money by first owning the real estate between your ears before trying to own any real estate out there. So it’s all a mindset.
Jay Conner [00:16:22]:
So what do I mean by that? Well, first of all, we have to get clear in our head we are not chasing, begging, selling, persuading, or trying to talk anybody into anything. Why is that? Because once you understand that there’s so much more money out there than there are deals, and there is. I mean, I’ve got more private money right now than I can use for the deals. And so if you are listening to this show and you’re saying, I don’t know anybody with money, and I agree. I mean, some, you know, some of us do not have as large of a network as other people do. So how do you grow your network? Really, how do you grow your network? And we all know that there’s a direct correlation between your network and the value of your network and your net worth, of course. And so I teach people how to grow their network very, very quickly the way I have grown my network. So how do you do that? Well, let me give you a few tips.
Jay Conner [00:17:29]:
Number 1, you want to check out BNI, which stands for Business Networking International. That was founded by Ivan Meisner. And I’ve been very, very involved in Business Networking International. And what it is is you just Google bni.com and you’re going to find local, chapters in your area. They’re all over the nation. They’re all over the world. I mean, I live here in Morehead City, North Carolina, population eight 1,000 people, and we got a BNI. And guess what? If you don’t have a BNI, start a BNI, and now you’re automatically the go-to credibility person.
Jay Conner [00:18:10]:
Right? The way BNI works is it’s very different than, say, a civic club like the Rotary Club. I also endorse practice and preach and get involved in the Rotary Club. But that’s a much longer-term play because that’s building relationships. And, of course, the more valuable relationships you have, then, obviously, the more valuable your net worth is going to grow. But with BNI, Business Networking International, that organization is for its local members, with each chapter member, giving leads to each other as to what each member is looking for. And the cool thing about Business Networking International is that truly there’s only one seat per profession. For example, there’s only one realtor, a very coveted seat in each BNI chapter. One realtor.
Jay Conner [00:19:06]:
There’s one general contractor. There’s one attorney. There’s one plumber. There’s one HVAC. There’s one etcetera, etcetera, etcetera. There’s one CPA, right? There’s only one. And so that way you can be, you know, comfortable and secure in referring leads to each other. So you join the Local Business Networking International, chapter as a real estate investor.
Jay Conner [00:19:36]:
And, of course, you’re going to have a visit with the local, with the Realtor that’s in that chapter, to talk about how you’re going to be able to give each other leads and you’re not in competition with that Realtor. So, I could talk about BNI for the next 3 hours and not repeat myself. But BNI and becoming involved in the local BNI chapters is very, very like overnight. I mean, I’m talking overnight scenario of growing your network. I’ve gotten 1,000,000 dollars in new private money just by being connected with my local BNI. And then there’s, you know, it all comes down to becoming involved in your community, becoming involved in the local Chamber of Commerce. That’s a long-term play that you’re not getting private money overnight. But the more sincere and genuine relationships that you establish, the more private money that’s going to come into your world.
Jay Conner [00:20:30]:
And here’s a great big tip. Ivan Meisner coined the phrase givers gain. And what that means is, when you become involved in a local association of any kind, I don’t care if it’s the Knights of Columbus the Rotary Club, or your local church. I’ve got 1,000,000 dollars from my local church members. Why is that? Because private money is founded on a 5-letter word that starts with the letter T, and that’s the word trust. People aren’t investing in your deals in this world of private money. They’re not investing in your deals. What are they doing? They’re investing in you.
Jay Conner [00:21:11]:
They’re investing in you, the operator, because they trust you. So, the more trustworthy get involved in your local community. And, oh, but what I was gonna say is, when you are involved in a local organization, for goodness sake, get involved in your local RIA. Your your local Real Estate Investing Association. And let me give you a great big secret sauce, a big tip right now. And again, it all comes down to leading with a servant’s heart. Lead with a servant’s heart. By the way, if you’re listening to this show, and you don’t have the book, The Go-Giver.
Jay Conner [00:21:49]:
If you don’t have that book, then for goodness’ sake, when this show is over, go to amazon.com and order it. I was so privileged to have the co-author Bob Berg on my podcast, Raising Private Money, a few months ago. It all comes down to being a servant. For example, how do you apply that, when you’re in a local organization? I don’t care what it is. Volunteer to serve. Volunteer to serve. Genuinely genuinely volunteer to serve. If you’re involved in your local real estate investor association, which you should be, volunteer to check people in or go to the leader of the group and say, look.
Jay Conner [00:22:30]:
I want to become involved in this association, this group. How can I serve? What do you need help with? And I promise you, they need help. Right? So, it’s all volunteer. And, I mean, it’s just what Jesus said, the first becomes last and the last becomes first. You genuinely offer to serve and volunteer in these groups, and you are going to rise to the top. The cream comes to the trot, to the top of those that are volunteering. And, I mean, you become seen as a go to person that’s genuinely interested in other people, And you’re gonna have the attractor factor. Instead of being a taker, you’re gonna be seen as a giver.
Jonathan Hayek [00:23:11]:
Really powerful stuff. There are some fantastic, very tangible suggestions. And I wanna reiterate that, it is not when you’re getting involved in organizations and volunteering, it is not transactional. It’s not, hey. I signed up for you know, to check people in at the front desk, and so now, hey. Do you wanna invest in my deal? It’s not transactional. It’s long-term. It’s, it’s value for value.
Jonathan Hayek [00:23:35]:
It’s it’s giving to each other. And, I also had Bob Berg on this podcast, a few months ago. Awesome guy. Privileged to have him on. Definitely has a servant’s heart. And, yeah, Go-Giver, is an awesome book, for this context as well. So let’s get down to some nitty gritty. If someone is considering this and saying, okay.
Jonathan Hayek [00:23:58]:
Maybe I’ve got an uncle or a neighbor that, I could, I could I could teach or I could invite into an opportunity. What sort of terms are we talking about? What’s reasonable? What are the going terms for, lending on a deal?
Jay Conner [00:24:17]:
So the going terms are whatever you decide the going terms are. So I’ll share what my going terms are. And, Jonathan, I have been offering these same terms with no variance ever since February 2009. Same terms. And, you know, people and I’m I’m gonna share what those terms are here in a second. But in recent times, I mean, you know, our market is a little crazy. You know, interest rates have gone up out of the ceiling, in recent times, months, and a couple of years. And one common question, Jonathan, I get from other real estate investors is, Jay, how in the world are you paying the same interest rate to your lenders today when interest rates have gone up out of the ceiling that you were paying in 2009? And I say, well, here’s there are 2 answers to that question as to how and why I’m doing that.
Jay Conner [00:25:13]:
Number 1, as I’ve said, I make the rules as the borrower. It’s my program. So I’m paying the same thing. And number 2, they said, but, Jay, interest rates have gone up. Yeah. They’ve gone up. But guess what? I pay 8%. I started paying 8% in February 2009.
Jay Conner [00:25:32]:
I still pay 8% today with no origination fees, no points, no extension fees, etcetera. And they said, well, how are you doing that? The same since 2009 and interest rates have gone up out of the ceiling here in recent months years. I said, well, guess what? 8% is still a whole lot better than 4%, which you can get at First Citizens Bank right down here on Bridges Street in Morehead City, North Carolina for a 12-month certificate of deposit. But look, before COVID, a 12-month certificate of deposit, yielded 0.17% was the national average. 0.17% prior to COVID. That same bank today is offering 4%. But guess what? I’m paying 8%, which is double what they can get at the local bank. Of course, it was about 40 times that before COVID.
Jay Conner [00:26:27]:
So 8%. 8% simple interest, not compounded. Now that’s 8% APR, an annual percentage rate. That’s not if if I use the money for 6 months, I’m not paying 8% for borrowing the money in 6 months. I’m paying 4%, right, of that time I used the money. So, it’s an 8% annual percentage rate. The length of the note, the promissory note, is 2 years, 2 years. I typically don’t use the money for 2 years because most of the time I’m flipping a single-family house.
Jay Conner [00:27:03]:
But 2 years is what it is. No extension fees. Zero extension fees. That’s in contrast to, say, a hard money lender. I mean, for goodness sakes. Hard money I mean, my private lenders don’t even want the money back. I mean, when I cash out the first deal that I’ve borrowed money on them, and I’ll say, look, you know, real estate attorneys are going to be mailing you a payoff check. They say, can’t you just keep the money? And I say, no.
Jay Conner [00:27:27]:
I can’t keep the money because I’m not going to borrow unsecured funds. That’s another part of the program. We do not borrow, unsecured funds. We always collateralize every note. Here in North Carolina, it’s a deed of trust. Most people call it a mortgage. The maximum loan-to-value is 75% of the after-repaired value. I did not say 75% of the purchase price.
Jay Conner [00:27:56]:
That’s a big difference. So, 75% of the after repaired value. No extension fees, of course. And, that’s pretty much it in a nutshell. I offer people what’s called a 90-day call option in the promissory note, which means that if they’ve got some kind of emergency that comes up, they can give me notice, before the note comes due, and, they can get their money back in case of an emergency. That gives me plenty of time to replace their money with another private lender’s money. Most people would have to pay a penalty, for calling the note due early. I mean, if you pull money out of a CD early in the bank, you’ve got to pay a penalty.
Jay Conner [00:28:40]:
But in my program, there is no penalty. I want to keep it simple for our private lenders to do business with us. And I mean, quite frankly, I just want to keep it very, very simple. And at the end of the day, after all these years, I’ve only had 2 notes called due early. Both of them were small notes at $30,000 and they had medical emergencies. The fact of the matter is the private lenders don’t want their money back. Because if they get their money back, they’re not making any money or return unless they’ve got it invested. But that’s, in essence, essentially what the program looks like.
Jonathan Hayek [00:29:21]:
I connect with everything that you’re saying. It’s, largely been my experience that when I pay lenders back, they’re mad at me for paying them back because, you know, otherwise, the money’s likely just gonna be sitting in an account and, not doing anything, whereas the the money returns that I can pay them, they can’t get anywhere else easily. And so they are happy to keep their money, with, someone that they trust, someone that they knew they know are doing good deals. And so that’s that’s been my experience as well. You had talked about securitizing the money, and I know that that could be a concern for lenders and investors. How am I gonna be insured that I get my money back? So you talked about promissory notes. You talked about a deed of trust or mortgage. So can you, for people that are unfamiliar, can you just kinda go through why, that the the p n and, a deed of trust is so important to this process?
Jay Conner [00:30:25]:
Sure. So the reason that the promissory note is so important is because you don’t wanna work off of memory as to what your deal is, and what your agreement is. So a promissory note lays out the agreement. The promissory note is a very, very simple document. By the way, you always want your documents, your closing documents prepared by your real estate attorney. Even if you’re in a state where you use title companies to close real estate deals. Well, title companies are used to getting closing packages from the lender. Well, guess what? Your private lender doesn’t even know what a closing package is.
Jay Conner [00:31:06]:
So, of course, your real estate attorney is going to prepare the promissory note, the deed of trust, or the mortgage. So, the promissory note lays out your agreement. Who’s the borrower? That’s you, your entity. Who’s the lender? That’s your private lender. Or your private lender’s self-directed IRA account, because they can use retirement funds as well to do this. It’s gonna lay out what’s the loan amount. That’s the principal loan amount. It’s gonna have in the promissory note what’s the interest rate.
Jay Conner [00:31:34]:
It’s gonna have the frequency of payments. Are you paying monthly? Are you paying quarterly? Are you paying semiannually? Or are you just letting the interest accrue? I mean, think about fixing your cash flow. What if you just borrowed the money and didn’t have to make any payments? If you’re doing a flip on a single-family house and you just let the interest accrue and you cash them out and pay them off when you sell the property. 90 day call option. If you’re giving the, that option to where they can call the note due early, that would be in the promissory note. Obviously, the promissory note is gonna have the address as to where payments are sent and etcetera. The deed of trust or the mortgage is the document that collateralizes or secures that note. So what does the mortgage or deed of trust do? It gives your lender the legal right to foreclose on that note if you don’t pay them.
Jay Conner [00:32:30]:
You know, one popular question I get, Jonathan, is, new real estate investors will say, well, who in the world is gonna loan me money on real estate, and I’ve never done a deal? Well, here’s the answer to that question. If you, as the borrower, don’t pay them, the property does. So, when you don’t borrow more than 75 percent of the repaired value if they had to foreclose on you, and for goodness sake, I hope they wouldn’t have to foreclose on you. If your deal went sideways, just give them a deed in lieu. Right? And they’ve got the property. Of course, they don’t want the property. They don’t want to mess with the property. They want you.
Jay Conner [00:33:07]:
That’s why they got you. They want you to take care of it. But that is the lender’s legal recourse. If you don’t pay them, that gives them the legal right to foreclose on that note. Now, how else are your lenders protected? Well, we’re gonna name them, the lender, as the mortgagee on the insurance policy. You know, if you borrow money from the local bank for your primary residence, that bank is going to name, I mean, the insurance company, the bank is going to be required to be named as the mortgagee on the insurance policy. So what does that do? Well, that’s another layer of protection for your lender. If there’s ever a claim against that insurance policy, guess who the insurance company’s going to make the check payable to? You, the borrower, and your lender.
Jay Conner [00:33:57]:
This means, your lender’s got to sign off on that check, that insurance check, before you get the money. And we’re also going to name the lender on the title policy, as an additional insured. In case there are any title issues down the road, then the lender is protected there, as well. So, conservative loan to value, mortgagee on the insurance policy. They have a deed of trust from the mortgage to secure the note. And again, with all that protection, at the end of the day, they’re still putting their trust in you, the operator, to perform.
Jonathan Hayek [00:34:34]:
Yeah. Great great synopsis there. And you are a skilled teacher. I mean, the the way you explain things is just very clear and easy to understand. So definitely appreciate that. And, yeah, as we get to the tail end of our conversation here, I wanna ask you, is there anyone or any type of person that you know that private money lending is not right for? I know you teach this and so you have students or have you ever met anyone or a personality type, and you said, you know what? You should probably not be doing this right now.
Jay Conner [00:35:15]:
That’s a great question. And, you know, I’ve been a guest on over 700 podcasts, Jonathan, and I’ve never been asked that question. So kudos to you for coming up with a brand-new question. So the question is, have I ever visited with a private potential, a potential private lender that I ended up saying, you know, I don’t think this is for you.
Jonathan Hayek [00:35:38]:
No. I’m wondering you you can answer that. What I’m getting at is an investor, you or me, somebody who wants to flip a house. And, you know, they’re not a good fit for using private money. You can answer both, but I’m interested. And is there are there people out there who maybe should be going to the bank or using a hard money lender or finding other financial sources and not using private money?
Jay Conner [00:36:05]:
I misunderstood your question, but now I understand it. I haven’t been asked that question either. So there’s 2 one misunderstood question and one understood question. That is a great question. Let me think about that for a second. Should, yes. Yes. Yes.
Jay Conner [00:36:25]:
I can tell you exactly who should not be borrowing private money. You as an investor, you as a borrower, should not be borrowing private money until you know what in the flip you’re doing with your real estate deals, right? I mean, for goodness sake, don’t borrow somebody’s money even with the security on the real estate deals until, first of all, do you know what is the formula as to what the maximum you should pay for a property using somebody’s money? Well, you better know. I mean, because here’s the deal. Emotions should never be involved in the decision on how much to pay for a property. The math here’s a writer-downer. If you’re taking notes on this show, the math makes the decision, not your emotions. The math, the math, the calculation of, of, you know, what’s the what’s the value? I mean, how are you getting your values? So, to to shorten this answer, Jonathan, I do not recommend that any real estate investor borrow private money until first, you understand the basics, not the basics, until you understand what should you be paying for a property, how to manage that property, if a rehab is involved, you know, for goodness sakes, you know, the worst time to be, I mean, the worst time to be looking for private money is when you need it for a deal. Right? So I want to put those relationships together upfront, but at the same time, you know, if you’re looking at renovating properties like I do, the worst time to be looking for a general contractor is when you need it for a property that you already bought that’s sitting out there waiting for the So, so get educated.
Jay Conner [00:38:24]:
Work with somebody that’s already doing the business, that’s got experience. Don’t. Hey, listen. Don’t do what I did. Do not make the mistake I made. I started investing in real estate before I even had a coach or a mentor and I was just trying to read books and do this business. And I made some very costly, very painful mistakes by not getting educated and working with somebody who knows what they’re doing. So that’s a very long answer to a very short question.
Jay Conner [00:38:58]:
But your question is, who should not be borrowing private money? You should not be borrowing private money until you’re ready to borrow private money because you’ve been educated on how to do the segment of real estate that you’re interested in.
Jonathan Hayek [00:39:14]:
Jay, let’s take your question now. Have you ever had any conversations with potential lenders? And, maybe it’s someone you don’t know. Maybe it is a friend or family member, and they say, yeah. Yeah. I’m, I’m interested in lending on this deal. I love 8%. And then you get into more conversation, and then maybe something goes off in your head that tells you, this person should probably not be lending this money. Has that ever happened?
Jay Conner [00:39:41]:
One time. One time. And, so here’s the summary of that conversation. So I had been referred, or this person rather had been referred to me by one of my existing private lenders, and that’s what’s gonna happen. You’ll start using private money for your real estate deals, and private lenders refer other people. Right? I mean, private lenders can’t keep their mouths shut. Say, My lands, my lands. Jay Conners paying me 8%, and, you know, their friend’s getting 4% down at the bank.
Jay Conner [00:40:09]:
And so now they want to find out about this. So, I was visiting with this person, about being a potential private lender. And very quickly, I started picking up on the notion that this person wanted to get involved in the deals themselves. They want to go look at the properties. They want to see what the budget sheet is from the general contractor and they want to be involved in what I do. And so I told them pretty quick at the beginning of the conversation, I said, you know, it sounds to me like you don’t want to be a private lender. It sounds to me like you want to be a real estate investor, which I am. So if you want to find the deals and you want to negotiate the deals and you want to negotiate with the general contractors what the, what the, you know, what their bid is going to be in the scope of work, then don’t be a private lender.
Jay Conner [00:41:07]:
A private lender is passive where all they do is loan money and their money is secured and all they do is sit back and make high rates of returns safely and securely. If you want to go over here and get involved in the deals, then be a real estate investor. Don’t be a private lender. They became a private lender. So, I mean, the person that wants to get, you know, you know, where are you getting your deals and, you know, negotiate the deals. Well, go be a real estate investor. You don’t want to be a private lender. Go get in the business and, you know, do what I do.
Jay Conner [00:41:40]:
And so part of my conversation with that potential private lender was, you know, what I’ve learned over the years is too many cooks in the kitchen burn the toast. I do what I do best, which is oversee deals, find deals, negotiate deals, and put the deals together. And what my private lenders do best is loan money, make high rates of return safely and securely, and sit back and be passive and let me do my job. That’s how everybody stays happy.
Jonathan Hayek [00:42:11]:
Jay, this has been a great, really all-encompassing conversation about using private money to fund our real estate deals, and you’ve gone through great detail and given some great examples. As we wrap up the conversation, I wanna allow you to share anything that we haven’t touched on that you feel like listeners should know. I know, you have some students and you teach this, and so I wanna give you the opportunity to share with listeners if they wanna learn more about you and learn more about how to get involved in private money lending. Where should they go?
Jay Conner [00:42:46]:
Thank you so much, Jonathan. Well, you know, quite frankly, we’ve just really touched the hem of the garment, to tell you the truth, in this world of private money. And, Jonathan, what I want to share and offer with your audience is I’m so excited about my brand new 7-Day Private Money Challenge that I just finished recording and launched. And what this is is it’s 7 days of video training that’s only 15 to 20 minutes long on each one. They’re not long. Very, very easy to follow. And so if you’re listening to this show and you want to learn how to get a lot of private money for your real estate deals very, very quickly, then all you have to do is go over to www.JayConner.com. I’m an ER, not an OR.
Jay Conner [00:43:34]:
So, www.PrivateMoneyChallenge.com. And that’s the numeral 7. And that will give you access to my 7-Day Private Money Challenge that will show you how to get a ton of private money very, very quickly. Again, that’s Jay Connor.com/7 days. And I promise you, not only are you going to get a lot of private money, but we’re gonna have a lot of fun doing it together.
Jonathan Hayek [00:44:05]:
And, listeners, that link is in the show notes right now. Jay, thank you so much for joining me. I enjoyed this conversation talking about the power that private money can bring to a real estate portfolio. Thank you so much for joining me today.
Jay Conner [00:44:20]:
Jonathan, thank you so much for having me. God bless you.
Jonathan Hayek [00:44:24]:
Listeners, if you enjoyed this conversation, feel free to reach out to either one of us. We love talking about real estate, and we would love to connect with you. We have another great interview coming next week, so be sure to come back here. Until next time.
Narrator [00:44:42]:
Are you feeling inspired by the knowledge you gained in this episode? Then head over to www.JayConner.com/MoneyGuide. That’s www.JayConner.com/MoneyGuide, and download your free guide that shares seven reasons why private money will skyrocket your real estate investing business right now. Again, that’s jconnor.com/moneyguide to get your free guide. We’ll see you next time on raising private money with Jay Conner.
