***Guest Appearance
Credits to:
https://www.youtube.com/@KeshavKolur-CliveCapital
“EP. 32 – Fire Your Banker Alternatives to Bank Funds and Hard Money with Jay Conner”
https://www.youtube.com/watch?v=b_VOlONeAtw
If you’re a real estate investor—whether just starting out or already seasoned—chances are you’ve wrestled with raising capital. Traditional bank loans and hard money lenders might seem like your primary options, but as Jay Conner shares in his recent conversation with Keshav Kolur and John Lai, there’s a powerful alternative many overlook: private money.
In this candid and insightful episode, Jay draws from over 23 years of real estate investing experience, breaking down exactly how he’s leveraged private money to transform his business.
What Is Private Money—and Why Does It Matter?
First things first, Jay clarifies: private money means raising funds directly from individuals (private lenders), not banks or hard money lenders. These lenders are real people—perhaps folks from your network—who are willing and able to loan money from their capital or retirement funds in exchange for an attractive, secured return.
Jay started his journey relying on local banks, only to have his “funding rug pulled out” during the 2009 financial crisis. That abrupt shift forced him to get creative. That’s when he discovered that teaching people about private money—and offering them a safe, secure way to invest—could open doors not just for him, but for the lenders as well.
He emphasizes, “I’ve never missed out on a deal for not having the money,” and has built relationships with 47 private lenders, raising millions without ever begging, selling, or convincing anyone. The key? Education.
Three Keys to Finding Private Lenders
According to Jay, there are three categories where you can source private lenders:
- Your Warm Market: These are people you already know—friends, family, colleagues, folks at your church or local Rotary club, even your golf buddies.
- Your Expanded Network: Go where money-minded people congregate. Jay highlights organizations like Business Networking International (BNI) for the rapid expansion of your connections and credibility.
- Existing Private Lenders: These are individuals already lending money to real estate investors. While you can comb public records or lean on software solutions for contact info, networking events (especially at self-directed IRA custodians) are goldmines.
How the Process Works
Instead of racing to find funds when a deal appears, Jay builds relationships ahead of time. Private lenders don’t hand him checks directly—instead, their funds are wired to a closing attorney or title company, and each transaction is secured by a mortgage or deed of trust, protecting the lender.
Transparency and structure are crucial. Every deal is “one off,” and the lender’s investment is tied to a specific property. The typical return? Jay pays 8% interest, with no points or equity sharing, making it extremely appealing compared to traditional savings vehicles, even in times of rising rates.
Best Practices and Pitfalls
Jay’s philosophy is clear: “The money comes first.” Don’t fall for the myth that “if you find the deal, the money will show up.” Instead, secure your capital ahead of time so you can act confidently when opportunities arise.
He urges investors to build credibility and relationships. A “credibility kit” isn’t a substitute for integrity and real results. Your network—as Jay puts it—is directly linked to your net worth.
For private lenders, due diligence is important, but Jay’s approach is to work with people he knows, trusts, and has educated on the process. He also points out that most of his lenders had never considered private money investing—or using self-directed IRAs for it—until he showed them how.
Lessons Learned
Jay is candid about his past mistakes: investing in a property without positive cash flow from rental income if he couldn’t sell, for example. His advice? Always make sure a deal is sound, as both a flip and a potential rental.
Final Thoughts
Jay’s journey is a blueprint for anyone looking to unlock the power of private money in real estate. His story shows that by focusing on relationships, education, and win-win structures, you not only build your business but also empower everyday people to grow their wealth safely. If you want to learn more, check out Jay’s “Private Money Challenge” or his “Raising Private Money” podcast for in-depth training and inspiration.
If you’d like to go deeper, visit www.PrivateMoneyChallenge.com or www.JayConner.com for Jay’s resources and connect with a thriving community of real estate investors leveraging private money for generational wealth.
10 Discussion Questions from this Episode:
- Jay Conner describes private money as his most influential strategy for real estate investing over 23 years. What unique advantages does he see in private money compared to traditional bank loans or hard money lending?
- Jay mentions that he has never asked anyone for money—he acts as an educator instead. How might the approach of teaching versus directly soliciting funds impact building trust and long-term relationships with potential lenders?
- The episode explores the three main sources of private lenders: your existing network, expanding your network, and identifying existing private lenders. Which of these avenues do you think would be most effective for a new investor, and why?
- Jay explains his process of securing funds directly through private lenders by backing every note with real estate. How does this security structure contribute to the appeal of lending for individuals outside of institutional finance?
- With interest rates on traditional investments fluctuating, Jay continues to pay private lenders 8%. Why do you think his lenders are satisfied with this fixed rate, and what does this say about their investment goals and risk tolerance?
- Jay mentions the importance of nurturing one’s network, stating that there’s a direct correlation between your network and your net worth. What practical steps can investors take to authentically grow and maintain this kind of network?
- The episode distinguishes between hard money and private money. What are the key differences discussed, and in what scenarios might an investor realistically consider one over the other?
- Jay shares some best practices and “gotchas” for both private lenders and real estate operators. What are the main risks he highlights, and how can both parties protect themselves when structuring deals?
- He points out that most of his private lenders had never heard of private money or self-directed IRAs before. What strategies did Jay use to educate and onboard these individuals, and how important is financial literacy in this field?
- Reflecting on his biggest failure, Jay emphasizes the necessity of planning exit strategies, including potential rental income. Why is it important for investors to ensure properties can cash flow as rentals, even when planning to flip, and how might this lesson apply to other investment choices?
Fun facts that were revealed in the episode:
- Jay Conner Has Never Missed Out on a Deal Due to a Lack of Money
After being cut off from traditional bank funding during the 2009 financial crisis, Jay switched to private money and hasn’t looked back. He now has 47 private lenders backing his deals and has raised millions, without ever asking, chasing, or begging for money!
- Private Money Lenders Can Be Anyone—Even Minors!
Jay has worked with a wide variety of private lenders, from retired teachers and entrepreneurs to even minors under 18 years old (with inherited money). His go-to tip for finding new lenders: check your cell phone contacts for anyone retired—they may have untapped funds perfect for investing.
- Jay Pays All His Private Lenders the Same Rate—So He Doesn’t Have to Keep Track!
All of Jay’s private lenders receive the same 8% interest rate. Why? Not only does it keep things simple, but as Jay jokingly puts it, “I don’t have to remember who I paid what—private lenders talk!”
Timestamps:
00:01 Pros of Investing in Small Markets
03:28 Birth of Private Money Funding
08:31 Leveraging Local Networks for Business
12:04 Single-Family vs. Commercial Property Investments
16:01 Private Lender Protection Measures
18:27 Prioritize Financial Prep Before Deals
20:27 Guide to Starting as a Private Lender
24:51 Maximizing Profits in Real Estate
29:59 Tax Implications of Investment Capital
33:04 Private Lender Note Exchange
37:08 Diverse Private Lender Profiles
39:20 Join the Private Money Challenge:
https://www.PrivateMoneyChallenge.com
42:47 Creative Real Estate Financing Strategies
45:35 Explore Alternatives to Banking
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
YouTube Channel
https://www.youtube.com/c/RealEstateInvestingWithJayConner
Apple Podcast:
Facebook:
https://www.facebook.com/jay.conner.marketing
Twitter:
https://twitter.com/JayConner01
Pinterest:
https://www.pinterest.com/JConner_PrivateMoneyAuthority
Successful Real Estate Investments Without The Banks: Proven Lessons in Private Lending
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 to raise 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.
Keshav Kolur [00:00:39]:
Welcome, everyone, to Investing for Generational Wealth. Let us dive into the world of expert financial insights and strategies. Before we begin, a quick disclaimer. We are not financial advisors. All investments are subject to risks, including the possible loss of the money you invest. So, perform your due diligence before making any financial decisions. My partners here in crime and I just like to dress up and talk on a podcast. So, of course, consult your CPA and your attorney, and other professionals in your life, not us, before beginning investments.
Keshav Kolur [00:01:15]:
I’m your host, Keshav Kalore, and I’m joined by my co-host, John Lai. And welcome to today’s episode, fire your banker, Alternatives to Bank funds, and hard money. And here with us today to speak on that topic is Jay Conner. Jay, thank you for being here with us today.
Jay Conner [00:01:35]:
Absolutely. I’m excited to be here. And thank you so much for inviting me to come along to talk about my most passionate topic, that being private money. Because, after all, private money has had more of an impact on our real estate investing business than any other strategy over the past 23 years that we have employed.
Keshav Kolur [00:01:56]:
We can’t wait to get into it. So before we dive in, if you could just give us a quick background about your journey, how you got started, you know, what it’s looked like along the way, a nd where you are now.
Jay Conner [00:02:07]:
Sure. Well, my wife and I started investing in single-family houses here in eastern North Carolina all the way back in 2003. That’s when we went full-time. We’re in a very, very small market. Our total target market only has 40,000 people in it. But we do two to three deals a month in this small market. Our average profits now are $82,000 per deal, per profit per deal. And I don’t share that to brag whatsoever.
Jay Conner [00:02:38]:
The reason I share that is to make a point. And that is, you don’t have to be in a huge market to make significant income. Case in point, our total market here is only 40,000 people. And there’s a, there’s an argument to be made that there’s a big advantage to be in a smaller market because I would much rather be A big fish in a small bowl or a small pond than being, you know, a small fish in a big bowl. So you can dominate your market. So I advise people to invest in the, instead of investing right there in the big cities, you know, go out there in the outer suburbs. Well, so we started in 2003, rehabbed over 500 houses here in our local area since that time. But the first six years that we were investing in single-family houses, we relied on the local banks to fund our deals.
Jay Conner [00:03:28]:
That’s all I knew to do. But then, in January of 2009, things changed rather abruptly because there was a global financial crisis, and the funding was like cut off overnight. So I lost my line of credit at the bank, and I knew I had to find a better and quicker way to fund my deals. Hence, that was the birth of private money in my world. And since that time, I’ve never missed out on a deal for not having the money. We’ve got 47 private lenders that are investing in our deals now. I was able to raise $2,150,000 in those first 90 days of being cut off from the banks. But here’s the point of that story.
Jay Conner [00:04:10]:
I’ve never asked anybody for money. You know, when I was borrowing money from the banks to fund my deals, I had to do applications. I had to get on my hands and knees and beg and persuade and say, please fund my deal. But in this world, there’s no begging, chasing, selling, or persuading. There’s no selling whatsoever. You’re already approved in this world of private money. So, how do I have all this private money, eight and a half million dollars in private money, available for our deals? Without ever asking, here’s the secret.
Jay Conner [00:04:43]:
What did I do? I put on my teacher hat, my private money teacher hat, and I started teaching people that I had some kind of connection with what private money is. How can they get high rates of return safely and securely? How can they use retirement funds to invest and be a passive real estate investor and earn money either tax-deferred or tax-free? So I just started sharing with people in my network how they can become involved. And so it was all through teaching and educating that the money started chasing me instead of me chasing the money.
Keshav Kolur [00:05:27]:
Okay, thank you for that introduction. So, just getting into it, you know, right off the bat, you mentioned private money as an alternative to your typical bank financing. When you say private money, do you mean private investors? Do you mean smaller banks? What do you mean exactly? Like, who are these people? Who are these entities? How do you find them?
Jay Conner [00:05:52]:
Yeah. These private lenders are individuals. They’re human beings, just like you and just like me, who use their investment capital and or their retirement funds to loan money to us, the real estate investor as the borrower. So there’s no middle person involved, there’s no brokerage involved. It’s a simple one transaction directly between you and the private lender. Now you ask, where do you find these people? Well, there are three primary categories as to where you find private lenders. First is what I call your warm market, people that you already have connections with. The second category is what I call your expanded warm market.
Jay Conner [00:06:36]:
Where can you go in your local area to expand your network very, very quickly? I say the more money you wallow in, the more money sticks to you. So, go where the money is, and I can tell you exactly where to go. And the third category of private lenders is existing private lenders. These are people who are already individuals who are already loaning money out to real estate investors. Well, where do you find those people? Well, when I started back in 2009, looking to raise private money, I hired my real estate attorney’s paralegal to search public records in our local county, looking for individuals’ names that were loaning money out secured by real estate. There was a deed of trust securing those notes. Well, in 90 days, we only found two people. I said, well, there’s got to be a better and quicker way to find where these private lenders are.
Jay Conner [00:07:29]:
And so we started developing the private lender data feed, which the members in my world have access to. We update the data feed, the software, and every month, we get every private lender’s contact information that is loaning money out to other real estate investors. In addition to that, you can find existing private lenders at self-directed IRA networking events. So interestingly enough, over 70% of account holders that have an account at a self-directed IRA company that’s also known as a third-party custodian, want to loan money out to real estate investors. They want to be passive. And so, you know, I’ve got a particular self-directed IRA company that I recommend to everybody that my private lenders use. I don’t know if you guys have got one that you endorse or not, but that’s where you can find a lot of private money very, very quickly as well. So again, three through your connections.
Jay Conner [00:08:31]:
I mean, people you go to church with, people in your cell phone, people you go to the Rotary Club with, who do you play golf with, where do you go consistently that you see the same groups of people every week. Those are the people with whom you have the closest connections. You have a close bond of trust. And people who trust you are going to be more likely to do business with you very, very quickly. So, your connections, where can you go to grow your connections? I can tell you where I’ve gotten a lot of private money, and that is, I joined BNI, which stands for Business Networking International. Business Networking International was founded by Ivan Meisner decades ago. And what’s beautiful about Business Networking International, you join that organization, your local group, and now all the other members in the group are promoting you and endorsing you. So you go join as a real estate investor, and you tell people that you are paying high rates of return safely and securely to your private lenders.
Jay Conner [00:09:37]:
So you educate your fellow B and I members, and now they refer people to you who are not happy with their investments, who are looking for a more stable and higher rate of return. Those are the three main categories where you find private lenders.
John Lai [00:09:56]:
Are your investors typically investing in a particular opportunity that you present, or have you already cultivated that relationship that they’ll just lend you the money and then essentially await the opportunity once it’s found?
Jay Conner [00:10:12]:
That’s a great question, John. So the private lender does not loan me the money directly, and in fact, no money comes directly to my company. So what are they doing until after closing? So all of the notes are backed by the real estate that we are buying. So, for example, every real estate, every property that we buy, when a private lender funds that deal, or, you can actually have a couple of private lenders, more than one or two, funding the same deal, they each get their promissory note and their own deed of trust. In most states, it’s called a mortgage. So we’re not borrowing unsecured funds, we’re borrowing secured funds. So the notes are backed by the real estate we’re borrowing.
Jay Conner [00:11:01]:
The private lender wires their funds directly to my real estate attorney’s trust account. In some states, it’s a title company that handles the closing, but the funds are wired directly to the closing agent, title company, or real estate attorney. We close on the real estate, and then when there are excess funds to close, that excess cash to close, then that excess cash then comes to me and I’ll use that for rehabbing the property or whatever. But that’s a great question. The funds will go directly to the closing agent and do not come directly to me.
John Lai [00:11:43]:
Have you ever looked at the funds of fund model where investors invest in a fund, maybe not necessarily you again, but a fund that accrues if there are, you know, you do find these opportunities in the future, and then the funds are invested.
Jay Conner [00:12:04]:
Yes, typically when people invest in a fund, that’s going to be for a commercial property. Everything that we do with single-family houses is what’s called one-offs, one-offs. So you have a property funded by a private lender or one or two private lenders, and so they’re investing directly in that property. In contrast to that, if you’re doing an apartment complex or commercial property, self-storage, et cetera, then typically you would create a fund, and you would have an SEC attorney draw that private placement memorandum. And so then your private lenders and investors would invest in the fund. And depending on how the fund is created, they will perhaps get a return during the transaction and the purchase, and the remodeling, etc. And then they may get a percentage of the equity and profit on the back end of the deal. With these one-offs for single-family houses, the private lender is getting an interest rate, and that’s it.
Jay Conner [00:13:14]:
They know exactly what their interest rate is going to be. I pay 8% right now, no points. They get 8% and there’s no joint venturing, there’s no participation in the equity or on the back end. It’s a very, very simple one-off transaction.
John Lai [00:13:34]:
Thank you.
Keshav Kolur [00:13:37]:
How do you, I guess, how did you fare? How did the private lending business fare, or private credit in general, when interest rates have been super low these past? Not now obviously, but you know, before that. Right. Because why would someone invest in a note? You know what, maybe the rates were like, I don’t know, 6% or 5%, but the stock market was on a tear, you know, real estate equity was on a tear, etc.
Jay Conner [00:14:07]:
Sure. Great question. Well, here’s the. So one question I get similar to that is. Well, Jay, before Covid, the 12-month certificate of deposit at the local bank got down to an average of 0.17% annual yield in a 12-month CD. Today, you can get a 12-month CD at 4 and a half percent. And they’ll say, Jay, why aren’t you paying your private lenders more money today than you were back, you know, four years ago? And why are they happy with that? Well, it’s really simple. Number one, I make the rules, not the lender.
Jay Conner [00:14:45]:
You see, when I was borrowing money from the banks, who made the rules? The bank made the rules, right, the hard money lender, by the way, we’re not talking hard money here. This is not hard money. Hard money is typically loaned to you from a brokerage or a hard money lender that’s going out and raising private money for their fund, and then they loan that out. That’s not this world. We’re doing a direct transaction between us, the borrower, and the individual private lender. So, how is it, I mean, I’ve been paying 8% ever since 2009. 8%, same deal, same program. I don’t care what the market’s doing.
Jay Conner [00:15:24]:
And I say, Jay, how can you pay the same thing when the markets are fluctuating? Well, here are the two answers. As I said, number one, it’s my program, I make the rules. Number two, 8% is still a whole lot more money than 4% or 4 1/2%. And it’s backed by real estate, and it’s a conservative loan-to-value. We don’t borrow more than 75% of the after-repaired value of a property. So all the private lenders are happy. They’re making a lot more money than they can still make in a traditional investment at the local bank. And they’re protected.
Jay Conner [00:16:01]:
We’re not borrowing unsecured funds. We also named the private lender on the insurance policy as the mortgagee. That way, if there’s any claim against that insurance policy on that property, then guess what insurance company makes the check payable not only to my company that holds the investment, but that check is also made payable to the private lender. They’re named as a mortgagee. That gives them a layer of protection. They have to sign off on the check before I can get it. We also name them on the title policy as an additional insured in case there are any title issues down the road. And so, I pay all the private lenders the same.
Jay Conner [00:16:43]:
You know why? Because private lenders talk. And if I pay them all the same, I don’t have to remember who I paid, what. It’s all the same program.
John Lai [00:16:58]:
So, just a reminder, if you have a question, submit your questions in the QA Q and A box. I don’t believe our chat box works right now, but the Q and A box. Please send me your questions there.
Keshav Kolur [00:17:13]:
Chat box does work, I think. I don’t know. I guess we’ll see.
John Lai [00:17:16]:
Chat box does work.
Keshav Kolur [00:17:17]:
Yeah, yeah, the chat box or the Q and A. And we’ll answer them as they come in.
John Lai [00:17:25]:
Do you have any gotchas, oh, sorry, I was going to ask, do you have any gotchas, Jay, that, you know, best practices or things to watch out for?
Jay Conner [00:17:35]:
Well, best practices, as far as I’m running the real estate investing company, or best practices for the private lender?
John Lai [00:17:44]:
For the, for the. Well, for both. If you are a private lender, you know, investor, what to watch out for, and then as an investment company as well.
Jay Conner [00:17:54]:
Sure. So let’s start with the private lender. So really, the private lender is not investing in that property. The private lender is not investing in that deal. The private lender is investing in you. The private lender is putting their trust, even though they’re being protected, even though they’ve got the mortgage, they’ve got the, you know, all these layers of protection. They’re investing in you, the operator, so that you know what you’re doing. And so since they’re investing in you, you better know what you’re doing.
Jay Conner [00:18:27]:
Right? I mean, you need to know what the maximum that you should be offering on a property is? And you should have the formula for that because it’s the math that makes the decision, not your head and not your heart, and not your emotions. So the math makes the decision. Do, do you know how to estimate repairs? If repairs are needed on a property, do you have a good relationship with a general contractor? Do you have a good relationship with a real estate attorney? Do you have a good relationship with a realtor? If you’re not a realtor yourself, you want to make sure the team is in place. I mean, you know, the worst time to be working, the worst time to be looking for a private lender is when you need one for a deal. That’s why I practice and preach, the money comes first. I tell you what, guys, I know you all have heard it, and it drives me stupid, crazy, these people going around saying, oh, just get the deal under contract, just get the deal under contract, the money will show up. Have you ever heard that? Yeah, of course you’ve heard it. You’ve heard it a thousand times.
Jay Conner [00:19:33]:
Just get the deal under contract, and the money will show up. And I want to say, baloney, where’s the money going to come from? Is it like going to rain out of the cloud or something? I mean, I just don’t want to put a deal under contract, and I don’t know where the money’s coming from. But think about how much more confident, how many more offers you’re going to make on properties when you’ve got the money burning a hole in your back pocket, waiting for you to put an offer on it. Anyway, excuse my rant, but back to your question. Best practices. So, from the standpoint of the real estate investor, when word gets out that you’re paying high rates of return safely and securely, like me, you’re going to have money chasing you very quickly. That’s one reason I never have to ask for money. I mean, you start doing a couple of deals, and the word’s gonna get around.
Jay Conner [00:20:27]:
And so you’ll have people asking you questions such as, well, how do I get started as a private lender? I mean, what do I do, just write you a check? And of course, the answer is no, they don’t write you a check. You gotta protect your private lenders. Because here’s the deal. All 47 of our private lenders that are investing in our deals right now, not one of them, not one, had ever heard of private money and what it was until I put on my teacher hat and I started teaching them what private money is. Not one of our 47 private lenders had ever heard of self directed IRAs and how they can use their retirement funds and move them over to an IRS approved self directed IRA company and loan that money out from their retirement funds and earn tax deferred or depending on the type of retirement account they’ve got, or tax free, unlimited money per year. Imagine tax-free. That works if you’ve got a Roth IRA. So I simply taught people in my network how they can do this.
Jay Conner [00:21:40]:
So with that in mind, you as the real estate entrepreneur, you gotta look after your private lenders, those that you’ve taught, and open this up to. I mean, I raised $969,000 at one private lender luncheon. One project invited people to come to the luncheon, and I fed them lunch, and I taught them my private lending program, how they can get involved and earn high rates of return safely and securely. But since they’ve never done it, you’ve got to protect them. With these different things in place that I’m talking about.
Keshav Kolur [00:22:19]:
What else would you recommend they look out for in addition to making sure they’re investing with the right person? Are there, is there underwriting they should ask for, like pro formas, anything like market reports, anything like that?
Jay Conner [00:22:35]:
No, I don’t even have a credibility kit. I am my credibility, right? People talk about these credibility kits. If you need a credibility kit, you need to go work on your credibility, for goodness’ sake. So the thing of it is, I’m not looking to do business with people I don’t know, right? I’m not looking, I’m looking to do business with people that I know and that I’ve grown my connections and my own network with. I mean, you guys have heard it a thousand times. Is the direct correlation between your network and your net worth, right? So, what are you doing to nurture your network and to grow your network? If you’re not connected, if you’re not well connected or net, you know, if you’re not networking and you’ve got those business connections, then it’s going to be very difficult for you to raise private money.
Jay Conner [00:23:27]:
Now it wouldn’t be difficult for you to get hard money. I mean, hard money is from a broker, but you’re not going to pay 8% to a hard money lender. Maybe you can’t even get approved in today’s market with a hard money lender. You’ve got to have a 700 credit score or better. You got to have a long track record of experience and you’re still going to be paying, depending on your experience, depending on the relationship, you’re still going to be paying 12% to 14% and you’re going to be paying points on top of that and you’re going to be paying junk fees on top of that. And you’re only going to borrow typically 65 to 80% of the purchase price, and you’re going to have to bring a large down payment, a large down payment, so you can get the money if you’ve got the credit score and you’ve got the experience without a large network. But your life is going to be a lot happier with you making the rules and doing business with your network.
Keshav Kolur [00:24:33]:
The.
John Lai [00:24:35]:
Go ahead.
Keshav Kolur [00:24:36]:
So you mentioned that your private lenders usually come up to 75% of the capital stack. So, where does the remaining 25% come from? Is that directly from you? Do you have equity investors also?
Jay Conner [00:24:51]:
I didn’t say 75% of the purchase price, 75% of the after-repaired value. So, for example, that’s why I always bring home a big check. So I get 100% of the purchase, and I get 100% of the rehab. So let me give you just a really simple example, and I’m going to use small numbers that would not apply. North Carolina. So let’s say I’m buying a house, a property with an after-repaired value of $200,000. And let’s say it needs a rehab of $30,000, right? Not a major rehab, $30,000 rehab to turn it into a beautiful home. Well, on those types of properties, I buy them all day long at 50% of the after-repaired value.
Jay Conner [00:25:39]:
So I’ll buy that house for $100,000 in its current condition. And so I buy for 100. Well, I can borrow up to 75% of the after-repaired value. Well, the after-repaired value is 200,000. So I can borrow up to $150,000 because that’s 75% of 200,000. Well, if I’m buying it for $100,000 and the private lender is going to wire $150,000 to the closing agent, that’s $50,000 in excess cash to close. Cause the closing agent is going to take 100,000 of that 150 and pay the seller. Because I’m buying it for 100.
Jay Conner [00:26:27]:
Well, 150,000 was wired into the trust account. Well, that’s an overage of $50,000, of course, less a little bit of money for closing costs. So after closing, I’m going to get a check for close to $50,000 because that’s excess cash to close. By the way, that’s the exact phrase on my real estate attorney’s check stub. I love me some excess cash. Right? So I got a $50,000 excess cash to close. Well, I’m going to take 30,000 of that $50,000 check to do the rehab. Well, it always costs more than you think it will.
Jay Conner [00:27:01]:
So maybe I’m going to use 35,000 of that 50,000. Well, that other 15,000 I can use any way I want to. That’s what you call just pulling equity, you know, out of a property. And then when I go to cash out, I sell it for $200,000 through my realtor. I still owe my private lender 150,000 because I’m paying or accruing interest only. So I’ll sell it for 200, pay realtor fees, and pay off the private lender the principal loan amount of 150,000, plus, of course, any unpaid accrued interest. That’s how I bring home a big check when I buy. So here’s.
Jay Conner [00:27:45]:
Here’s a check and balance. Excuse me? Here’s a check and balance. When you’re paying all cash with private money to buy a single-family house, if you can’t bring home a check when you buy, you should not do the deal. There’s your check. By using the formula that I’m sharing, borrow up to 75% of the after-repaired value, and you buy it. You should be able to bring home a check when you purchase. And if you can’t, you paid too Much for it.
John Lai [00:28:28]:
I was going to ask earlier, do you find that because you’re paying 8%, most of the private money lenders basically are allocating their portfolio as if instead of investing in bonds or really risk-averse instruments, they’re investing in you?
Jay Conner [00:28:54]:
Yes, yes. And I’ve got private lenders. Some private lenders only have $50,000 with us. Some private lenders have a million with us. And of course, the private lenders that have a million dollars with us, that million dollars is spread over different properties. We might use 250,000 on this property, 300,000 on another property, and 150,000 on another property. And each of those loans has its notes and its deed of trust, securing each note by the property that we purchased.
John Lai [00:29:32]:
Got it. Okay. My other question with regards to sources of investments is kind of the tax component of it. Self-directed IRA certainly has potentially a tax component, a tax savings component, and Other. What are some other tax strategies that investors, private money investors, can take advantage of?
Jay Conner [00:29:59]:
Yeah, you bring up a good point, John. That’s the only one that I’m aware of. So a self-directed IRA, if they’re using those retirement funds, depending on the type of retirement account they have in the self-directed Iraq, uh, it’s either going to be tax deferred or it’s going to be tax free, depending on the type of retirement account they have. If the private lender is using investment capital and where it’s just liquid funds that they would be investing in the stock market or mutual funds or Treasuries or whatever, then they are going to pay taxes on that income, just like they pay taxes on dividends that they earn off of stocks or whatever, so whatever tax. So it’s ordinary income. So if they’re just using liquid investment capital instead of having it in the stock market, then at the end of the year, they’re going to receive a 1099 dash INT, which stands for dividend interest, 1099 Dividend-Interest. And so, whatever their ordinary income tax bracket is, they would pay taxes on the interest that they earned.
John Lai [00:31:08]:
Got it. Okay, perfect.
Keshav Kolur [00:31:13]:
From the investment company’s perspective, when you’re raising funds from private lenders in addition to the terms of the loan, and working with people that you, you know, know like and trust and making sure the math checks out, like you said, the ARV value and all that stuff, what else would you recommend, if anything, to keep an eye out for.
Jay Conner [00:31:39]:
So one thing that I like to do is when they’re using investment capital to invest in our deals, I give the Private lenders, in the promissory note in writing, I give them what’s called a 90-day call option. 90-day call option. So for any reason whatsoever, if they have an emergency come up or they’re just, they just want their money, they want to go on a vacation, and they want some money. So all they have to do is just give us notice that they want to call the note due early. Now, the notes we put in place are typically two years old. I typically don’t use the money for two years, but we set the term up for two years if they want the money back early. Of course, when I cash out on the property, they get cashed out. When I sell the.
Jay Conner [00:32:26]:
I can’t keep the money. I can’t keep the money. I’m going to keep that money secured by a property. Well, if I’ve sold the property, it’s not my property, so I can’t secure the note anymore with that property. Excuse me. So when I sell their cash out. But if they need the back before the note coming due or me cashing out in the promissory note, there is a 90-day call option. So all they’ve got to do is give me a 90-day notice that they want to, they want to cash out, get their, get their money back, their principal loan amount back, along with any unpaid accrued interest.
Jay Conner [00:33:04]:
That gives me plenty of time to replace their private money with another private lender. All I’ve got to do, I don’t even have to go to another closing. I can take their note, and I can sell their note to another private lender, and we don’t even have to refinance the property. So that’s, and my private lenders enjoy that. Now, I typically don’t give that if they’re using retirement funds because the likelihood of them calling a note due early and it’s retirement funds is very, very slim because they’re gonna have to pay a penalty if they call that note due early and cash it out. So they like that. Another thing that we put in the promissory note is that we give what’s called a minimum of six months of interest. So, in the unlikely event that we buy a property using the private lender’s money and cash out and flip it in less than six months, that hardly ever happens.
Jay Conner [00:34:00]:
But in case it did happen in the note, I’m going to pay them at least six months of interest on that note. Or unless I’ve got another property I’m buying immediately, or got another property that I’ve got equity in that I’m rehabbing. We do a lot of substitutions of collateral, also known as a loan modification. So, the way the substitution of collateral works is for smaller amounts of money. Let’s say they’ve got $50,000 on a note in second position, and they will use that money for the rehab. Well, in that case, if I cash out and sell, and they want to keep their note in play and keep earning money on their money, then I can substitute the collateral. My real estate attorney handles this for me. We keep the note open and then just move the collateral.
Jay Conner [00:34:53]:
That is collateralizing that note.
Keshav Kolur [00:35:01]:
Is it pretty easy for your investors to reinvest, or do you have some sort of minimum? Like, hey, you have to reinvest, you know, at least $50,000 or, you know, if they make a couple thousand dollars, can that go in?
Jay Conner [00:35:16]:
Yeah. So when we’re doing a new note and writing a new note, my minimum is $50,000. And here’s why. I got to pay my real estate attorney the same 450 bucks whether I’m doing a $5,000 note or I’m doing a $500,000 note. So it just doesn’t make sense to take smaller 5,000, $10,000, because that. That’s not unsecured money that’s being secured by the property. Therefore, the real estate attorney has to draw up the documentation, and everything is recorded on public record, so everybody’s protected.
Keshav Kolur [00:35:55]:
And you mentioned that each of these blips usually, on average, nets you around $80,000 and in the market you’re in, and that you do two to three a year, I believe.
Jay Conner [00:36:07]:
Two to three a month.
Keshav Kolur [00:36:08]:
Two, three a month. Okay. All of that, the earnings that you make, do they go back into flipping more properties? What is your investment strategy for keeping the money that you do earn, keeping it growing, and moving?
Jay Conner [00:36:23]:
Yeah, so the money that I earn, I have other investments that I invest in. In addition to single-family houses, I’ve built shopping centers from the ground up. I’ve done condominium developments. I’ve done townhomes and boat docks. So. So I like to diversify. I like to diversify, but most of my business is investing in single-family houses.
John Lai [00:36:54]:
Do you ever have a buy box? Not so much for the properties you flipped as much as your investors, like, they have to fit a certain profile, or are there any, I guess, profiles you try to stay away from?
Jay Conner [00:37:08]:
You know, that’s a great question, John, because our 47 private lenders, what they look like, is very, very different. They’re all over the board. I mean, we’ve got retired entrepreneurs who were in business for themselves for years, and they are private lenders. With us. We’ve got retired teachers who worked, in fact, more than one or two of them who worked in the public school system using their retirement funds that they built up over the years. We’ve got people who have been in civil service for decades, like 30 years, and they’re using their retirement funds. And I’ve had Minor children under 18 years old as private lenders because they inherited money from their grandmother and granddaddy, and the parents wanted them to use that investment or use that money wisely. So I’ve had minors.
Jay Conner [00:38:07]:
So don’t rule out anybody. However, people ask me all the time, Well, Jay, where do I start looking? I mean, where do I start looking to find these private lenders? I can tell you a great place to start. Make a list of the people in your cell phone who are retired. Make a list of the people in your cell phone who are retired. Why is that? Because there’s a good chance they got retirement funds. And I can tell you, if they’ve got retirement funds in this market, they probably are not happy with the volatility of the stock market. And the older they get, the less likely they’re going to live long enough to live through another correction. And is another correction coming? You better believe another correction is coming.
Jay Conner [00:38:53]:
And so the older the private lenders are, the more important it is for them to get a steady, reliable, confident rate of return on their investment.
Keshav Kolur [00:39:13]:
I feel like we hit everything there. Unless there’s something that you wanted to cover, Jay, that you want our audience to know.
Jay Conner [00:39:20]:
Absolutely. There’s one more thing I want to cover, and that is if you are here and you’ve been enjoying this conversation, you found it inspiring and enlightening, then I want to invite you over to my brand new private money challenge.com private moneychallenge.com. It’s a seven-day private money challenge. You get a video every morning of me. I just recorded them. They’re only 15 to 20 minutes long, but they’re chock-full of content and education on the details of getting all the private money that you would want. So come join me in the seven-day private money challenge at www.privatemoneychallenge.com, and I’ll see you on the inside. In addition to that, I have a podcast with almost 700 episodes right now. I have amazing guests on there, and I interview them on how they’ve raised private money, and the name of that podcast is, believe it or not, Raising Private Money.
Jay Conner [00:40:19]:
Raising Private Money with Jay Conners. The name of the podcast. You can find it on all of your favorite podcast platforms. We go two episodes a week. We release them on early Monday mornings and Thursday mornings. Come check me out at the podcast, Raising Private Money with Jay Conner.
Keshav Kolur [00:40:40]:
Thanks so much, Jay. So go ahead.
John Lai [00:40:44]:
I was gonna say that’s pretty impressive. Two podcasts a week. That’s pretty amazing.
Jay Conner [00:40:50]:
Absolutely. Well, I gotta say, you can’t do 700 podcast episodes unless you enjoy doing it.
John Lai [00:40:57]:
Right, Right.
Jay Conner [00:41:00]:
Well, thank you guys so much for having me here on the show.
Keshav Kolur [00:41:03]:
Well, real quick, before you head out, we do have the three questions that we usually like to like to ask our guests to wrap up every interview.
Jay Conner [00:41:11]:
Oh, I don’t know if I can handle this.
Keshav Kolur [00:41:15]:
The first question is to describe some of the failures that you’ve had and what you learned from those failures. We’ll talk about the biggest private lending business specifically.
Jay Conner [00:41:25]:
Yeah, one of the biggest failures that mistakes that I made early on is I bought a property over on the beach. We’re here in a resort area. And I bought the property to flip it. Well, by the time I bought it, rehabbed it, and put it on the market to sell, the market had started coming down. I did not adjust my price, and I ended up being stuck with that property and had to put it on the rental market. Here’s the big lesson. When you invest in a property, do not invest in the property unless the rental income will give you a positive cash flow on the underlying debt. Because when I made that mistake, it was a blood bath for years.
Jay Conner [00:42:17]:
Bloodbath. Because the rental income that I could bring in did not cover the underlying debt. So be sure you run your math and your formula both on flipping, and if you’re going to rent it out, can you get a positive cash flow out of that underlying debt?
Keshav Kolur [00:42:36]:
Do you ever?
John Lai [00:42:37]:
I was going to say, as an adjunct to that, do you ever look at not necessarily flipping properties, but keeping properties?
Jay Conner [00:42:47]:
Oh, absolutely. So when I buy with private money, pay all cash, I cash out because I don’t want private money buried in a property. However, when I buy a property on terms, I. E. I could buy it subject to the existing note, or I can buy it with seller financing. So if I’ve got some kind of creative terms that the seller will sell to me creatively, then I’ll sell it on terms, lease, purchase, or rent-to-own. I love selling on lease, purchase, and rent-to-own because those tenants do not have the mindset of a traditional renter. They’ve got the mindset of an owner.
Jay Conner [00:43:28]:
So after 30 days, they are responsible for the repairs, not me. And I’m going to collect a large non-refundable lease option deposit when I sell it. So those I’m holding until they get ready for a mortgage to cash me out. I don’t like being a straight renter because I don’t like paying property managers, and I don’t like tenants and toilets. But I love selling on lease purchase.
Keshav Kolur [00:43:56]:
All right. The second question is, what advice would you go back to give your 10- 20 year 20-year-younger self?
Jay Conner [00:44:05]:
Don’t start in this business by yourself. Don’t start in real estate investing without working with somebody who’s got the experience. Yeah, I mean, you’re going to pay for your education one way or the other. And don’t pay for it the way I did with stupid mistakes that cost me hundreds of thousands of dollars. Get yourself a good coach or mentor, or someone locally who knows this business. Work with them first. Don’t try to figure it out on your own. Bad mistake. Ask me how I know.
Keshav Kolur [00:45:35]:
Sounds good. Well, thank you very much for a great chat, Jay. To learn more about firing your banker, alternatives to bank funds, and hard money, feel free to reach out to Jay at the methods he just mentioned on his website and two other websites. We’ll also include his contact information in the description for this podcast episode. And again, Jay, thank you for taking the time out of your busy schedule to speak to our audience.
Jay Conner [00:46:05]:
Thank you so much.
John Lai [00:46:07]:
Thanks Jake.
Keshav Kolur [00:46:09]:
For those of you listening at home, don’t forget to like and subscribe to our podcast on whatever platform you’re listening to to make sure that we can continue bringing you the best educational content. Thanks everyone. And until next time, keep learning to invest for generational wealth.
Narrator [00:46:39]:
Are you feeling inspired by the knowledge you gained in this episode? Then head over to www.JayConner.com/MoneyGuide, that’s o 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 o www.JayConner.com/MoneyGuide to get your free guide, we’ll see you next time on Raising Private Money with Jay Conner.