***Guest Appearance
Credits to:
https://www.youtube.com/@scalablerei
“#62 Mastering the Art of Raising Private Money with Jay Conner”
https://www.youtube.com/watch?v=wT7aLflhpVg&t=2s
The journey of a real estate investor is filled with challenges and opportunities, but one challenge consistently stands out: securing funding. In a recent episode of Scalable Real Estate Investing, expert investor Jay Conner shared his story and insights on how private money can transform the trajectory of a real estate business. Partnering with host Mason Klement, they peeled back the layers of what it really takes to raise and leverage private capital.
The Shift from Traditional Lending to Private Money
Funding real estate deals with bank loans is a common starting point, but it can be a risky bottleneck. Many investors, including Jay Conner, have learned the hard way that banks can pull lines of credit suddenly, putting deals and profits in jeopardy. This kind of wake-up call can turn a problem into a golden opportunity—if investors are willing to explore alternatives.
After experiencing this himself, Jay Conner pivoted to private money, assembling a network of individuals willing to lend directly on his deals. Unlike hard money lenders—who often broker funds and charge points—private money involves direct relationships with individuals. The process is not about pitching deals but educating potential lenders about the advantages and mechanics of private lending.
Building Relationships and Teaching the Private Lending Program
Success with private money isn’t about desperately searching for cash once a deal is in hand. Instead, Jay Conner recommends that investors make “the money comes first” their mantra. By having funds lined up and “pledged” before making offers, investors gain confidence and negotiating power. This approach fosters a mindset of opportunity rather than urgency.
The foundation of raising private money is relationship-based. Investors should start by reaching out to their warm market—friends, colleagues, and acquaintances. These are people who know, like, and trust them, making the transition from conversation to funding more natural. The strategy includes teaching these contacts the private lending program, covering the basics: the interest rate offered, the length of the loan, how the lender is protected, and other pertinent details.
Jay Conner advocates never directly asking for money. Instead, the focus should be on informing and educating. By outlining how the process works and the security involved, potential lenders often end up eager to participate, excited by the opportunity for higher, safer returns that traditional investments fail to offer.
Structuring the Deals for Safety and Simplicity
A major selling point for private lenders is security. Lenders receive a promissory note collateralized by the property—usually in the form of a deed of trust or mortgage. They’re also named on the insurance policy and title, protecting their interests comprehensively. Importantly, funds are always wired to a closing agent, never directly to the investor, ensuring transparency and safety.
In structuring these deals, Jay Conner uses a conservative approach, never borrowing more than 75% of the property’s after-repair value. This provides a significant equity cushion, protecting lenders if market volatility impacts resale prices. These practices, combined with the option of interest-only or deferred payments, result in win-win scenarios for both the investor and their lenders.
Finding More Private Lenders and Scaling Up
Beyond personal contacts, investors can expand their networks through organizations like Rotary Club or Business Networking International (BNI). These venues introduce investors to new connections who may be interested in private lending opportunities. Additionally, it’s possible to identify existing private lenders by leveraging data services that track individuals who are already making such loans.
Self-directed IRA holders represent another massive pool of potential lenders. Many of these individuals are searching for better returns on retirement funds, and real estate-backed notes can offer just that.
Mindset and Integrity Lead the Way
At the heart of Jay Conner’s approach is mindset and integrity. Building trust by knowing your program inside out, staying transparent, and doing what you promise cements long-term relationships. Lenders aren’t just investing in deals—they’re investing in you.
Embracing private money isn’t just about funding projects; it’s about liberating your business from traditional limitations, building new partnerships, and creating scalable, sustainable wealth in real estate.
10 Discussion Questions from this Episode:
- Jay Conner shares his experience of losing his bank line of credit in 2009, which pushed him to discover private money lending. How do moments of crisis lead to creative solutions in real estate investing?
- Jay Conner emphasizes the importance of “the money comes first”—lining up funding before finding deals. Do you agree with this approach, or do you think it’s better to find deals first and then secure financing? Why?
- Private money lending is described as distinct from hard money lending. What are the key differences between these two forms of real estate financing according to the episode, and what implications do those differences have for investors?
- Jay Conner discusses teaching potential lenders about private lending programs rather than “pitching deals” or aggressively soliciting investments. How does this educational approach build trust and credibility, and could it be applied to other industries?
- The episode details three primary sources for finding private lenders: warm market, expanded warm market, and existing private lenders. Which source do you think is most effective, and why?
- Jay Conner outlines how private lenders are protected through first lien positions, insurance naming, and other mechanisms. What protections or guarantees would you personally consider necessary before lending capital to a real estate investor?
- The loan-to-value (LTV) ratio is capped at 75% of the after-repair value in Jay Conner’s model. Why might this specific threshold be both beneficial for lenders and limiting for investors?
- Jay Conner and Mason Klement discuss the mindset needed to ask for capital and expand one’s network. What personal or professional barriers exist that might prevent investors from seeking private money, and how can they be overcome?
- There’s a mention of self-directed IRAs as a way for individuals to lend money to investors. What are the unique advantages and potential risks of sourcing private investment capital from retirement accounts?
- Jay Conner stresses trustworthiness and a clear, professional lending program as prerequisites for others to lend money. What actions or documentation can an investor provide to enhance trust with potential private lenders?
Fun facts that were revealed in the episode:
- Jay Conner has been investing in real estate since 2003 and has rehabbed over 450 houses, with his average profit currently at $74,000 per house—even though he invests in a small area with only 40,000 people.
- When Jay Conner lost his line of credit from the bank in 2009, he quickly pivoted to private money, raising $2,150,000 in less than 90 days by teaching 44 new private lenders about his private lending program.
- Jay Conner never pitches deals or asks for money directly—instead, he educates potential private lenders about his program and lets them come to him, creating a win-win situation for both sides.
Timestamps:
00:01 Safe Returns with Real Estate
03:54 From Mobile Homes to House Flipping
06:47 Turning Problems Into Opportunities
09:52 Creative and Cash-Powered Real Estate
14:51 Confidence with Private Funding
19:15 Getting Started with Private Lending
22:34 Profitable Real Estate Funding Tips
24:02 Finding and Approaching Private Lenders
26:31 Finding Private Lenders
32:06 Real Estate Investing by Referral
35:22 Private Lender Protection Explained
39:06 No Fees with Private Lenders
40:41 Networking to Raise Investment Funds
46:01 Benefits of Interest-Only Loans
47:54 Scalable Real Estate Investing
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:
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https://www.facebook.com/jay.conner.marketing
Twitter:
https://twitter.com/JayConner01
Pinterest:
https://www.pinterest.com/JConner_PrivateMoneyAuthority
Achieving Financial Freedom with Private Lending and Real Estate Investing
Jay Conner [00:00:00]:
The principal loan amount remains the same until you sell that property. Because we don’t pay principal and interest payments, and that’s a win for the lender, and that’s a win for you. You see, if you just pay or accrue interest, they’re making more money because if you pay them principal and interest payments, you’re paying part of their principal down, and they don’t have all their money invested in the deal. Interest-only payments, if you’re making payments and they’re not just accruing and are smaller than principal and interest payments, so it helps your cash flow as a real estate investor as well.
Narrator [00:00:37]:
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 Connor.
Mason Klement [00:01:04]:
Welcome to the Scalable Real Estate Investing.
Mason Klement [00:01:06]:
A podcast where we discuss the most scalable strategies, tools, a nd approaches to successfully invest in real estate. Learn how to make the most of your time, automate your real estate investing business, find off-market deals with minimum time invested, and leverage your capital to create as many income streams as possible so that you can achieve true financial independence. Thank you for tuning in. I’m your host, Mason Clement.
Jay Conner [00:01:31]:
Hi everyone.
Mason Klement [00:01:32]:
Mason Clement here. Before we get into today’s episode, I wanted to ask you one question. Are you sick of the wild swings in the stock market and ready to try something different? Did you know that investing in stocks actually puts you at the very bottom of a company’s capital structure, meaning that there’s practically zero percent chance that you’re.
Mason Klement [00:01:48]:
Going to get any of your money.
Mason Klement [00:01:49]:
Back if the company files bankruptcy? Basically, you’re putting yourself in the riskiest position for a questionable return. Personally, I hate the unpredictability and just waking up and having half my investment gone when I didn’t do anything wrong. So what a lot of people don’t know is that you can actually make higher returns consistently by investing in the opposite end of the capital structure, which is actually the safest place to be, which is on the debt side in a first lien position. And you can do that by investing in real estate and specifically investing with my company in notes that are backed by the land that we purchase. So if you’re ready to diversify your income Stream, go ahead and go over to scalablerei.com and click on Invest in the top right corner. There, you’re going to find a form that you can fill out to determine if you’re eligible to invest with my company, Cellion Capital. And we’ll be reaching out to you to schedule an introductory call and speak more from there. So thanks a lot, and let’s jump into the episode.
Mason Klement [00:02:53]:
Hi, scalable investors. Thanks for tuning in to another episode of Scalable Real Estate Investing. I’m your host, Mason Clements, and today we have with us Jay Connor, who is a master expert at raising private capital. He’s done deals, really, since 2003, rehabbed over 450 houses. He’s worked with over 52 million in transactions. So, without stealing his thunder, let’s just jump into things. Jay, what’s going on? How are you doing?
Jay Conner [00:03:18]:
Hello there, Mason. I’m so excited that you invited me to come along here on the show to talk about my favorite subject, private money and private lending. And of course, I learned a few minutes ago, before we started the show, you’re in Texas, which is where my wife Carol Joy is from. So we got all kinds of things in common. Thanks for inviting me to come along.
Mason Klement [00:03:41]:
Sure, no problem. So I like to always ask every guest to just discuss their background, their real estate journey, nd what got them into real estate and what brought them in today. So why don’t we just jump into that first?
Jay Conner [00:03:54]:
Sure. Well, I was actually raised in the mobile home business. I actually lived out in Texas, Wichita Falls, and Abilene, Texas, years ago. In the mobile home business, a lot of people call them manufactured homes, and some people call them trailers. So I was raised in helping people own affordable housing. And unfortunately, in 2002, 2003, most of the financing for the retail customer, for the buyer of that product, the financing went away, and the whole industry fell out of favor with Wall Street. Well, I knew if I ever got out of mobile homes, I wanted to get into single-family uses, flipping houses, you know, rehabbing them also, you know, buying them on terms, selling them on terms, renting to own, and all that. So that’s what I did.
Jay Conner [00:04:46]:
I started in 2003, and here in eastern North Carolina. And I mean, today we do two to three deals a month, two to three houses a month. But our average profit right now is $74,000 per house that we do on the fix and flips. We’re in a small area. The total area that I invest in has only got 40,000 people. But, you know, if you can average $74,000 and do that two to three times a month. And, you know, that math sort of works out okay. And so the first six years that we were in the business, from 2003 until 2009, I relied on the local bank to fund my deals.
Jay Conner [00:05:33]:
That’s all I knew. I didn’t know anything else. I’d never heard of private money, private lending, and all that kind of stuff. And so I tell you, I remember it, Mason, like it was yesterday, January 2009. I had been in the business for six years, and I was sitting here at my desk, and I picked up the phone to call my banker. His name was Steve, by the way. Can you believe we still have landlines here in North Carolina? Actually, a cord that’s attached to a telephone handle, right? Anyway, so I called him a banker, and I had two houses under contract to buy. January 2009.
Jay Conner [00:06:10]:
I learned very quickly, Mason, that I had lost my line of credit. I’d been shut down with no notice. And it’s like, what in the world? I mean, I didn’t know there was a global financial crisis going on until now. I’ve got a crisis, and I can’t fund these two deals. And the profits are over $100,000 combined on these two deals. And so I sat here for a moment, and I tell you, Mason, I had a new mantra come to my mind that I’ve repeated to myself ever since that day. And that is, it’s impossible to fail unless you choose to quit. It’s impossible to fail unless you choose to quit.
Jay Conner [00:06:47]:
Well, failing was not an option for me. Quitting was not an option. So I sat here, and I asked myself a question. And this is a writer downer right here. Whenever you’re running, you know, you’ve got a problem or difficulty, by the way, all the great growth and quantum leaps, personally and in your business, take place when you’re actually going through a difficulty, and you’re having to figure it out. And I tell you, being shut down from the bank, Mason, was the biggest blessing in disguise I’ve had in my business. If I hadn’t had that experience of losing my line of credit at the bank, you and I wouldn’t even be visiting today here on your show. So I sat here for a moment, asked myself, Who can help me with this problem, which actually was an opportunity.
Jay Conner [00:07:32]:
So I called a good friend of mine, a fellow real estate investor, whose name is Jeff. He lived in Greensboro, North Carolina, at the time. And I told him what had just happened. And he said, Well, welcome to the club, Jay? I said, What club is that, Jeff? He says, the club of losing your line of credit at the bank. I said, What do you mean? He said, I lost mine last week. I said, How are you funding your deals? He said, Private money. I’d never heard of private money. Didn’t know what it was.
Jay Conner [00:07:58]:
Well, let me tell you something. I went to study with private money very, very quickly. I still had these two deals under contract, and I’m not looking forward to missing out on $100,000 in profit. So I learned what private money was. I put my program together, my private lending program, and I started teaching people that I know, you know, people that I had some kind of association with. I started teaching them what private money private lending was. I started teaching them about self-directed IRAs. And, you know, to this day, I’ve got 44 private lenders that are funding our deals.
Jay Conner [00:08:34]:
And you know what, Mason? Of these 44 people, not one of them had ever heard of private money. None of them had ever heard of private lending. None of them had heard about self-directed IRAs and how you can move, you know, part or all of your retirement funds over to a self-directed IRA company and then loan it out to real estate investors and earn unlimited money per year, tax-free and penalty-free, and all that. So I started teaching them. And you know what? By using that process, I was able to raise $2,150,000 in less than 90 days. And I was able to close on those two deals. And you know what? Since that experience at that time, I’ve never missed out on a real estate deal because I did not have the funding.
Mason Klement [00:09:22]:
Okay. Yeah, it’s definitely inspirational. And before we record it, I mentioned that I’m definitely at that point in my business where I have plenty of deal flow, and my bank hasn’t shut down my line of credit yet. But I still see the bottlenecks in trying to use my own money to shift around. Like, when’s that deal going to close? I need that 65,000 to fund these other deals. And you know, for example, so very great. So,o in terms of a typical deal you work on, it’s still primarily fix and flip single-family houses. Or do you do anything else?
Jay Conner [00:09:52]:
Yes. So about 25% of the houses that I buy, I buy creatively on terms. I’ll buy them, either subject to the existing note, you know, where the seller of the house agrees to sell me the house, leave the mortgage in their name, and I make their payments. You say, Who in the world would do that? Well, A motivated distressed seller who needs debt relief. So maybe 20, 25% of ideas like that. But the majority of them, I’m paying all cash with private money. And if they need rehab, which most of them do, I like to turn them into brand new properties. Brand new-looking properties, brand new-looking houses, I’m able to get top dollar for those. And so most of them that I’m doing today are fix-and-flip funded with private money.
Mason Klement [00:10:41]:
Do you hold any of them to rent out? Are they short-term or long-term?
Jay Conner [00:10:45]:
I’ll only do rent-to-own. So when I hear, here’s my rule of thumb. If I buy on terms, I’ll sell on terms. In other words, if I buy creatively with seller financing or subject to the existing note, then I’ll sell. You know, there are two kinds of rehabs. There’s renovation, and then there is rent ovation. Right. So if I’m just getting it ready for selling arent-to-ownn, then I just want all the major components to be working.
Jay Conner [00:11:15]:
But I’m not going to turn it into a brand new-looking home. So when I sell a buy on terms, I’ll sell on terms. When I buy with private money, buy all cash with private money, then I’m going to cash out. So, in other words, put it in the multiple listing service and sell it. Right. So buy with cash or private money, cash out, buy on terms, sell on terms.
Mason Klement [00:11:39]:
Okay. And when you’re selling on terms, are you able to shift some of that renovation capex onto the buyer since it’s their property now?
Jay Conner [00:11:47]:
Yeah, because on my rent-to-own program, when someone buys a home on rent-to-own, they are responsible for 100% of any repairs and maintenance after they’ve lived in the home for 30 days. So, for the first 30 days, it’s my responsibility to make sure whatever is intended to work is working. Then, after 30 days, it’s their responsibility for the maintenance. You know, a rent-to-own buyer, or at least a purchase buyer doesn’t have the same mindset as a straight renter, a rent to own buyer, they view themselves as an owner. In fact, we tell them at the closing table,l e we’ll say, you know, for all practical purposes, this home is yours. We just haven’t transferred the title yet, and we’ll be transferring the title when you are ready for a mortgage.
Mason Klement [00:12:38]:
Okay, so when they refi out, basically.
Jay Conner [00:12:41]:
What you’re saying, no, because they can’t refi, because they don’t own it. But when they are, when they get Ready for a mortgage. Like they get their credit scores up and you know, maybe they’re needing to wait until they’ve got proof of verification of income or they need to save up some down payment, then they will go get a mortgage and finance, finance it and cash me out.
Mason Klement [00:13:05]:
Got it. Okay. I guess Rental on yet, you’re just keeping the deed. It’s kind of like a contract for deeds.
Jay Conner [00:13:11]:
Yeah, but similar to it.
Mason Klement [00:13:13]:
Similar to it, yeah, I guess technically you’re not. I know in Texas my attorney has told me that’s technically not allowed if it’s like a straight contract for D., but if you’re doing a rent-to-own, maybe it’s not exactly that. So you can get around that. I don’t know if you know anything about that.
Jay Conner [00:13:27]:
Sure, yeah. In Texas. A lot of attorneys in Texas will say you can’t sell on rent-to-own. However, I’ve got a good friend named John Jackson. He’s easy to Google and find his expertise, actually, in Texas is doing rent-to-owns legally in Texas, and he teaches other real estate investors how to do it. But I’ve got a lot of friends in Texas that do a lot of seller financing, you know, and they’ll also sell with, you know, contract for deed as well.
Mason Klement [00:13:58]:
Okay, interesting. So we just hit on a little bit of the private money part of things. And I already discussed why I’m feeling I need to, you know, get private money lenders working in my business. But what point do you feel like an investor should start approaching these potential lenders?
Jay Conner [00:14:21]:
Well, here’s what I preach and here’s what I recommend. The money comes first. So there’s always going to be deals. There’s always going to be deals. But what I mean by the money comes first is to get the money lined up for when you’re doing an all-cash purpose. Now you know, I’ve got, I’ve got some friends that think otherwise. I got some friends who say Get the deal under contract, the money will show up. And I’m going, where’s the money going to show up from? Right.
Jay Conner [00:14:51]:
I don’t want the pressure, I don’t want the stress of having a deal, a house under contract, and I have no idea where I’m going to get the money from. But if I’ve got the money lined up and I’ve got the money, what I call sitting on the shelf pledged, ready to be, you know, ready to be used by myself, from my private lenders, then how much more confident, how many more offers am I going to make? You know, Mason, I never bought a house I didn’t make an offer on. Right. How much more confident, how many more offers am I going to make? All cash, knowing I’ve got a way to fund it, and I do not have to rely on the bank. Now, by the way, when I talk about private money, I’m not talking hard money. And I’ve got some really, really good friends that actually own hard money companies and hard money funds. I say establish just as many relationships with as many people as you can.
Jay Conner [00:15:44]:
But a private money, you know, hard money lender is typically a broker of private money. A hard money lender would go out and raise private money, private capital from individuals. Those individuals will invest in a fund, and then the hard money lender will loan that out, charge points, and charge a higher interest rate than they’re borrowing. So they’re making money on money. But in this world of private money we’re talking about, how do you find and locate and get funding directly from individuals, human beings, to fund your deals? Instead of them investing in a fund or a hard money lender fund, they’re just going to be investing directly into our deals.
Mason Klement [00:16:27]:
Okay, I was just thinking of it. Is that, is it a kind of benefit to them? Do you think that they would earn a higher interest rate by investing directly with you versus a hard money lender fund?
Jay Conner [00:16:41]:
Depending on who they invest with, they’re going to earn about the same amount. So it comes down to who they want to do business with. Right. As I say, I’ve got a lot of people in my center of influence that have invested, you know, with us. You know, and some people tell me some real estate investors will say, Jay, all my people are broke. None of my people has got any money. Where can I find it? Well, I’ll answer that question when you get around to it, Mason. But, you know, people that you already have a relationship with and they know you and they like you and they trust you, then they’re going to want to do.
Jay Conner [00:17:18]:
They’re going to want to do business with someone that they’re already, you know, know, like, and trust, versus someone that they don’t. And so it’s, you know, it. Being a private lender is a great way to be involved in real estate, totally passively. You know, a private lender doesn’t have to negotiate deals, doesn’t have to find deals, doesn’t have to spend money on marketing, doesn’t have to, you know, if you’re rehabbing, doesn’t have to oversee crews, doesn’t have to negotiate with general contractors, doesn’t have to sell. They just sit back and earn high rates of return safely and securely.
Mason Klement [00:17:52]:
Okay, yeah, that is my next question in terms of, like, how do you first go about approaching private money lenders? Like, I guess, who is it? What do you say to them and all that? Because you can’t just say, Give me money.
Jay Conner [00:18:06]:
No, it does. It doesn’t quite work like that. First of all, let’s start with the mindset. First of all, I’ve never pitched a deal. I hear real estate investors talk all the time about pitching a deal to a private lender or private. I never pitched a deal in my life. I’ve never asked anybody for money. So how does that work? So let’s first start with the mindset and the steps.
Jay Conner [00:18:30]:
First of all, I teach people in my warm market, people that I have some kind of connection with, they’re in my cell phone, we go to church, we’re in the Rotary Club, you know, who do you play poker with on Thursday nights? I don’t know. So you know people in your sphere. Right. So I teach them what private money is about. I teach them my private lending program. What’s the interest rate I pay? What’s the length of the note? How are they protected, right? In case I lose my mind and move and move to the Caribbean. Then, you know, how are they protecting this kind of transaction? So I teach them. So then, it takes about 20 minutes to teach my private lending program.
Jay Conner [00:19:15]:
So when I get to the end of that, well, now they’re chasing me. I mean, they’ll say to me, so what do I do, Jay? How do I start? Do I write you a check? Like, how do I start? Well, no, they don’t write me any checks. All they do is tell me how much money they have to work with. Is it liquid capital? You know, is it just investment capital? Do they have retirement funds, and they’re not happy with the rates of return they’re getting, you know, and the retirement account? Do I need to introduce them to myself, a direct IRA company that I refer all my private lenders to, that has retirement funds? So they tell me how much they’ve got to work with and where it’s located. Then I tell them, I will find you a deal to invest in just as soon as possible, because I know you want to get your money to work. And their money is not earning money for them unless it’s actually loaned and secured by a property. So, I know how much they have to work with. Let’s say I’ve got a Mason.
Jay Conner [00:20:13]:
Let’s say you’re my new private lender, right? And you’ve shown me you got $150,000, and you know, you just can’t wait to get started. You know, let’s do a deal. I say, great, Mason, I’ll get back with you. It might be a couple of weeks, two or three weeks, before I get back to you, but I’ll put your money to work just as soon as I can. Let’s say two or three weeks go by. I’ve got a property now for you to fund. And here’s the conversation. I pick up the phone, I’m not going to ask you if you want to invest in this deal.
Jay Conner [00:20:44]:
I’m not going to pitch you on this deal. I’m going to call you up, and here’s exactly what I’ll say. I say, Mason, hey, I’ve got great news. I can now put your money to work. I’ve got a house over here in Newport with an after-repaired value of $200,000. The funding required is 150,000, and closing is next Wednesday. So you’ll need to wire your funds to my real estate attorney next Tuesday. End of conversation.
Jay Conner [00:21:17]:
You see, you’ve been waiting for that phone call. I told you two or three weeks ago I’d call you up with a deal just as soon as possible. You’ve been waiting. Your money ain’t earning any money just sitting in your bank account. So I call you up and notice what I said. I got great news. And then here’s what I told you about the property. This is actually more than you want to know.
Jay Conner [00:21:38]:
I’ve got a house in Newport. I didn’t tell you the physical address. You couldn’t care less. You’re going to see the physical address when I give you wiring instructions to wire your funds to the real estate attorney. So I told you the house is located in what township? I told you the after-repair value, which is 200,000. I didn’t tell you the purchase price. You couldn’t care less, right? I told you the funding that’s required. Well, that’s the amount that you’re going to fund on the deal.
Jay Conner [00:22:04]:
$150,000. Well, you see, that’s my rule of thumb. I’m not going to allow my private lenders to loan out more than 75% of the after-repair value. I didn’t say 75% of the purchase price. You see, this particular house, I bought it for $100,000. And so it needs like 35,000 in rehab. Well, the after-repair value is 200,000. You, the private lender, 150,000 is 75% of the 200,000.
Jay Conner [00:22:34]:
And then the next thing that I told you was that when it’s closing next Wednesday, you need to have your funds wired to my real estate attorney in Texas or other states. It may be an escrow company or title company, and that’s when we’re going to close. And so you see, in that example, I’m bringing home a $50,000 check and putting no quote, unquote, skin in the game of mine. I like to keep my skin on my body, right? So my private lender is going to fund 150% of that purchase price. So I’m going to bring home those who want to bring home a big check and get paid to buy properties and take no down payment of their own to the closing table. You see how this is a 180-degree dichotomy shift from borrowing money from the bank. You know, the traditional way of thinking is you go to the banker, and you get down on your knees, and you put your hands underneath your chin, and you go, please, Mr. Banker, please, Ms.
Jay Conner [00:23:29]:
Banker, fund my deal. Give me a mortgage. Please, please, please, please. No, not in this world. I’m not asking, I’m not begging, I’m not chasing. I’m actually giving people an opportunity to have a very, very high rate of return safely and securely. So there’s a big difference in thinking about begging and trying to talk somebody into getting a mortgage versus offering them a mortgage. So that’s the mindset part, you know, not chasing, begging, you know, all that you’re teaching, they tell you how much they have to work with.
Jay Conner [00:24:02]:
You give them good news, as you can now put them to work. Now you ask, in addition to that, Mason, where do you find these people? And you know, what do you say to them? Well, there are three primary categories of where you find private lenders. The three categories are your warm market, your expanded warm market, and existing private lenders. So where do you find them? Well, your warm market, these are people in your cell phone. They’re on your email list, they’re on your social media, they’re on your face. They’re a Facebook friend. And I don’t mean a fake Facebook friend, but actually somebody you know. They’re on your Instagram, your Snapchat, your whatever, you know, and so who you go to church with, right? Et cetera.
Jay Conner [00:24:50]:
And so you make your list. You know, in fact, I teach my students actually how to go through the process of making your list as to who you’re going to talk to. Now, are you going to go to lunch with them or are you going to invite them to a private lender luncheon? You know, I love leveraging my time. I’ve raised $969,000 in private money at one luncheon. I invited people to lunch. I paid for the lunch. I had my little PowerPoint presentation. You know, I taught them the private lending program.
Jay Conner [00:25:22]:
It takes the same amount of time to teach 20 potential private lenders, your private lending program, you know, as it does one. So in your. You’re in your own warm market, right? Your own connections. The second category of private lenders is your expanded warm market. As I said earlier, sometimes people say, Jay, all my people are broke. I said, well, first of all, I don’t believe you, but I just think you’re, like, intimidated, right? So I say expand. Expand your warm market. Get involved in your community.
Jay Conner [00:25:55]:
Join the Rotary Club. I tell you, where I’ve gotten a lot of private money is by becoming involved in an organization called BNI Mason. You’ve probably heard of it. It stands for Business Networking International. Even our little town of Morehead City has a BNI. Can you believe that when you join BNI, you get 20 other people in your group who are singing your song and promoting what you’re looking for? So I joined BNI as a real estate investor. And, and, and I tell people that I’m, I teach people. I’m a private lending expert, and I teach people how to get high rates of return safely and securely.
Jay Conner [00:26:31]:
And I’m looking for people who are not happy with either the stock market, the returns, or getting a quarter of a percent at the local bank. So they refer me to people who are looking for a place to invest their money. The third category of private lenders is what we call existing private lenders. Just what it sounds like. They’re already loaning money out to real estate investors. Well, how do you find them, people? Well, don’t start doing it the way I did it. In 2011, I hired my real estate attorneys and a paralegal to search public records here in our local county, looking for individual names on public record loaning money out that is secured by real estate. Here in North Carolina, it’s called a deed of trust.
Jay Conner [00:27:15]:
Most people call it a mortgage. Well, in 90 days, we only found two people. I said, tThere’sgot to be a better and quicker way. So I actually hired some sophisticated software developers, and we started what’s called my private lender data Feed and my data feed. We go get every private lender closing in the nation every month. There are about 15,000 of them every month across the nation. And we get their contact information, and we know exactly who all those private lenders are. You can actually go to the data feed, search by zip code, and locate private lenders in your own backyard. In the data feed, we actually have two letters already written to reach out to them to establish a relationship.
Jay Conner [00:27:56]:
And, I’m not openly soliciting because those letters are written to establish a relationship. Well, where else can you find existing private lenders? Well, I can tell you where people who have accounts at self-directed IRA companies. Now, Mason, let me ask you this. Do you have a self-directed IRA company that you recommend to your audience?
Mason Klement [00:28:22]:
Yeah, I use American IRA. So that’s one that they could use.
Jay Conner [00:28:28]:
American IRA. Very good. Yes. So what’s so important about having a relationship with a self-directed IRA company is that when you talk with someone who has retirement funds and wants to invest with you, you need to be able to introduce them to the self-directed IRA company that you have a relationship with. Well, guess what? Did you know that on average, 70% of account holders at self-directed IRA companies want to loan their money out to you, the real estate investor? And so in fact, just a couple of weeks ago, there was this great big convention at a self-directed IRA company. In fact, right there in Texas. They had 600 people there.
Jay Conner [00:29:17]:
Imagine networking with all those people that are wanting to loan money to real estate investors. So you can go to self-directed, the self-directed IRA networking events. And in fact, a lot of them have them on Zoom these days.
Mason Klement [00:29:33]:
Okay, yeah, that’s really interesting. I think it’s just a matter of changing your paradigm and lensing how you really see things and starting to look in the correct areas. That’s probably been my problem.
Jay Conner [00:29:45]:
I hear you, man. Well, here’s another thing, you know, like you asked me as well, what do you say to these people? Well, if you’re just doing, having a one-on-one conversation or you’re at a social networking event or whatever, there are actually two approaches. There’s what we call the direct method, and then there is the indirect method. The direct method is that you actually ask somebody the private lending magic question. And what in the world is the private lending magic question? Well, the magic question is, do you have investment capital or retirement funds not paying you a high rate of return safely and securely? Now, a lot of people are not comfortable asking that direct question to someone else. Because they may be thinking, well, the person I’m asking may be thinking, that’s none of my business, right? And so more often than not, we use what’s called the indirect method. The indirect method, when having a conversation with a potential private lender, or just, you know, someone, you know. And I use the indirect method on one of my very first private lenders.
Jay Conner [00:30:55]:
And here’s the short version of that story. It was on a Wednesday night at Bible study at church. Carol, Joy, my wife, and I went there, walked in the foyer, and I walked up to a gentleman that I’d known for quite a while, and I said, Have you got a few minutes for us to visit confidentially after Bible study? And he said, Well, Brother Jay, of course. So Bible study goes by, we get together, we walk down to the nursery, and shut the door. And here’s the indirect method. I looked at him, and I said, You know everybody in this town. You see, the gentleman I was talking to was the original Zenith television dealer in Morehead City, North Carolina. That’s prior to Walmart coming to town, right? So I said, you know, everybody in this town.
Jay Conner [00:31:44]:
And he did. He put a television in everybody’s house and every room at the hospital, all this and that. I said, you know everybody in this town. And he was very involved in the Rotary Club. I said, You’re very involved in the Rotary Club. I said, I need your help. Boy, that’s a magic phrase right there. Most people just want to help, right? So I said, I need your help.
Jay Conner [00:32:06]:
And then I said, I have now opened up my real estate investing business by referral only, and I am now paying insane high rates of return to people who want to get involved in our business. So, when you run across someone who’s complaining about the volatility of the stock market or, you know, hardly anything they’re earning in the local bank certificates of deposit, would you refer them to me? And he says, well, now, what kind of rates have you got in mind there, Jay? And I said, well, it depends on the deal. And he said, Well, my wife and I were only getting. Now, this was in 2009, right after I’d been cut off from the bank. He said, Well, my wife and I were only getting like 3% at the local bank in our certificates of deposit. I said, Well, that’s terrible. I said, Are you saying that you and your wife might be interested? He says, well, yeah, because, you know, the stock market’s just up and down all over the place. And he said, What kind of rate could you pay? And I said, Well, what sounds high to you? He said, Well, we’re getting 3% in the stock.
Jay Conner [00:33:13]:
So you know, in the bank. He says, I don’t know, I guess maybe 5% sounds pretty high, that’s almost double. And I said, Well, I can’t pay you 5%, but I can pay you 8%. He said, Put me down for $250,000 so that you see how that indirect method works. I didn’t ask him for any money. In fact, I didn’t even get into the private lending program with him in detail until I went to him and his wife’s home the next day and went over the details of the program. So you see, when you ask somebody to help and just spread the word, if they’ve got investment capital or retirement funds, they’re going to be asking you how the program works.
Mason Klement [00:33:56]:
Okay. Yeah, it’s really helpful having a story to really illustrate it. So I guess once that person is lending the 250,000, say it’s all in one deal, do they get a first lien position on the property, or how’s that work? How are they protected? How do you explain that?
Jay Conner [00:34:13]:
Sure. So how do they protect it? First of all, I don’t borrow any unsecured funds. Right. Whether they’re loaning the money to me on a deal from their investment capital or they are loaning the money from self directed from their you know retirement account, they are going to get, first of all, a promissory note. And then we’re going to collateralize that promissory note. And here in North Carolina, it’s for the deed of trust. Most people call it a mortgage. So that gives them the right to foreclose on that note if I don’t pay them.
Jay Conner [00:34:45]:
And you know, new real estate investors will sometimes ask me, Jay, who in the world is going to loan me money? And I’m a brand new real estate investor. Here’s the answer. If you don’t pay them, the property does. And of course, they don’t want the property. They don’t want to mess with the property. But if they did get it, they would get all that potential profit, which would mean they’d be getting more money than they would from the rate of return. So they get the deed of trust or mortgage, and then they’re also named on the insurance policy as the mortgagee. You see, you, the borrower, are the mortgage, or they are the mortgagee, they’re the lender.
Jay Conner [00:35:22]:
Well, the reason that’s important is that on the insurance policy, is that if there are any insurance claims against that property, the insurance company makes the check payable to the private lender and to your entity, your real estate investing company. And that protects the lender because they have to sign off on that check before you get it, right? Before you can cash it. They’re also named on the title policy in case there are any title issues down the road. How else are they protected? Well, I mentioned it. They don’t write me any checks directly. They only send their funds directly to the closing agent, whether that’s a title company or an escrow company. If it’s a real estate investor that’s doing the closing, they send the funds there.
Jay Conner [00:36:09]:
And then funds are not dispersed to us, the borrower, of course, you know, we always borrow more than we need to buy. We bring home a big check. Those funds are not dispersed to us until after the closing takes place.
Mason Klement [00:36:26]:
Okay. Yeah, that’s. That’s really interesting. I’m sold. When. When can I invest?
Jay Conner [00:36:34]:
Well, first you. First. You want me to teach you the private lending program, but I know we don’t have time for that on the show. How can you get your money back in less than 90 days if you’ve got an emergency, you know, what are the interest rates that we do pay? What’s the length of the note? But I do have a. I’m so excited about this new private money guide that I just finished writing. In the guide, it goes over those details.
Mason Klement [00:36:57]:
Okay, perfect. Yeah. I have a few more questions, and I have a hard stop coming up. But for now, I know you wanted to get that out there. People can download that.
Jay Conner [00:37:06]:
Oh, absolutely. Yeah. So it’s called. The name of the private money guide is called 7 Reasons Why Private Money Will Skyrocket Your Real Estate Business, and it helps you build incredible wealth. And this guide will hold your hand step by step, get you started with private money. And it’s free. You can download it for free at www.JayConner.com/MoneyGuide.
Jay Conner [00:37:39]:
So I’m an er, not an or. I’m Jay Connor. www.JayConner.com/MoneyGuide. This guide will get you on the fast track to private money.
Mason Klement [00:37:54]:
Perfect. And that’s. That’s best for, like, a real estate investor like myself looking to raise private money. Right. Or is it? Would it also be okay?
Jay Conner [00:38:03]:
Who else were you asking for?
Mason Klement [00:38:05]:
The lender themselves? Or is it really our job to educate the lender?
Jay Conner [00:38:09]:
Yeah, it would be your job to educate the lender. In fact, I’m in the process right now of writing another book that would be used for the private lender to be educated, so that the real estate investor can actually hand out to a potential private lender and let the book be your business card. But I haven’t quite finished that one yet.
Mason Klement [00:38:28]:
Okay, got it. Yeah, I think this is really helpful, just to go back to what you said earlier about the hard money lender. I actually just closed on a $200,000 piece of land that I’m doing a subdivision on, and I paid a 3 3-point origination fee to the broker just for, you know, matching this up. But had I had that relationship directly with that lender, I wouldn’t have had to pay that. And obviously, on a six-figure deal, it’s going to be like I forget what it was, you know, three, $4,000, I would not have had to pay. But do you pay any origination points to your lender at all, or is it really just zero?
Jay Conner [00:39:04]:
Zero?
Mason Klement [00:39:05]:
No, that’s way better than what I paid.
Jay Conner [00:39:06]:
No origination fees. It’s like it never comes up in conversation. Why should I bring it up? I mean these private lenders, because I teach them and you teach them, then you teach them the program, and the program has, has no conversation about origination fees or points. And it shouldn’t. I mean, origination fees and points are primarily how a broker makes their money. Well, your private lender is not a broker, right? It’yourre doing business in a one-on-one transaction between yourself, your real estate entity, a nd directly with a private lender. So there shouldn’t be any broker fees, no junk fees, no documentation fees, and no appraisal fees. Normally, we don’t even get an appraisal.
Jay Conner [00:39:55]:
We just work off of my Realtor’s comparative market analysis. Now, if my private lender wanted to see an appraisal, I would certainly show it to him and pay for it. But I’ve never since 2011 had one of my private lenders ask to see an appraisal. So again, it’s totally different than doing business, you know, with institutional money.
Mason Klement [00:40:18]:
Okay, got it. So I know you mentioned going down, creating a list of folks to reach out to, and joining local organizations, which sounds like a great way to start really spreading your tentacle, so to speak. But are there any other ways that are like some of the best ways to get the word out, for example, like Google, PPC, or anything like that?
Jay Conner [00:40:41]:
No, you don’t need to do that. I mean, you can, I mean, today you can legally actually, you know, go out on the Internet. But if you do that, you’re limited to borrowing from accredited investors. If you notice, all the different methods I’m talking about involve networking, right? Either networking with your current associations, building your network, or when you do it from the networking standpoint, then you’re not limited to accredited investors. I mean, you know, I borrow from anyone who wants to get involved in the program. I mean, I’ve got my minimum right now, which is 50,000. It’s just not really worth it for me to accept smaller amounts. My real estate attorney charges me the same thing to close a $50,000 note as he does a or she rather $10,000 note or a $500,000 note.
Jay Conner [00:41:33]:
It’s the same work, it’s the same documentation. So, you know, that’s why I limit it to $50,000. I can’t use 50,000 to buy a house, but I can use 50,000 to rehab a house. And you know, you can have more than one private lender collateralized. They’re not collateralized by the same property. You can have a private lender in first position that you use that money to buy the property, and then you can have a private lender in second position, such as that $50,000 note, and you use that money for rehabbing. When you do that, you want to use and calculate what’s called total loan-to-value. So let’s go back to that house example I had a moment ago.
Jay Conner [00:42:16]:
The after-repaired value is $200,000. Well, I could have one private lender in first position at 100,000, and I use that money to buy the property, and let’s say they didn’t have any more to work with. I can have a second private lender in second position, a junior lien position with 50,000. So I got one note, 100,000, and a second note at 50,000. Add them together, that’s $150,000 from both lenders. Take the 150,000 and divide by the after-repaired value of 200,000. And so therefore, my total loan-to-value is still not exceeding 75% of the after-repair value.
Mason Klement [00:42:57]:
Okay, why do you use 75% as a threshold there?
Jay Conner [00:43:00]:
Well, for a couple of reasons. First of all, I want to give a large equity cushion to the private lender or private lenders in case there’s a downturn in the market from the time I buy it to the time I rehab it, the time I sell it, right? So prices of homes could come down 25% by using my criteria before you cash out the private lenders. And you can still make them whole just by selling the property instead of having to dig into your pocket and make up the difference in the amount of money that you borrowed. So it just gives a nice, large equity cushion. It just keeps everybody safe.
Mason Klement [00:43:39]:
Okay, that makes a lot of sense. And I guess one last question is, is there any reason that private money lenders may not want to lend you money?
Jay Conner [00:43:49]:
Well, yeah, we’ve sort of talked about it on the other side of the coin. First of all, they don’t trust you.
Mason Klement [00:43:57]:
Sounds reasonable.
Jay Conner [00:43:58]:
Regardless of your program, unless they trust you, they’re not going to be doing business with you, even if you’re giving them collateral. So how do you get people to trust you? Well, it’s hard to trust someone unless they are coming across confident about what they’re talking about. So you build trust and credibility by knowing your program backwards and forwards. Just duplicate my program. You know, the interest rate, the term, how they’re protected, and so on. As far as frequency of payments, I let them choose. We can structure some deals where we don’t make any payments and just cash them out. They get all their principal loan amount and the accrued interest while we held the money.
Jay Conner [00:44:44]:
Right. You’ve got to come across as you’re trustworthy and you know what you’re talking about. And you’re going to know what you’re talking about once you understand what the talking points are of the private lending program. A lot of people are not comfortable loaning money out unsecured. I mean, you can, and it’s legal, but I wouldn’t do it. So they’re going to feel, you know, comfortable loaning money even after they trust you because you are giving them security. So why wouldn’t they loan you money if they don’t trust you? If you’re not giving them, they may not give you any more private money unless you make your payments on time. So you got to do.
Jay Conner [00:45:26]:
You’ve got to do what you say you’ll do. Right. But those are the two main things. Having a program that gives them security makes them feel secure. And the three main reasons that they’re going to loan you money are, number one, they’re going to make a lot of money because you’re paying in very, very high interest. You know, to them, the note that they’re doing is safe and secure. It is secure because we’re securing it with a mortgage or deed of trust. It’s safe because it’s a conservative loan-to-value at 75% of the after-repaired value.
Jay Conner [00:46:01]:
And another big reason that they’re going to loan to you is that they don’t have to worry about the volatility in the stock market. You see, here’s a rider downer. The principal loan amount remains the same until you sell that property. Because we don’t pay principal and interest payments. And that’s a win for the lender, and that’s a win for you. You see, if you just pay or accrue interest, they’re making more money because if you pay them principal and interest payments, you’re paying part of their principal down, and they don’t have all their money invested in the deal. Interest-only payments, if you’re making payments and it’s not just accruing, are smaller than principal and interest payments. So it helps your cash flow as a real estate investor as well.
Mason Klement [00:46:47]:
Okay. Yeah, it actually lowers the monthly payment there. That makes a lot of sense. Okay, I know you have a hard stop coming up, so I think this has been extremely helpful. So you’ve already mentioned jconner.com moneyguide if folks want to download that guide. Is there any other way that you want people to contact you if they want to learn more about the programs? Anything else?
Jay Conner [00:47:08]:
Well, you know what, they can go to just Jay Conner, www.JayConner.com/MoneyGuide, and go to my main website there. And I have resources and tools available. And you know, believe it or not, Mason, we actually pick up the telephone in my office when somebody calls us. So feel free to put it in the show notes. My phone number is 252-808-2927. That’s 252-808-2927. If anyone needs help with private money getting private money, give us a call. We’re here to serve.
Mason Klement [00:47:46]:
All right, perfect. Excellent. I will be sure to do that. Thanks again for your time.
Jay Conner [00:47:49]:
This was great, Mason. Thank you so much for having me on. I appreciate it.
Mason Klement [00:47:54]:
All right, that’s another episode of Scalable Real Estate Investing. Thank you for tuning in. Please be sure to leave a review and subscribe on whatever channel you’re using to listen or watch these episodes. And also be sure to go to scalablerealestateinvesting.com, scroll to the bottom, and fill out the form to sign up for our email. And you could also reach me directly@masoncalablerealestateinvesting.com, that’s M A S O N@ scalablerealestateinvesting.com if you’d like to get in touch with me to either partner on deals or even be considered to do your own episode on this podcast. Thanks again, and have a great day.
Narrator [00:48:32]:
Are you feeling inspired by the knowledge you gained in this episode? Then head over to 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 www.JayConner.com/MoneyGuide to get your free guide. We’ll see you next time on Raising Private Money with Jay Conner.