Do you feel like the bank owns you? Do you struggle in real estate and get frustrated about losing many deals? Our guest relates to you and will help you with those frustrations. Jay Conner talks about private money and the private lending program he teaches that helps him achieve seven figures yearly. The difference between private money and banks is you get to set your rules. Jay also shares some of the steps he takes in his warm market. Learn what those steps in the warm market are to achieve that seven-figure for yourself! fullerwalletmedia.com/moneyguide fullerwalletmedia.com/Youtube fullerwalletmedia.com/Podcast fullerwalletmedia.com/facebook
Watch the episode here
Listen to the podcast here
How To Get Money With Jay ConnerI have a very special guest, Jay Conner. How are you doing? Gem and Melanie, I am doing fantastic. Thank you so much for inviting me to come on here and talk about my favorite subject, which is private money. I know that you are a little bit newer to our audience. They probably don’t know you haven’t been on our show yet. Before we dive right into private money, why don’t you let us know a little bit about your background? How did you even get into private money? What did you do before private money? It didn’t happen by me waking up one morning and saying, “I’ll raise a bunch of private money.” These things happen in our life. The growth takes place in the valley when there’s difficulty going on. Let me back up even before private money. My wife, Carol Joy, is from Wichita Falls, Texas. I know you are out there in Texas. Carol Joy and I started investing in single-family houses all the way back in 2003. We have been full-time all these years since 2003 investing in single-family houses. What’s interesting is we’re here in a small market. Our total target market is only 40,000 people, but we do 2 to 3 deals a month. Our average profit per deal is $78,000. That is in a large part due to private money. 2 to 3 deals a month is not a lot, but you multiply it out times $78,000 each. Those numbers work out okay. Here’s where we backed into private money. From 2003 until 2009, in those first six years in the business, I relied on local banks and mortgage companies to fund our deals. That’s all I knew to do. I didn’t know anything about creative financing, buying houses subject to the existing node, and seller financing. I thought you had to go to the bank and borrow money. The old traditional way of borrowing money is you see Mrs. Banker or Mr. Banker, get on your hands and knees, put your hands underneath your chin, and say, “Please fund my deal.” That’s all I know to do. That’s what I did. I begged and chased for six years to get my deals funded. I remember it like it was yesterday. Here in Eastern North Carolina, we still have handsets with cords attached to them. Can you believe it? I picked up my telephone in January 2009 and called up my banker. I had two houses under contract for funding. They represented over $100,000 in profit. I learned on that phone call that I didn’t know we had a worldwide crisis going on until I got a crisis going on. I didn’t have any way to fund those two deals. They had cut me off. They had shut down my line of credit with no notice. I hung up the phone, sat there, and said, “I got over $100,000 in potential profit on these two houses but no way to fund them. What am I going to do?” I sat here, asked myself a question, and said, “Jay, who do you know that can help you with your problem?” I thought of my friend Jeff who lived in Greensboro, North Carolina at the time. Jeff was also a fellow real estate investor. I called him up and told him what happened. He said, “Welcome to the club.” I said, “What club?” He said, “The club of losing your line credit at the bank club.” I said, “How are you funding your deals?” He said, “Have you heard about private money and private lending?” I said, “I don’t know what private money and private lending are.” He says, “That’s how I am going to fund my deals.” I researched private money and private lending. In less than 90 days, I was able to attract $2,150,000 in private money funding from our real estate deals and close on those two houses. I’m not talking about hard money lending or hard money brokering. I got a lot of good friends that are hard money brokers and lenders, but I’m talking about doing business with individuals or people like you and me that have investment capital and/or they have retirement funds. They’re not happy with the rate of returns that they’re getting, and they would love to get a high rate of returns safely and securely, be a passive investor, and get those returns. It’s funny. To this date, I’ve never asked anybody for money. People say, “Jay, have you got $8.5 million in private money that you’re using from house to house?” It’s simple. I put on my teacher hat and teach people what private money and private lending are and how they can get high rates of returns safely and securely. Now, I got a problem. I got more private money than I can use. It’s a 180-degree shift from borrowing money from the banks. For example, you borrowed money from the banks. They make the rules. They set the interest rate, the loan-to-value, the terms, and the whole nine yards, but in this world of private money, as the real estate investor or the borrower, we set the rules. Instead of begging for a mortgage, you’re offering a mortgage and an opportunity for people to get involved. In this world of private money, the real estate investor and the borrower set the rules. Instead of begging for a mortgage, you're offering a mortgage and an opportunity for people to get involved. Click To Tweet It’s a total mind shift. I tell people, “You have to own the real estate in between your ears before you can own houses, apartments, self-storage, and all that.” Private money has changed our business more than anything else. Our business tripled in the first twelve months that we were cut off from the bank. That’s because we had all this funding available. How do you raise private money? First of all, you teach them. All of my 47 private lenders have never heard of private money and self-directed IRAs. I started teaching them about what it is. I taught them my private lending program and how they can be safe and secure and get a high rate of return. I taught them the interest rate that I pay. I taught them how they can get their money back in case of an emergency with a call option. I teach them the program. That’s another important point there. I never teach someone the private lending program and, at the same, time pitch a deal. I’ve never pitched a deal in my life because if I teach the private lending program and bring a deal to the conversation, I already sound like I’m begging. I already sound like I’m desperate, “I need this deal funded.” We separate the conversations of the program, “Here’s a deal that you can fund.” I’ll teach the program. They love the program and tell me how much I got. I say, “I’ll find a deal as soon as possible and put your money to work for you as soon as I can.” If they’ve got retirement funds, and they want to use retirement funds, I’ll introduce them to my self-directed IRA representative and get their funds moved over so they can fund my deal. Here’s the magic secret sauce. I got a deal. I’m ready for them to fund. I call them up and say, “I got great news. I can now put your money to work for you. I got a house over here in Newport adjacent to Morehead City. The after-repair value is $200,000. The funding required for the deal is $150,000. You got $150,000. You already told me. The closing is next Thursday. You need to have your funds wired to my real estate attorney by next Wednesday. My real estate attorney will email you the wiring instructions.” I didn’t ask them, “Do you want to fund the deal?” That’s the most stupid question in the world I could ask them. They want to fund the deal. They have been waiting for the phone call. Even on top of that, if I have taught them how they can move their retirement funds to a self-directed IRA company, they have moved them over there. They’re not making money until I put that money to work for them. At least in my warm market, there are three categories of where you find private lenders. We will talk about that. I’m talking about my warm market. These people are looking to me and you to tell them what to do and how to be safe. That’s a very smart way of doing it. What categories are there for private lenders? The category I went over was what we call your warm market. Those are people you’ve got some connection with. They’re in your cell phone, email list, Facebook, and social media. I don’t mean your fake Facebook. I mean people you know that you communicate with. Who do you go to church with? You got connections with these people. All my conversations so far have been about how I talk with those people and teach them. The second category is what I call your expanded warm market. Some people, when they’re starting in real estate investing, say, “All my people are broke. My people don’t have money.” First of all, I don’t believe them. They’re intimidated. They don’t know how to approach people and start a conversation. Everybody’s connections have money. I teach real estate investors how to expand their warm market. You two and I will agree there is a correlation and a connection between your network and your net worth. It’s true. Expand your warm market. The third category of private lenders are existing private lenders, not hard money brokers but individuals like us that are already private lenders. They’re already loaning money out to real estate investors. The question is, “How do you find them people?” There’s more than one way to find those people. Let me pull the curtain back on that. When I started raising private money in 2009, I said, “There are individuals that loan money out as I’m teaching individuals to do it. Notes are being secured by real estate. How do I find them?” I hired my real estate attorney’s paralegal. She searched local county courthouse records looking for deeds of trust and individual names that were the lender, not looking for an LLC or any company but looking for individual names that were loaning money out secured by real estate. She found 2 in 90 days. That was in our local county. I said, “There’s got to be a better and easier way of finding these people.” It was in 2010 that we started developing what’s called the private lender data feed. The private lender data feed is a sophisticated software. It’s skimming software. It goes out and skims all public records in the nation. We update the private lender data feed every month. We get by ZIP code every private lender closing in the nation every month. We get the private lender’s contact information by public record. We know the interest rate that they’re getting. A lot of them are happy at 5% and 6%. I don’t try to talk them into 8% if they’re happy at 5% or 6%. We have this software where you can go in and search by ZIP code anywhere in the nation and find who’s in your backyard or anywhere you want to search. In addition to that, there’s another cool and easy way to find existing private lenders. That is in self-directed IRA networking events. Let me be clear first and talk about self-directed IRAs. A self-directed IRA company is also called a third-party custodian. Most people walking around never heard of this. You all have because you’re in the biz, but most people haven’t. Your audience has probably heard of a self-directed IRA, but most of the people walking around out there haven’t. To be clear, a self-directed IRA is a company that the IRS has approved where someone can take an existing retirement account, a 401(k), a 403(b), any pension, or any retirement account they have. They can transfer that retirement account or a portion of it over to an approved self-directed IRA company. It normally takes about two weeks. In that transfer, there are no taxes, no penalties, and no triggering of taxes. Once their account is funded, they can then loan money out to us real estate investors as the borrower. There’s no limit to the amount of money that they can earn per year either tax-free or at least tax-deferred. This is so important for us real estate investors to know about this and have a relationship with a self-directed IRA company that you can refer someone to. You’re having a conversation with somebody. You learn that they have retirement funds. You want to have a relationship with a self-directed IRA company that you can refer them to. I got 47 of them. The reason it’s so important to have that relationship is that over half of our private lenders are using the retirement funds that they have transferred over to a self-directed IRA to fund our deals. If you have not written down anything yet, that’s a writer-downer right there. Audience, I hope you are taking notes because he’s given a lot of valuable information. Here’s an answer to the question, “Where are these private lenders? How do you find them?” Your warm market expands your warm market. Get involved in the Rotary Club. Go there with a servant’s heart. Get involved in Business Networking International. I have gotten so much private money from BNI. I volunteered to be the education director. I had ten minutes on stage in the front of the room every week telling people how to be better networkers. They knew that I was a real estate investor and I raised private money. Expand your warm market and then those self-directed IRA networking events. Here’s an interesting statistic that most people don’t know. It depends on the self-directed IRA company. Seventy percent or more of account holders of a self-directed IRA that has an account at a self-directed IRA want to loan money out to real estate investors from their retirement account. I say, “The more money you wallow in, the more money sticks to you.” I can see that being the case. These networking events have Zoom. You don’t have to go there in person. I got a notification from the self-directed IRA company that I refer all of my private lenders. I got a notification and an invite. They were having an online Zoom for free. You didn’t have to pay any money. Anybody could come. If you want to borrow money, network, or lend money, the account holders were notified. It’s a great way to network and find existing private lenders. The only thing about existing private lenders is they have already got their program in their minds. That’s an interview process, “What are you accustomed to getting?” When I’m borrowing money from my warm market, I got on my teacher hat, and I’m teaching people how to do private money that has never heard about it. The only thing about existing private lenders is they've already got their program in their mind. Whereas, when you're borrowing money from your warm market, you wear your teacher hat and teach people who have not heard about it how to do private money. Click To Tweet What are some of the rules with private money? When you deal with the banks, you go to the bank, submit your application, and provide all your documentation to get your loan. You’re more than aware of the contract. How does it go with private money lenders? Would you recommend private money over looking for other types of lenders? The list is long, so I’ll try not to labor on each point. The question is, “What are the benefits of borrowing private money versus borrowing money from traditional banks, institutions, or hard money lenders?” Forge as many relationships as you can. Here are the benefits. Number one, you make the rules. As the borrower, you set the interest rate and the loan-to-value. I’m paying my private lenders 8%. You’re making the rules. My rule is that I’m not going to borrow more than 75% of the after-repair value. I didn’t say 75% of the purchase. Number one, you make the rules. These are not in any particular order. They’re all great. Number two is quick closings. When I’m borrowing money from institutions and banks, that might take 3 weeks, 4 weeks, or 45 days. I make all the offers that I can close in seven days or less. As a motivated seller, I get more offers accepted because I can close quickly. I went under contract. I signed the DocuSign before I came here to your show. These people wanted $100,000 more to begin with than I went under contract for. Listen to the numbers and let me tell you how offering a quick closing using private money got me this deal. Here it is. They wanted $270,000. The after-repair value is $280,000. They’re wanting retail. We ran the math. The most that I would offer was $141,500. There’s a big difference. It’s over a $100,000 difference, but part of our negotiation was this. They didn’t want to move until August. They didn’t want to close or sell until August. I said, “We close now. I give you all your money. I’ll close in seven days. You can live in the house for free until August.” Because of me being able to offer fast closing, live there for free. I don’t care. Fast closings get more of your offers accepted. Number three is a big one. When it’s a private money deal, I never take any of my money to the closing. Every private money deal is a no-down-payment deal on my part. On top of that, I always bring home a big check. Who wants to get paid to buy houses? Let’s get paid to buy houses. It’s very common for me to bring home a $30,000, $40,000, or $50,000 check when I buy. On this deal I told you about that I’m closing, the purchase price is $141,500. The after-repair value is $280,000. The rehab is only $20,000. I can borrow $200,000 from one of my private lenders. They will wire $200,000 to the real estate attorney for the closing. The purchase price is $141,500. I’ll bring home a $59,500 check if I want to. I always borrow more than I need to buy. I could always bring home a big check when I buy. Talk about cashflow. Number four, I can structure my deals to where there are no monthly payments. As opposed to the banks, I always had to make monthly payments. Let’s stop and think about this for a second. I take none of my money to the closing, I bring home a big check, and I make no payments until I cash out. You think that might help your cashflow a little bit. Cashflow is a big thing. Number four, your credit scores got nothing to do with how much private money you can get. That’s because this is a collateral loan. I’m back in the note with the real estate that I’m buying. Credit scores don’t matter. Your credit score matters when you borrow institutional money. What’s another reason? There’s no application. Your credit scores have nothing to do with how much private money you can get. That's because this is a collateral loan. So credit scores don't matter. Your credit score matters when you borrow institutional money. Click To Tweet For people who are looking for private money or private lenders, how does that approval process work? It’s all about the relationship, “I want to do it. I don’t.” How do people know whether they want to go ahead and exit? They’re like, “I don’t want to.” Can you give us a little bit of detail on that? Let me give you the steps in the warm market or people you’ve got a relationship with. 1) Teach them the program. 2) If they like the program, they tell you how much they got to invest. 3) Call them up and tell them that you can now put their money to work. 4) They wire the funds. That’s the approval. There’s nothing for them to sign. I’m doing all the signing because I’m borrowing. When they wire the funds either from their checking account or from their retirement account, that’s the approval. They wired the funds. Have you ever had a bad experience with somebody who is lending you money or somebody you are lending money to? I’m glad you asked that question, Gem. Here’s why. First of all, in all these years, I’ve rehabbed over 450 houses here in Eastern North Carolina using private money. In 100% of every private money deal I’ve done, the private lender got every penny promised to them. Do my repairs and rehabs ever cost more than I anticipated? 100% of the time. Rehabs and repairs always cost more, but like that deal I gave you an example of, because of the spread between the after-repair value, my estimated repairs, and what I’m buying it for, the magic is not in estimating the repairs. The magic is in the offer, and because of that spread, I’ve been able to pay every private lender. Number one, they have all had a fantastic experience. Have I ever had a bad experience with a private lender? In the minority of cases, I can count on one hand. Ever since 2009, a private lender told me they had X number of dollars to use. When I called them up and told them I could put their money to work, they had either changed their minds or they had used the money elsewhere, but that’s less than five times in all these years. When you get a commitment letter from a bank or an institutional lender, then you know that money is there. It’s waiting on you, but what hoops did you have to jump through to get that commitment letter? How much of your money are you having to bring to the closing table? The other benefit of private money is it puts you in the driver’s seat of your business and fix your cashflow. You talk about good experiences and bad experiences. I always set up the transactions to be win-win. If everybody is not winning, then I don’t want to be a part of the transaction. I want my private lender. I don’t borrow any unsecured funds. I could legally, but I don’t. I back every promissory note with real estate or that single-family house that I’m buying. If some of your audience is also interested in commercial deals, apartments, small apartments, and self-storage, it’s all the same money. Private money is private money. It’s a matter of what is the real estate that is backing that note. First and foremost, this is a lot of great information. Jay, I do have to ask you. When should somebody use private money on real estate deals? Thank you very much. This is a writer-downer. Use private money when the seller requires all cash. For example, if a property is in the multiple listing service, you’re going to need private money, your money, or the bank’s money because they want all the cash. I’m going to give you an interesting statistic. In all these years, I have reviewed and analyzed thousands of what we call property lead sheets. These are lead sheets of For Sale By Owners or FSBOs. They want to sell their property. When you’re talking to a for sale by owner, if they currently have a mortgage, then I want to negotiate to buy that house subject to the existing note and leverage the mortgage that’s already in place so that for sale by owner will agree to sell me the property, and I agree to make their payments. That’s called buying subject to the existing note, or I can buy it on what’s called a wrap, which is a combination of subject to existing note and seller financing. If it’s free and clear, I want to negotiate to buy it with them taking back a note with seller financing, but here are my statistics after reviewing all these property lead sheets. I’m a pretty good negotiator. My acquisition is this, too, but only 13% of for sale by owners of single-family houses will sell to me creatively. What do I mean by creatively? That will sell to me without me writing a check, subject to the existing note or seller financing. What do the other 87% of those FSBOs require? All the cash. I’m going to pay with private money to a for sale by owner the cash if that’s what they’re requiring, which that’s in the majority of cases. If you’re buying any bank-owned properties, that’s private money. If you are placing a bid at the courthouse steps on a foreclosure, that’s private money like Auction.com, short sales, and anytime the seller requires all the cash. When do you not need private money? You don’t need private money if you’re wholesaling. If you’re getting a house under contract and you’re going to wholesale it for an assignment fee out to another real estate investor that’s going to take the deal down, you don’t need private money for that. You don’t need private money when you’re buying subject to the existing note unless you’re buying a house in pre-foreclosure, they’re way behind on payments, and you have to bring all those payments due. You can use private money in the second position and use private money to bring the payments due. You’ve given so much good information. A lot of our audiences probably know a lot about real estate already, but then some of them don’t. For those who know nothing about private money and who are new to real estate or investing, you have given so much valuable information because a lot of the time, people feel like, “I can’t do this. I can’t be an investor because I don’t have the money or the credit.” Giving the knowledge that you have in terms of private money, that’s their option, “Here’s your way out. Here’s your way in the door.” You’ve given them all of the information on how to get to that next level in their investing journey. The two most common questions I get from new real estate investors and even seasonal investors are, “Where are you getting your leads to buy houses? Where are you getting the money? How do you fund them?” We have been talking about where you get the money. Maybe you can have me back to talk about where I find all the leads before other real estate investors even know about them. That would be great. We’re going to have to do that. I’m taking notes. That’s going to be our subject. Jay, we’re closing out. You’ve given us such great information and everyone in our audience as well. Is there anything you would like to say in closing or anything that we didn’t cover? Get educated. Download the money guide that we’re talking about. That will get you started on the fast track to getting private money. My phone number is in the money guide. We pick up the phone when you call. If you want some hand-holding on private money or something you don’t understand, we are here to support you in any way that we can. If you read the money guide and something doesn’t make sense, my phone number is in there. Give me a call, and we will walk you right through it. Thank you so much, Jay. We love you here. You’ve given so much great valuable information. I hope you had your pen out taking notes. I want to thank everybody. Jay, thank you so much. We appreciate it. Melanie and Gem, thank you so much for having me on. I look forward to coming back. We’re going to be reaching out. We’re already starting the process to get that scheduled. Thank you so much. Thank you. Have a great day.