Podcast Episode 116 Transcript

Episode 116: Guide To Private Money & Private Lending w/ Jay Conner

Hey, folks. James Prendamano here from the prereal podcast. With all of the uncertainty in the market right now, inflation, interest rates soaring, there's quite a bit of trepidation and concern on how we're going to get through the next several years for the deal makers out there. This week's guest, Jay Conner. He is the private money authority. And believe me, he is the private money authority. Do not miss this show. He takes you through a detailed process of how you're able to raise private money at super reasonable rates at scale, not just short term, two, three, five year terms and not hard money. We're not talking twelve plus four and 16 plus two. We're talking 8%. He's got an unbelievable system and unbelievable pipeline. Jay Connor, the private money authority. Don't miss this show. Folks, are you ready to bring your real estate game to the next level? My name is James Prendamano. I'm the CEO and founder of Prereal. And over the past 25 years, I've closed over a billion dollars in transactional real estate. Each week I'm meeting with outstanding investors, highperforming individuals, and visionaries operating in the real estate space. These are the people that are actually out there in the real estate game right now getting it done. This podcast aims at bringing anyone's game to the next level. This is the prereal podcast. Jay, thank you so much for joining us today.
Absolutely, James. It's my pleasure. And thank you so much for inviting me to come along to talk about my favorite subject, which is private money and private lending. Well, Jay, as we were talking a little offline before we jumped in here, market conditions are bringing us down this pathway where it never ceases to amaze me, man. We've been here before, right? We're going to be here again. And here we are right now. We've been seeing indicators that have been telling us for a couple of years now that things were going to shift. It's my personal belief that these smaller and mid cap lenders, the smaller banks, the bridge lenders that were out there pumping money out on these two, three, five year loans, we're going to hit a point where rates started to raise, the big banks have really pulled back. And we've started to see the big banks now offer incentives to investors. If you put $250,000 and I won't go by name, but Bank ABC will give you an extra quarter of a percent. Or if you put a half a million dollars in, we'll give you an extra half a percent on a money market account or something like that. And that starts to pull money out of these smaller banks. And then you have the stimulus money starting to dry up and you have folks not returning to work and you have folks relocating. And that means that their cash reserves are starting to get depleted. And as those cash reserves get depleted and the bigger money gets pulled out, of those banks, they all have charters, right? And they can only have a certain amount of debt to cash on hand. That's the way it works. And we've seen this before, where the banks wake up one day and even performing notes, you get caught short, and the banks start to unload these notes, and it picks up steam real quick. And then the big banks kind of cross their arms and say, okay, we're going to see how this plays out. And next thing you know, rates are at 78%, and the big guys start buying up those smaller banks, and it becomes really difficult to fund those smaller deals, those rehabs, those one offs that have been bread and butter, man, for so many of us for so long. I don't know if there's a better time to talk about your system. So if you would, with that big long winded summary, would you talk to the folks a bit about, first of all, how you got here, where did you start, and then we can get into the nuts and bolts of the system. Sure. Well, I can tell you, James, how I did not start in this world of private money. I just didn't wake up one morning and say, hey, I think I'll go raise some private money. I mean, the biggest quantum leaps in your business and in your personal development come about from problems. They come about from challenges that actually are opportunities, and it just may be hard to see them. So I started, my wife and I, Carol Joy, and I started investing in single family houses full time here in eastern North Carolina in a really small area. My total target market is only 40,000 people. Only 40,000 people. And even to this day, I'll do two to three fix and flips a month. But the average profit right now is $74,000 per house that we do. So if you got $74,000 profit average, you do two to three a month. That math sort of seems to work out. And so starting in 2003, the first six years, James, that we were in the business, all I knew was to go to the local bank and get them to fund my deals. That's all I need to do. And so for six years and I had a beautiful relationship, beautiful relationship with the banker for six years. That's what I did. I had a line of credit at the local bank, and they funded my deals. So I remembered, like it was yesterday, I picked up the telephone in my office. By the way, James, we still actually have landlines here in North Carolina. Can you believe? I know. Some kids don't even know what a handset with a cord attached to it is. But I called on my banker. I have two houses under contract. This was January 2009. Think about that. Where we were in time. And I called him up. I told him about the two houses we had on the contract. And I learned quickly on that phone call that the bank had shut me down. I had no line of credit. It was gone. It would be nice if somebody had told me that before I went and got these two houses under contract. So I said, what's the problem, Steve? He was my banker. He said, we're just not loaning money out of real estate investors anymore these days because there's a global financial crisis going on. I didn't know there was a global financial crisis going on until now. I have a crisis going on and no way to fund my deals. So this story may sound familiar to you, James. I don't know. So I hung up the phone and I had a phrase I had to say and just come to my mind that I still repeat today, and that is, it's impossible to fail unless you choose to quit. And quitting was not an option for me. So I called up my buddy Jeff, who lived in Greensboro, North Carolina at the time. He was a real estate investor. I told him what had happened. He said, welcome to the club. I said, what club? He said, the club of being cut off from the bank club. I said, what are you talking about? He said, I lost my line of credit last week. I said, well, how are you funding your deals? And, James, for the first time ever, I heard the phrase private money, private lending. Never heard of it, didn't know what it was. And also, in that conversation with my friend Jeff, I heard the phrase self directed IRAs. I'd never heard of self directed IRAs and what that was. So I learned about private money and private lending. And I'm not talking about institutional money. I was on a panel at a huge conference just last week, and I was on a panel there were two hard money lenders on the panel myself, a real estate investor and another real estate investor. And I'm not talking about hard money. Hard money is institutional money. You know, hard money is a broker of money. The hard money lenders, most of them go out. And by the way, I'm not knocking hard money lenders. I think you should have as many relationships in place as possible, right? But a hard money lender, most of the time, goes out and raises private money from individuals, from human beings, and then jacks up the raid charges points. And that's how they make money. They make money by loaning money. So I learned about private money, how to do business with individuals and how to find them, how to locate them, et cetera. And so you know what's funny, James? I was able to attract and raise $2,150,000 in less than 90 days from individuals that I knew and still know for them to fund my deals. Here's. What's funny, James? Since that time, I have never asked anybody for money. I've never asked anybody for a note or a mortgage. So what I learned very quickly is a dichotomy, a 180 degree shift. Traditionally, when a real estate investor is borrowing money, or anybody's borrowing money, you walk into the bank and you look at Miss Banker or Mr. Banker, and you get down on your knees and you put your hands underneath your chin and you say, please give me a mortgage. Please fund my deal. Right? That's the traditional way of doing business, the way we now do business. And since 2009, I've never asked anybody for money. I got eight and a half million dollars private money that we just rotate from project to project to project, house to house to house. And I've never asked anybody for money. And people say, Jay, how do you get all that private money? It's because I don't ask. I don't beg. I don't chase, I don't sell. I've never pitched a deal in my life. Now, how do you get your deals funded? It's simple. I put on my teacher hat and I teach individuals, human beings just like me, what's private money? How to get high rates of return safely and securely. And I teach them my private lending program. And then they're all excited. They say, well, how do I start? Do I write you a check? No, you don't write me a check. You just tell me how much you got to work with, and I'll go find you a deal to fund just as soon as possible, either with their investment capital or and or their retirement funds, so they can move those funds over to a selfregarded IRA and fund my deals. That's important because over half of my private lenders, I got 44 of them right now, over half of them are using their retirement funds. So that's why I practice and teach. The money comes first without a deal attached to it. So then I know a private lender has got whatever, $300,000, 500,000, 600,000, whatever they got to work with. And I said, Great. I'll put your money to work for you just as soon as possible. So it might be two days, three days, two weeks, three weeks, whatever. I call them up, and here's exactly what I say to them on the phone. I don't pitch a deal. I don't ask them if they want to fund a deal. That's the most stupid thing I got to ask in this world. Of course they want to fund a deal, because they're waiting for the phone call. They already know what the program is. They know how they're going to be protected. And I call them up and it's exactly what I said. I said, Look, I got great news for you. I can now put your money to work for you. I got a house under contract in Newport they could care less about. The address is the after repairing value is 200,000. The funding requires 150,000 I already know the 150,000. They tell me the funding requires 150,000 closings next Thursday. You need to have your money wired to my real estate attorney next Wednesday. Boom. End of conversation. I didn't ask them. I told them what they wanted to hear, and that is I cannot put your money to work. So this world of private money, again, we're not begging. We're not on our hands and knees asking somebody to give us a mortgage. No. I am giving them an opportunity to make high risk returns safely and securely and just create win win scenarios. So folks, with Jay just shared, if you take nothing else from the couple of years we've been doing this, please take this away. That is absolute gold. And it took me 22 years to learn that. Starting on the broker side and then graduating to the ownership and the equity side, I always had it backwards. I was programmed to think that the deal, while anyone can find a good deal, because that was my gift. I had vision. I have a good sense for people. I understand how to negotiate. I'm a deal maker. I thought the money was the hard part. I thought that the money was the unattainable goal that you had to beg, borrow, and do whatever else you had to do to source it. And what I came to learn much later in my career than I am comfortable with, but it changed everything for me, is if you have the deal, you have the money. And I know for some of you, that's scary as all hell, and it doesn't seem like it's reality, but what Jay is saying is a fact. Real estate is sexy. It's secure. It's tangible. It's something that people want to be a part of, and it's something that we take for granted as insiders. The knowledge that we have is invaluable. Never, ever turn away a good deal because you think you don't have the money. Would you agree with that, Jay? Absolutely. I mean, you know, and there's always deals. There's always deals, and there's always money around us, right? These are the two biggest mental blocks that new real estate investors have. Where am I going to find the deals? Where am I going to get the money? And you got to get your education. Like with James, you got to have to know how to find them. They're not in the mobile listing service today for sure. They're all off market. However, foreclosures are opening up. That's a different conversation. But anyway, listen, regardless of your political affiliation, I'm not talking politics here. I'm talking facts. Since the current administration took office, there's been more money printed in the basement of the White House than any other administration. Of course, I'm speaking figuratively, but you know what I'm saying. And here's what I mean. Prior to COVID prior to COVID, I'm calling COVID beginning March, officially 2020. Prior to that time, there was 18 trillion with a T, $18 trillion in cash sitting on the sidelines. That could have been used for private money, but people had cash. They don't know what to do with it. Today, as of the release of this podcast today, there is 31 trillion with a T in cash sitting on the sidelines. People don't know what to do with their money. And listen, if you're a real estate investor, it's just your moral and ethical obligation to relieve them of their problem and teach them what they can do with their money and put it in a very safe and secure place, ie. Your deals. Because I know you buy right, you're conservative. I give my private lenders a very conservative maximum loan to value. I don't borrow more than 75% of the after repaired value. I didn't say 75% of purchase. I said 75% of the after repaired value. And we protect them. We take care of them. It all ends up being winwin. But, I mean, here's the deal, folks. You see, when COVID came along and got I've wonderful friends that own hard money brokerages, I'm in high end mastermind groups, and I know them. I know who the movers and shakers are. When COVID came along, they shut down. I mean, they wouldn't even make a loan right there for a few months. And guess what? When Kobe came along, I had more private money chasing me then I've ever had in my career. Since I started using private money in 2009, people had all this they got all this money, and they don't know what to do with it. So this world of private money, I'm telling you, it puts you in the driver's seat of your business, fixes your cash flow problem. It's not like hard money. There's no hurry to pay it back because I'm not having to pay points. I'm not having to pay origination fees, I'm not paying crazy interest and all that kind of stuff. So sometimes people ask me, jay, what's the quickest way to fix my cash flow problem? Private money. Because I always borrow more than I need to buy it, and I always bring them a big check. I mean, just this morning at 10:30 A.m., I closed on a deal, and I brought home a $74,689 check, and I took none of my own money to the closing table. Who wants to get paid to buy houses? Now, of course, I'm not going to bring them a $74,000 check unless there's a substantial rehab. But I get all my rehab money up front. I can pull equity out of that house when I buy it if I want to. It just really puts you in the driver's seat. So Jay touched on something that happened to me in 2009. I was very conservative. I had picked up a number of these fix and flips, some of which I held, and I had lines of credit debt free, and I had my HELOCs in place because I knew what was coming. And I got those devastating calls also that they had shut. Not only did they shut the lines off, they wouldn't release the lien they had on the house. Even though I didn't have a dollar debt that I had pulled, they would not fund and they would not release me of my lien. So I was stuck. I thought I had it figured out and this was going to be an opportunity for me to scale folks. If it hasn't happened already, it's coming. If you got those HELOCs, you should be considering pulling that money out and putting it on the side because the spigots are going to get shut off. In my humble opinion, that's all coming full circle again. So, Jay, where do you start? Let's say because there's a lot of folks in my audience that do these fix and flips. They have the opportunities out here. It's not unusual. 16 plus 216 plus four. We all have our hard money connections, and they're tough, man. When you start paying 20% on a deal that hurts right now, you're getting into the partner realm. So where do people start and where can they expect the market to settle as far as cost of money? Yeah, so right now I'm paying 8% no points, no fees, straight 8%. And of course, that's on the amount that I borrow. And as far as do I make payments to my private lenders or not, I'm happy either way. If the private lender is using their retirement funds and there's an actionable item, if you don't already have a relationship with a selfdirected IRA company or representative, you definitely want to do that. Because when you're talking or teaching somebody about what private money is and they have retirement funds, you need to be able to introduce them to someone that can hold their hands and get their funds moved over. But where do you find these people? So my private lenders, as I said, I pay 8% no points. How often do I pay them? I let the private lenders, if they're using their retirement funds, then we can structure the deal. Particularly if I'm going to be in and out of a rehab fix and flip in six months, nine months at the most, then I don't have to make any payments. It's their retirement funds. I'll just let the interest accrue, and then I'll pay off the private lender their principal loan amount plus the approved interest. That was during that time that I used it. I've got some elderly private lenders that really want and need the monthly income. They don't want to touch the principal, but they need that income. In fact, Carol Joy and I, we received thank you notes over the years from elderly people thanking us for changing their retirement years. Think about that. Where they could travel and visit the grandchildren and all that kind of stuff. I mean, it's a winwin scenario. So I let the Prime Minister choose how often they want payments. But stop and think about it. If they need monthly interest payments off of their investment capital, I wouldn't be doing that on retirement funds because those interest payments are not going back directly to the lender, it's going to their retirement account. So if they need income, let's stop and think about this. If I always borrow more than I need to buy the house and I got a nice spread as far as profit and equity when I'm doing initial monthly payments, whose money, whose cash flow am I using to make their monthly payments there's? I mean, think about it. Buy a house, bring them a big check, use their money initially to make their monthly payments. Now, you got to get that thing cash flow in or you got to get it flipped because that money is going to run out. But that's pretty cool. I mean, your traditional lender that you used to get down on your hands and knees to beg from, they're going to want you to have what's called skin in the game. They want you to have skin in the game. Well, since 2009, I never had none of my own skin in the game. I like keeping my skin on my body, right? So I let the private owner fund it. But I'm still going to protect them by I mean, obviously I can't bring home a big check when I buy a house and not borrow more than 75% of the after repaired value unless I'm buying at a huge discount, right? So when there's a rehab involved, I'll buy a lot of times 50% and less than 50% of the after repaired value. Where do you find these people? Well, I mean, where are they? It's like I never heard of private money lenders until 2009, but they were already all around me. Well, who are they? Here's the categories of private lenders and where you find them, your warm market, your expanded warm market and existing private lenders. So let me take a moment and just unpack those three categories. Your warm market are people that you already know and have some kind of connection with. They're on your email list. They are your social media friends or your Facebook friends. And I don't mean you actually know your Instagram friends, right? Connections. All the social media, LinkedIn, et cetera. And then if you're over 60 years old, you still have a few friends on your Christmas card list that's dwindling rather quickly. Who do you go to church with, your social groups? Who do you play poker with on Thursday nights? I don't know. But all these connections, right? So what do we do with those people? We teach them. We teach them about private money. Well, how in the world do you teach them? Well, first of all, you got to know what your private money program is that you're teaching them, because they never heard of it. Listen, out of my 44 private lenders, zero. None of them had ever heard of private money. They never heard of self raised, and so I taught them. Well, how do you teach them? Well, it can be one on one. You can go to lunch. I like to leverage my time. I've raised, almost going to be exact, $969,000, right on a million dollars at one private lender luncheon. So I just invited my friends to lunch, bought them lunch, taught them my private lending program. Don't worry, I'm going to share with you what my private lending program is exactly before the show's over, and how you can get it. So you teach them what's the interest rate? How are they protected? How can they get their money back in less than 90 days in case they have an emergency come up? Right. So I teach them the program. At the end of teaching the program, they're chasing me. Because where else can they get this kind of rate of return safely and securely? They aren't going to get it to the local bank. Recently, I just checked, even since the uptick in interest rates, the average certificate of deposit is still only paying around a quarter of a percent. The other day, somebody says, jay, you're wrong. I saw a banner out in front of a credit union. They're paying 2%. I said, right, read the small print. They're going to pay you 2% on the first $25,000 you put in their credit union, and the rest of it is going to be a quarter of a percent, right? So you're warm market. You teach them. Now they're chasing you. You find out how much they got. You find a deal just as soon as possible, and you put their money to work. Second categories, what I call your expanded warm market. Sometimes I'll hear from my students, they'll say, jay, all my people are broke. I don't know anybody with money. Well, first of all, I don't believe them. But secondly, I believe and I teach and practice, you should expand your warm market, get involved in your local community. Join the Rotary club. That's a long play. Join business networking international. That's a short play. When you join Business Networking International, and you join as a real estate investor, where you got 20 or 30 or 40 other BNI members that's on your team referring people to you that are looking for high rates of return safely and securely, in addition to your BNI members that you join. So expand your market. Thirdly, existing private lenders, where are these individuals that are already loaning money out? Well, I can tell you where they are. A bunch of them already have selfdirected IRA accounts at an Irsapproved selfdirected IRA company. In fact, I was just at a convention last week. There's about 600 of them there, and 70% of those people have got money in their retirement account wanting to loan it out to real estate investors, you can actually network on Zoom. These selfprotected IRA companies have Zoom networking parties to where you can meet these people. So people that have retirement accounts. Now, when I started out raising private money in 2009, I hired my real estate attorneys, Paralegal, to search local public records right here in our area, looking for individuals that have blown money out secured by real estate. Here in North Carolina, it's called a deed of trust. Most people call it a mortgage. So we only found two people in 90 days. I said, there got to be a better and quicker way. So we actually develop what's called my private lender data feed, where we get every private lending loan off of public record uploaded into our data feed every month. So anyway, regardless as to how you locate and find existing private lenders, that's another category of where they are. So warm market people, you know, and you teach expanding warm market, grow your market, third existing private lenders. So fascinating stuff here. None of it works, folks, if you don't have the right mindset. What Jay is saying, and he had said something earlier in the interview, you are legitimately, genuinely solving the problem for these folks. We have an awful habit of projecting our issue becomes everyone else's issue, and we think that everybody else is thinking the way that we're thinking, and they're not. Was it in the early 2000s that they started to allow the self directed IRAs? Actually, self directed IRAs have been around more than 30 years. Is that right? Yeah, they've been around a long time. And the company that I now refer all my private lenders to, they've been around for knocking on 20 years. 20 years. So for those not familiar real quick in the self directed IRA, you're allowed to take a portion of your retirement money and allocate it to these private, quote unquote transactions where to a man, if you're dealing with the right folks like Jay here, you're way outperforming what your IRA typically performs in the way of rate of return. So you're talking about 8%, which is amazing if you're on the investment side, you're talking about 75% of the after repair value, easy numbers. If you have a $200,000, do you get a formal appraisal? Is that how you're determining the after repair value or? Yeah, typically I'm just using a comparative market analysis that is prepared by my Realtor. Okay. Now, if I'm getting up to an after repaired value of 400,000, $500,000, just for my own sake, I want to get an appraisal before I actually make an offer. But most of the time it's my Realtor, CMA. Okay, so you're using a CMA again, for easy numbers sake, it's 200,000. You're borrowing 150,000. Let's say your strike price is $80,000 and you've got $40,000 in repairs. You've got that spread. If the investor wants to be paid, as Jay had said, monthly, sometimes it's. Quarterly. You have the money to acquire the asset, it's in first position, the debt, and you own the home. And then you've got your spread there to either stabilize it, refinance it or sell it. How long typically are the terms on this money? Jay yeah, just for liquid money, investment capital, that's not retirement funds. I will go two years on the notes. I typically don't need the money. Two years. I got into that habit a few years ago when my general contractors were so backed up they couldn't even get into my properties for six months or nine months to actually do the rehab. I do it for two years. Now, here's what's funny. And then I'll finish answering your question. Then I'll tell you what's funny. Retirement funds. I'll do the note for five years. And here's why. A lot of times I have sold homes, not in today's market, but I've sold a lot of homes on rent to own or lease purchase. And I actually am very different. I require my rent to own buyers, to get credit repair, and I actually help them get ready for a mortgage. Very different than most real estate investors. But anyway, I just didn't want to be under the gun for that note to be called do. But here's what's funny. The private lenders, they never want their money back. Like, I'll have a new private lender, come on with me, we'll do a new I get ready to cash out, I'm paying him off and I say, look, I'm going to put your money back to work for you just as soon as possible. And a new private lender, inevitably they will say, hey, can't you just keep the money? Can't you just keep the money? And I don't, because I'm giving them a security, I'm securing it with that real estate, that's backing. And if I sell the property, I can't back that note. But they know if I send the money back to them, they're not earning any money on that money when I pay them back. So, again, that's another big example of what's different between this sort of private money and borrowing institutional money. Your credit has got nothing to do with it. Your credit score has got nothing to do with how much money you can get. Your verification of income has got nothing to do with it. The list is very long. I can close in seven days when I borrow hard money or institutional money, maybe three weeks kind of thing. I can close, but I get more offers accepted. James, because to my sellers, I said, look, I'm closing seven days and you can stay in the house for another month or month and a half while you're looking for a place to move to. And I go ahead and buy the property. Well, I get more offers accepted because I can move and close so much quicker with my private lenders. So, again, this is just straight up gold. Folks, those of us that are doing the fix and flips, what is your number one concern right now? Interest rates. If you're taking this money out of the self directed IRAs and you have five years and you do contract for deed where they don't own the home, they're making payments, you get them in credit repair or they're just waiting for the market to turn around and become more reasonable. From an interest rate exposure point, you can set the rate, you set the payment. You have the ability now to move your product at a substantially or at least perceive substantially discounted rate than what they're going to go get in the banks. You're assuring these folks that have their money out there for the next up to five years, they're getting their payments. You're allowing these folks to wait this market out until it's a better opportunity to refinance either because of credit or interest rate risk. It's brilliant, Jay. This is exciting stuff. I never heard of the five year term on these fix and flips with the self directed tie in there. Are there prepayment penalties on these notes? Zero prepayment penalties. Love it. Zero origination fees, no jump fees. It's a straight 8%. So you've got a very comprehensive guide, folks, and it'll be in the links below. It's Jay Conner. It's jayconner.com/moneyguide. It's a PDF download. Could you give the audience a sneak peek of some of the things that they'll find in there? Absolutely. So, as I said, I'm just so excited. I just finished writing this private money guide. It's called Seven Reasons Why Private money will skyrocket your real estate business and help you build incredible wealth. So, first of all, the seven reasons, big reasons why you want to use private money. And by the way, if you've never borrowed private money or you're a seasoned real estate investor, this guide is for you. It's going to teach you how to find it, what to say, what kind of scripting, and most importantly, your mindset. James, you said it a few minutes ago. You got to get your mindset right. And this guide will get that straight for you. You are not selling, begging, chasing. You are teaching. And now the lender is chasing you. This guide will get you on the fast track of private money and put you in control of your business to where you're setting the rules. You're making the rules and the money is chasing you. This is a fascinating system. Again, I don't think there could have been a better time to have you on the show. Are you offering any one on one coaching for folks? Are you doing seminars outside of the PDF? How else can folks learn more about this? Sure. So right now, three times a year, I'm having a live, what's called Private Money Academy conference. In fact, from this day of us recording this podcast. The next one just about a month out. But anyway, there's all kinds of ways to connect with me. We actually answer the telephone in our office. James, can you believe you don't have to go through, like, some crazy web? I'm happy for you to put my phone number in your show notes. People can just pick up the phone. They want some help with private money and structuring their deals. Just give me a call at 252-808-2927. 252-808-2927. And I've got all kinds of training as well at my website at jayconner jayconner.com. And again, Jayconner.com/moneyguide will get you this free training as well that you can download immediately. Well, there you have it folks. Everything will be in the links below. Jay Connor, he is the private money authority. Jay, I cannot thank you enough. Really tremendous value today. James, what a pleasure being on your show. I look forward to connecting with your audience and thank you so much for having me. Thank you, sir. As always, everybody out there, stay safe.