Ep 198: How to Raise Private Money with Jay Conner

Well, we name our, I'm just name our private lenders on the more on the insurance policy as a mortgagee, just like a bank. And we name them on the title policy as an assured again, how they protected that conservative loan to value and we're not borrowing unsecured money. They're going to get their own promissory note, their own trust collateralize on that note.

Welcome to the Next Level Income show where it's our goal to take your income, your investments and your life to the next level. I'm your host Chris Larson. If you haven't yet, get a copy of our book for free at our website, nextlevel income.com. that's www.nextlevelincome.com. just click on the book link and I'll even send you a copy if you put your address in. On today's show, we have Jay Connor. Jay has been buying and selling houses since 2003 in a town of only 40,000 people with profits now averaging $78,000 per deal. His passion is motivating and teaching other real estate investors how to raise private money without ever asking for that money. And as a Result has consulted one on one with over 2,000 real estate investors. In additional, Jay is a two time National Best selling author and a past president of Business Networking International. He and his wife Carol Joy reside in Morehead City, North Carolina, just on the other side of the state from me. And whether you are looking to raise private money for your own deals or just want to understand the questions and the process that goes on behind this, you're going to want to listen to this show. Jay, welcome to the Next Level Income show.

Oh my lands. Chris, I'm so excited to be here because after all, what I'm so passionate about is private money because private money has made more of an impact in mine and my wife's real estate investing business than anything else that we've done.

Yeah, well, I'm excited to talk about it and shoot, we're, we're practically neighbors in the grand scheme of things. You're, you're on the other side of North Carolina here. I'm up in the mountains and you're at the beach. So this will be here. We are connecting via technology, but this will be, this will be a lot of fun here for anybody that's around the world, but also in North Carolina as well.

I love it. I love, yeah.

So Jay, I shared a little bit about your background with the audience in the intro, but I'd love for you to share a little Bit about more. Share a little more with the audience about how you got into real estate, some of your background even before that.

Sure. Well, I was actually raised by. In the mobile home business or manufactured housing business. My dad, Wallace Connor, who by the way, just turned 90 years old, had a big old birthday party for him down here, Orange City, Atlantic Beach. Anyway, he was in the mobile home manufactured housing business. And in fact, at one time he was the. His company was the largest retailer of manufactured homes in the nation. And so I grew up being around helping people or watching other and his company help people own a home and in the affordable housing space. Well, in 2000, the early 2000s, Wall street fell out of with that industry and all the financing pretty much went away for that product. And so if you don't have financing for the product, obviously you're pretty much out.

Yeah.

So I knew if I ever got out of mobile homes and single family houses, I wanted to get into single family homes. I wanted to be a flipper. I wanted to be a flipper before HGTV even had the flipping shows and before it was like all sexy and st. So in 2003, my wife and I, we did our first deal right here in Morehead City, North Carolina. We only did three houses that year. You know, we bought properties, fixed them up really, really nice, and then sold them for retail. Well, something happened, Chris. Something happened. And it's been experienced that the growth takes place in the Valley, right? The big turnarounds take place. Not when you're on top of the mountain.

Yeah, love that.

So I remember it like yesterday, Chris. In fact, you know, you may find it hard to believe, Chris, but we still have handsets and cords here.

What is that? My son would say, what is that?

Exactly. Anyway, from 2003 to 2009, I relied on the local bank to fund my deals. That's all I knew.

Yeah, easy to get money then, too. It was very easy.

Are you kidding? In 2003 when we started, I had a $250,000 unsecured, unsecured line of credit at the local bank here. So that, I mean, I'd never heard of hard money lending. I'd never that way to get deals funded. I mean, after all, I'm sort of living underneath a rock, you know, here in eastern North Carolina. But I picked up my phone in January 2009. I had been doing this business for six years, doing the business with the same banker, same bank. And so I picked up my phone and I called my banker. His name was Steve. And I Told him about these two houses that I had under contract, you know, to purchase. And Steve and I had had this conversation, Chris, many, many, many times. Well, I learned like that on that conversation that my credit had been shut down with no notice. And I said, steve, what do you mean my line of credit is shut down? It'd been nice to know that before I got these houses under contract. And his jay, don't you know there's a global financial crisis going on right now? I said, no, but now you just gave me a financial crisis because I don't have any way to fund these deals. So I hung up the phone and then I thought to myself, Chris, for a minute, who here's a writer downer when you problem. Here's the, here's the question to ask yourself. Who do I know to help me with my problem? And by the way, these people going around saying, an opportunity. I want to throw up. I didn't have an opportunity. I had a problem at the time. So I picked up the phone and I called my buddy Jeff, who lived in Greensboro north at the time. He was investing in single family houses. I told him what had happened. He says, well, welcome to the club, Jay. I said, what club? He said, the club of losing your line of credit. They off last week. I said, well, how are you going to get your deals funded? He says, well, you ever heard of private money? I said, no. He said, you ever heard of self IRAs? And I said, no. Well, I studied that very, very quickly and I raised $2,150,000 in less than 90 days. So guess what? My banker did me a favor, right, by cutting me off. Because then I had to find a better and quicker way to get funding for my deals. So any time that you've got a challenge, and the formula is E plus R equals O and that stands for the event. The E is the event, R is your response to that event, and the O is the outcome that you experience.

Love that.

Unfortunately, Chris, most people walking around live under a different formula. They live with E equals O. Whatever the event is that happens, the dictates and determines your outcome. But guess you may not have any, anything to do with the event that happened in your life. I don't have anything to do with, you know, being cut off from the, from the bank and losing my. That. That was not me. Right. But I've got 100% choice as to how I want to respond to whatever happens. Therefore, it's your response to that determines the outcome. And what a big disguise. So I love that, that's how I started.

Yeah, that's a, that is a great story. And look, I was part of that club too. You know, all our lines of credit secured, lines of credit on our properties went away. Bank said, sorry, no more sorry, no more sorry. It's like, wait, we've always paid on time. We have terrific credit. We have more equity than we've ever had. It was, it was crazy. So it's like, what do you, you know, what do you do? I remember going back and thinking, like, what, what is going on here? This is, you know, I'd never seen anything like it, obviously, because I, I had not been through other real estate cycles. You know, now I, now I've studied history and, and seen these things. And you can go back in time and say, oh, this is, you know, this isn't the first time this has happened, nor will it be the last time. But I love that, you know, if, if you're listening to this show, chances are you're not the type of person that Jay talked about where you let events occur and you let that outcome determine your fate. You're, you're a person that has a response that takes action to determine your fate. You know, we had a similar story, Jay. My wife and I were building spec homes, so we bought a piece of property, 2012, you know, go to a bank. Bank says, nope, we don't, we don't do spec homes. So we made a list of every bank in the region. My wife called three dozen banks. And I forget, it was, I think it was 34. Exactly. And what was, what was wild is there was one bank left. And she called that bank, it was called Integra at the time. Now they're, you know, a couple acquisitions later, they're part of First Citizens Bank. And she called that last bank on the list. And they said, we just started lending on spec homes last month. So, you know, again, but that took that massive action. She didn't say, oh, we can't do it. My wife's a persistent, some would say stubborn person. I might be the one that says that. But those things can really, really help out with that. But let's, let's back up a little bit, Jay. So I want to define some things for the audience. So first off, what is. Let's talk about hard money. Hard money lending. Like, what is that for those that haven't heard that before?

Sure. Well, most of the time. And I'm glad you asked this question, Chris. Cause a lot of times private money and hard money are like interchangeable but the way I do the business, they're not interchangeable. By the way. I say establish as many relationships with as many lenders and people as you can. Yeah, money lenders most of the time is a broker of money and what a hard money lender will do. And I've got a lot of friends that are hard money lenders. They established a fund and they will raise money from individuals, private lenders to invest in their fund. And then the hard money lender or broker will then lend that money out to the real estate investor or entrepreneur, the borrower of at real estate. And some hard money lenders really make most of their money off of the origination fees. Some hardy money lenders will borrow at a lower amount from the private lender and charge a higher interest rate. So there's all.

That's actually exactly what we do with our debt fund. We, you know, we, we, we quote unquote, borrow money from our investors and you know, we pay them a, not a guaranteed but a steady return and then we originate the loans. We go out and look for lender or borrowers that want to do that. They pay us origination fee, they pay us a little bit of spread on top of that. And you know, we make our money is made on the origination fee. And that spread that we make by taking the, well, taking the risk and the operations as well. So this is what you're doing is actually slightly different than that?

Yes. So what I'm doing is I am going directly to the individuals that, that would invest in a hard money fund. And I'm doing. So there's no middle person involved, Right. Hard money, broke, sort of like a middle person. And what I'm doing is I'm raising money directly from individuals. Right Now I've got 47 individuals that are loaning us money on our deals. And by the way, if you're interested in raising your own money, of course I guess we should talk about the differences. But if you're interested in raising your own money, then here's the thing. When I was borrowing money from the bank, it was a whole different type relationship. And what I mean by that is, you know, I'd go to the bank for six years and get on my hands and knees and put my hands underneath my chin and say, please fund my deal, please fund my deal. And you know, have to show returns and verification of income and oh yeah.

Every credit score, bend over, turn a flashlight on. It's crazy, right?

Exactly. So, you know, the traditional way to borrow money is you ask Right. You apply the way I do it. There is no asking, there is application. You're already approved. So people, people ask me all the time, say, Jay, come on, give me a break. How in the world have you got eight and a half million dollars that you on, you know, house to house, project to project and you don't ask for money? Well, here's the secret. Instead of asking for a mortgage, put on my private lender teacher hat and I just start teaching people that I have connections with and I teach them about my private lending program as to how they can earn high rates of return safely and securely. So that's what I did those first nine days when I lost my line of credit back in 2009 is first of all, I put my program together, right. Which by the way, I got the whole program in my book that we'll talk about.

But yeah, we're going to have, we will have a link in the show note for that too. So if you're, if you're listening, stay tuned.

Yeah, so I just started, people. Well, here's how you can earn high rates of return safely and securely if you're not happy with what your investments are doing for you now, right? And so what's my interest rate that I'm going to pay? So for example, I've been paying the same interest rate since 2009. I, and I pay them, I pay every lender the same thing. So teach them the interest rate, the, the length of the note, how they can get their money back in case of an emergency and et cetera. Once they say, well I like, you know, I like that program or I don't have to ask them. Remember, I'm teaching, I'm teaching, I'm just sharing, I'm just sharing what I do. And if, if they're interested, that's fantastic. If they've got retirement funds, I'll introduce them to the self directed IRA company that I recommend and, and so then I give them when it's time for. I've never pitched a deal, Chris. I've never pitched a deal in my life since 2009 is a jay. Well, how are you getting if you're not pitching your deal? Well, listen, we separate the conversation between you're interested in the program and now I've got a deal for you to fund. So when I've got a deal from the fund, they've already told me how much they got, they're ready to go. So I call them with the good news, phone call, I call them up, I got great news I can now put your money to work. I got a house in Newport with an after repaired value of $200,000. The funding required for the deal is 150. I know they got 150, they already told me. And closing is next Wednesday. You need to have your funds wired to my real estate attorney by next Tuesday. I don't ask want to do the deal? That's the most stupid question in the world. I could ask them. Of course they want to do the deal because they're waiting on the phone call. And then I'll make this point and turn it back to you. Chris, if you have shared with someone how someone can make high rates of return safely and securely and you've told them about self directed IRAs and they have moved a portion or all of their retirement funds over to the self directed IRA company that, that I recommended, I'm ethically bound to put their money to work because they're not making any money.

They're just sitting there in account.

Just sitting there.

Yeah. So some people may be surprised to hear this. I know we've talked about this multiple times on the show over the years, but a self directed IRA and, and you can, you can jump in here, Jay, is when you take your money, you put it with a custodian who then allows you to direct those funds as you see fit to invest those as you want. You can, you can buy precious metals with those funds. You can invest in real estate deals like syndications, but you can also lend your money out. Now you can't self deal. Right? Is that right Jay? Are you a high income business owner or professional earning 2,300,000 or even more a year but still feel like you're living paycheck to paycheck? Are you comfortable working until you're 65 or 70 to retire or do you want to achieve financial independence and live life on your own terms? You could join myself and Matt4 and learn how we both became financially dependent in our early 30s. We will teach you how to make, keep and grow your money. Teaching you strategies to maximize your earnings, keep your income that you've earned through tax strategy and legal structures and ultimately teach you how to grow it by determining your personal investing strategy as well as teach you how to analyze investments so you can grow your passive income to the point to live life on your own terms. Our coaching clients reliably do this in seven years or less. To learn more, check out our coaching program@nextlevel income.com forward slash coaching. That's nextlevelincome.com, forward slash coaching.

Yes. You cannot self deal or self direct. In other words, you can't borrow. Now you're, when you move your retirement funds to a self directed company, you can take that money and you can go buy a house or invest in, you know, Chris's fund or whatever, but you cannot borrow from your self directed IRA account for the deal that you're, that you're going to get.

For your own deal. Yeah, your own deal. Or, or a deal with somebody that you're, you're directly related to. Yeah.

So it's vertical. Yeah, it's vertical and then it's parallel. You can't loan money to a, a vertical relationship. You can't loan money to a parent, a grandparent, you can't loan money to yourself. You can't loan money to your children. You can't loan money to your grandchildren, but you can loan money to brothers, sisters, cousins, aunts and uncles.

Yeah, yeah, love that step. Like I got a stepfather. We're not, we're not related, you know, legally do that as well. So yeah, there's a lot of flexibility with that. So it's, it's really cool. So if you're looking for money, you're like, I like this idea. I don't have a bunch of cash sitting around. Look into a self directed ira. If you need custodians, reach out. Send us an email@podcastlevelincome.com and just say, I'm looking for some self directed custodian options and we can, we can share some with you out there. So Jay, if, if people I know, they can, they can check out your course and they're going to share a little bit more about that. But if, if I'm going to lend money, if I'm going to become a private lender, you, let's talk about some of the projects that you do. You kind of alluded to what they are. And then I'd like to know what are some of the questions that a lender should be asking.

Absolutely. So first of all, the, the overall question is I. Tell me about some of your deals that have gone sideways.

Great question.

And have not and have not turned out the way you intended.

Yeah.

And if, and, and, and if the, if you're protected, borrower cannot tell you a horror story, they're lying.

Or they're just getting started.

Or they're just getting started. I mean, I want, I want to hear about, I mean, shoot. I've rehabbed over 500 houses. Over 500 houses and not one of them have Ever come in on budget? Not one has come in on budget. I've had them come in close. I've had them come in under. Most of the time they come in over. Well, for that reason that we like.

To say the pro forma is always wrong.

Exactly. You know, and so it's like that's why we don't borrow more than 75% after repaired value. So the question is another question that you'd want to ask the operator, the real estate entrepreneur that would be the borrower is well, what's the maximum loan to value? How much equity cushion are you going to, are you going to give me in this deal?

Okay, so let's before we go through that because this is, I think you know, you said after repair value some people, I was actually at the gym this morning and one of my fellow real estate investors that goes there, she said arv. So all right. So yeah, AR So okay, so let's say we have a home that if it was, you know, in, in perfect condition and goes out on the retail market, let's say it may be worth $400,000. Okay. When you go and you find a home j and you put it under contract, let's say it's going to sell for $400,000. What are you typically paying for a home like that?

Well, I'll give you a perfect example. I just closed on a house last week, the arv. The after repaired. By the way, here's the definition of after repaired value in my world. Everything looks and smells brand new.

Everything.

The ARV in my world is this house could be in Southern Living magazine. All right. Love it all. Exterior, interior. Anyway, so I closed on this house right here on a rendle street in Morehead City last week. The after repaired value $550,000.

Perfect. 550.

I bought it for 325.

Okay.

And so the first question may ask is how do you buy an after repaired value house of 550 for $325,000? Well, first of all, all these properties are distressed to some degree. Right. And need at least some fix ups. So but secondly, this was an inherited property and the person that inherited the property lives three hours away and has no personal emotional connection to this property at all. So they just want to cash out and be done. And so the actual rehab on this property is right at $50,000. So this is not a big huge rehab. So I could have borrowed more money than I intended, I mean than I did, but bought it for 325. So we're looking at 50. It always costs more, right. And got closing costs and all that stuff. So I only borrowed $400,000 from my private lender. And so there, so I rehab this house. Then there's going to be, I mean that's a big equity right there between what you borrowed at 400 and you're going to sell it for 550 now.

So you're. Yeah, so you're borrowing under, under 75%. So between 70 and 75% of the after, after repaired value.

That's right. Now if you are a private lender, you better know your borrower very well. I mean there's a, there's a five letter word in this, in this relationship that starts with a T and that's called trust. So you know, if you're lending the money, you want to be passive. You know, you don't want to oversee deals, you don't want to negotiate deals. You just want to sit back and collect your checks. Right.

You should under, you should be active on understanding who you're lending to and what type of deals they are. Right?

Absolutely, absolutely. And so when I bought this house for $325,000, well I came home with a $75,000 check. That's called excess cash to close. Right. Well this private lender. Now, now let's say I lost my mind and I went to the Caribbean, right. And I didn't do to do it, do a deed in lieu, you know, of foreclosure. And so my lender has got to foreclose on me because I'd like skip town or whatever. Well look at, look at. So of course they don't want to mess with it. Look how they're protected. Because one question that comes to mind is, look, what if you skip town and take that $75,000 and you don't rehab the house?

Yeah, yeah, good question.

So how is the lender protected? That's why we do the conservative loan to value. This lender would get a property that they loaned $400,000 on and the after repair value is 550. There's still $150,000 spread and wanted to, I mean they could sell the house as is and not even touch it. I mean good. For goodness sakes, you put that house on the market at $400,000 in the multiple listeners it just flew off the shelf because you know there's 150 spread between what was blown and you know what it would be worth if it was fixed up with the 50 or 50,000 in rehab. So that's the question. How am I protected as a lender, as a private lender? Well, we name our, I'm just name our private lenders on the. More on the insurance policy as a mortgagee, just like a bank. And we name them on the title policy as an assured. Again, how they protected that conservative loan to value. And we're not borrowing unsecured money. They're going to get their own promissory note, their own trust collateralize on that note.

Yeah, love that. Yeah. So again, even when you find somebody that has experience in this business, you still need to understand how you can protect yourself and do that and what like Jay, typically, how long are lenders lending their money out between that period and getting it back? About how long or you know, what's the, what's the, you know, what's the typical loan duration?

The length is two years even two years. I'm probably not going to use it for two years. So we do the notes for two years. And what I have with, with my 47 private lenders, when I go to cash out, which typically like in this market, I may buy like this house that I bought house may sit there for two or three months before the one of my contractors can get to it. Right, gotcha. Rehab may take three months once the rehab starts. So now we're already into it for six months. You put it on the market, maybe it's another 45 days. So typically we're going in that maybe nine month period cash out type of thing. So that's, that's what, that's what the length is.

Yeah, I like that. Yeah. So you're, you're, but you're baking in so on both sides. So you're baking in for the lender. They're getting equity baked in. They're got, they have their protections. But you're also baking in additional time. So if your contractor can't get to it, if it sits on the market for a little bit longer period of time, if it takes longer to sell, for instance, and you still have that, that time and that leeway. So if, yeah, if you want to, if you want to get into this, you should certainly understand all these things. Jay, I want to get in. You have, you have a terrific website. I was checking it out before, you know, before we, we booked you on the show. And you're also a two time national bestseller. So you got a few things for the audience. You know, whether you want to learn about this, whether you want to dive in a little deeper, share a little bit about the resources that our listeners can find on your website. Sure.

So I've got three gifts for your audience, Chris. First of all is my book, which is called where to get the Money Now. Where to get the Money Now. And you know the U.S. postal Service is actually still in business. You can't download this book. We're actually going to priority mail it to you. I'll autograph it. This book is an easy read. I walk you through, step by step, exactly how I raised that $2 million in less than 90 days and how I still now with no chasing, begging, selling or persuading. It's all about sharing. Also in the book, if you don't have a large network, Chris, I think most of your audience does have a large network, but if you don't have a large network, I actually teach other real estate investors how to grow your network very quickly. Well, you can get this book. We'll ship it to you at J Connor. And I'm an er, not an or so www.j y c o n n e r.com forward slash book. That's J Connor j a y c o n e r.com and we'll have.

That right here in the show notes if you're listening. Also, you can check out your podcast Show Notes as well if you're not watching here on YouTube.

Absolutely. Yeah. Raising Private Money is the name of my podcast. Easy to find. And then third, I got a $3,000 gift for your audience as well, Chris. I put on what's called the Private Money Academy Conference live event three times a year right here in Atlantic, North Carolina. And all right, February, June and October. And this is a $3,000 event for two people for your audience, Chris, only a $97 registration fee. And here's you can check out the website and see what we do at this event. Obviously to do about private money. But that website where you can get the small Registration fee is www.jsliveeven.com J A Y S L I V E v e n t.comjays live event.com outstanding.

And we are going to make sure that we have all these, the the book link, the podcast link and the special offer that you just offered here, Jay, for the live event all down here in the show notes. I got it all recorded here. So I know you've already said it, but what's the best way for people to get in touch with you and learn more? Is it going to your website, jconor.com.

You just go to jconor.com j a y c o n n e r dot com and right there on the homepage, I've got a free master class that's four, five minutes that summarizes the steps of raising the private money.

I love it. Jay, listeners of the show know that we are passionate about helping you achieve financial independence. And we are passionate about bringing people like you, Jay, onto the show to share, you know, their knowledge, their resources, and you've been very generous with those today. So thank you so much for sharing not only your story, but also all these resources with the audience today.

Chris, thank you so much for having me on. God bless you.

God bless you as well. And hopefully we get to connect next time you're up here in beautiful Asheville.

I'm looking forward to it.

Hey Chris, here again. I hope you found this episode valuable. Now I have one more thing to give to you. We have a page for my coaching clients where you can get a free copy of my book as well as much more from previous guests on the show. Just check out nextlevelincome.com coaching to get a free copy of my book, audiobook and much more. I'll send you you a copy of my book and cover all the shipping costs as a thank you for listening to the podcast. Also, please like share and take just 90 seconds to give us a rating on Apple Podcasts.