Private Money for Real Estate Investing | Jay Conner E33

Keith sits down with private money expert Jay Conner to break down how to raise private money for real estate investing and fund deals without relying on traditional banks. They discuss how private money differs from hard money, why bank financing slows investors down, and how building relationships can unlock consistent capital for BRRRR deals and long-term rentals.

Jay shares how he transitioned from being dependent on banks to raising millions in private funds by educating everyday individuals on how to safely invest in real estate-backed opportunities. The conversation covers how to structure private lending deals, present opportunities professionally, and build credibility as an investor seeking capital.

For real estate investors looking to scale faster, increase deal flow, and finance properties without bank approval delays, this episode provides a clear roadmap to building a private money funding system that supports long-term portfolio growth.

Connect with Jay:
https://www.jayconner.com/

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TikTok: https://www.tiktok.com/@iamkeithandrews
YouTube Channel: https://www.youtube.com/@iamkeithandrews

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Transcript

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You you find a good deal, it's better to go to private money because you're gonna save so much money. And private money is fast. mean, I make my offers, I can close in seven days. you All right, today I have a special guest, Jay Connor. He is the private money man. So if you ever wanted to know anything about private money, how to raise it, what it is, how to use it, how the whole thing works, he's the man. He's been in real estate since I think what 2003, is that right, Jay? That's right. And he discovered private money along the way, he used to go the traditional route, and then something happened. But we're going to let him explain that. I'm really excited to have you, Jay. Let's start off with just sharing a little bit about you. Sure. Keith, thank you so much. First of all, for inviting me to come along and talk about my topic that I'm so passionate about that being private money. And the reason I'm so excited about private money is that this one strategy, if you're a real estate investor season or want to be real estate investor, when you master. This system of attracting funding for your deals without ever having to ask for money. Like myself, you'll never miss out on a deal. When I started using private money all the way back in February of 2009, uh, I've never missed out on a deal for not having the funding. My first six years that I was investing in single family houses from 2003 to January of 2009. The only thing I knew to do, Keith, was go to the local bank or a mortgage company and fill out applications and provide, you know, uh, bank statements and all that stuff and take 45 days to get funded and all that kind of stuff. Well, all that changed in January of 2009. I had two houses under contract to purchase. I thought I had a line of credit still at the local bank. I called up my banker, I told him about my two deals, and Keith, learned like that over the phone that my line of credit had been closed with no notice to me. So I knew I had to find a better and quicker way. Well, in less than two weeks, my definition of coincidence is God's way of staying anonymous. In less than two weeks, I learned about private money and private lending. And in less than 90 days, I was able to attract and raise $2,150,000 in new funding. And how I went about that in a nutshell, Keith is I put on my teacher hat, which says private money teacher. And I just went about sharing. First of all, with my own network, people like go to church with people in my cell phone, rotary club, business networking, international. I just started sharing with them the opportunity. And I went about diagnosing. There's the secret right there. just went about diagnosing who has a problem to where they're not happy with the rates of return that they're getting on their money and a, you know, certificate of deposit in the local bank, a savings account, are they sick and tired of the volatility of the stock market? And so I took on this mindset of having a servant's heart. Just looking to serve people and get them a high rate of return safely and securely. And so that's how went about it. That's the mindset, no begging, no chasing, no selling, no persuading, no asking. Offering this opportunity to people. And you know, I've got 47 private lenders and none of them ever heard of private money or private lending or self-directed IRA accounts. They didn't know any of that stuff until I started sharing it with them. So by. taking on a servant's heart and diagnosing who's got a problem. That's how I was able to attract over $2 million in funding. And another big part of the secret sauce is never talking about a deal that I need funded, or I won't fund it in the initial conversation. Cause now I already sound desperate. know, desperation has got a smell to it. And if I'm talking about the opportunity and having a real estate deal for somebody to fund, I'm coming across as desperate. So we separate those conversations from sharing the opportunity, the kind of interest rate that they can earn, how they're protected, just like the bank, et cetera. And then coming back and having a deal for them to fund. That's so critically important. Okay. So how did you even like get started? How did you bump into the whole? private money thing in the first place, because I think a lot of people get confused, but they get confused is a lot of people know about hard money. And what is the difference between hard money and private money? Is there a difference? Big difference. So when you do a private money transaction, there's no middle person involved. There's no brokerage. There's no hard money lender involved. It's a direct one-on-one transaction. Between you, your company and that individual, a private lender is an individual, a human being, just like you and me. And these are ordinary people. What we're doing is we're looking for lazy money. We're not looking for rich people. We're not looking for family offices. We're looking for ordinary people that have got investment capital and or retirement funds. That's lazy. It's not working for them. It's not getting them a high rate of return. And so. Yeah. Hard Money lender is typically a broker that has established a fund. have individuals like I'm talking about that invest in that fund. And then the hard money lender is the broker. They then turn around and lend that money out to real estate investors. They charge points or origination fees. That's how they make most of their money. Well, in this world of private money, there are no origination fees. There's no points because there's no broker involved. So that's the difference. Private money. You're doing business directly with the private money lender. In contrast to a hard money lender, that's a broker that's already gone out and raised money from individuals that they pay out a return, but then they charge a higher interest rate and then origination fees on top of that. can, so you're saying anybody can be a private money lender. You don't have to be like an institutional investor or anything like that. Exactly. All my private lenders are just ordinary people. I've got retired police officers. got retired civil service workers. I've got retired teachers. Um, and those are using their retirement funds. Now, then you got all these other people that are just using their investment capital that are not very happy with a 3 % return, uh, in a, local certificate of deposit. I've even had minor children be private lenders that got an inheritance from their grandparents. And their parents didn't want to put it in the local bank. They wanted to get that higher rate of return. So, it's, it's ordinary people that have got investment capital and or retirement funds that they want to get a high rate of return safely and securely. Now, when you say safely and securely, so how, how do you structure these deals? That's a great question. So we do not borrow unsecured funds. The sec done like that. Right? So what we do is we give our private lenders the same security and documentation that the local bank gets. So think of the private lender as the bank. So the private, we're not joint venturing. They're not getting a percentage of the profit. they're getting a straight 8%. I've been paying my private lenders 8%. Is that, that kind of like where you're, is that like, The where you're usually at is 8 % like a standard deal. Okay. Paying them 8%. And so they know, so if they, you know, loan a hundred thousand dollars, they know, and that's an annual percentage rate. They know they're going to get 8%. So what we do is we call lateralize those notes to where we're not borrowing unsecured funds. So they're going to get a promissory note. In addition to that, depending on the state that the property's in, The private lender will either get a deed of trust like here in North Carolina, in Texas. So deed of trust, most people call it a mortgage. So that's their legal recourse. I mean, if the borrower of the money, the real estate investor, if you don't pay your private lender, the property does. They get the property. So actually they make more money with that property than they would on the interest rate, but they don't want the property. A private lender just wants to be a passive uh investor, a passive lender. That's just going to sit back and get a nice rate of return. Okay. And they can do this with the retirement funds as well. They can do it with retirement funds. If they have current retirement funds that they're not happy with the returns that they're getting or the volatility in the stock market, then they can transfer those funds with no tax effect, no tax consequences. They can transfer those funds to an IRS approved self-directed IRA company. And that normally takes a couple of weeks. And once those funds are moved over there, then they can lend that money out from their self-directed IRA account. And the returns they get are either tax free or tax deferred, depending on the type of retirement account they've got. Got it. Okay. it seems though that like to set all this up, do you need a attorney? Like how, how, how do you go about this? If you, if you're approaching investors or just the average Joe and say, Hey, I have this private money. Is that how you approach this? have a private money fund. No, I don't have a fund. everything that we do in slang is called one-offs. So you have a private lender. That's loan and money on this property on this deal. Yeah. On this particular deal. they're to have a promissory note. They're going to get a deed of trust or a mortgage that this property is backing. their note is backed by the real estate that my company is investing in. So they're not putting their money into fun. In fact, they never send money to me. They always wire their funds, either investment capital or retirement funds. They always wire those funds to my real estate attorney's trust account. Okay. Because my real estate attorney that's going to the closing. Most States use title companies. Yeah. If you're in a state using a title company, your private lender would wire the funds to the title company's trust. Yeah. But it's your real estate attorney. So you got to have a relationship with a real estate attorney. It's your real estate attorney that draws up the closing documents because a private lender has no idea even what closing documents are. Promise. You know, you yeah, yeah. So you definitely need a real estate attorney then, um, on each one of these deals, right? Okay. so I think that's key for the people that are listening is if you want to use private money, you definitely have to have an attorney at your disposal. And how much does an attorney charge to do something like this on average? you know? Yeah. know it's different in every state probably, but what's the average from your experience? My attorney for each closing charge is $650. That's not bad. No. Yeah. So let's go back to how you go about raising this private money or not raising the private money, finding the private money lenders. So there's various ways. there's three categories of where private lenders are located. Where do these people come from? So the first category is what I call your warm market, your own connections, right? And like in your warm market, those are people that your social circle, people you go to church with, you play golf. you're in the rotary club. Uh, you play poker on Thursday nights. mean, who do you see regular your coworkers? If you got a day job, who do you see regularly every week? Uh, that would be your professional circle. Who's your CPA? Who's your attorney? who's your dry cleaner? Who do you buy your car from? Think of who is an entrepreneur? Uh, those people get it. Right. So that's the first category and they're all in your cell phone. They're all in your cell phone. Right. These are people you've already got the trust. they like you, they trust you and all that you've already got the connection. So that's, that's one category. Right. Second category of potential private lenders is what I call your expanded more market. So if you want to scale your business, And you want to do business with people that are in your connections sooner or later, you're going to run out of your connections. So the question is, how do you grow your connections? And so, uh, I teach and I coach real estate investors all across the nation, how to expand and grow your network. Like overnight, there's getting involved in the community. There's business networking international, uh, there's score there's. All kinds of ways that I teach how to expand your network. And then the third category of private lenders are existing private lenders. Well, where in the world do you find existing private lenders? Well, one place you find them is account holders at self-directed IRA companies. Did you know over 70 % of account holders. At self-directed IRA companies want to loan the real estate investor money. They want to be a passive investor. They didn't want to go find deals, negotiate deals, talk with sellers. They just want to be the funding source over 70%. Well, self-directed IRA companies have networking events on zoom and in person. Um, but there's one catch. There's one catch to that category. You're not putting on your teacher hat and teaching them people what private money is. They already know what private money is. They are already a private lender. So guess what? Now it's a negotiation conversation. And instead of offering the opportunity, you're finding out what they are accustomed to getting. Some are happy at 7%. Some are happy at 8%. Some are happy at 12%. Well, If they're getting 12%, I just diagnosed, they don't have a problem. And I'm not going to be borrowing money from them because I'm not paying 12%. Right. Yeah. So my, favorite category are people that's currently in my network and that I grow to be in my network because now I get to share with them an opportunity and a way to get high rates of return that in all likelihood, they never heard of. you explain to me like a just a standard deal that you've done with a private money lender and all the terms is there like a balloon after 12, 18 months, like how do you structure the standard deal? Let's say you're buying a fixer upper, um, for $300,000. So here's, so we treat all of our private lenders the same. So first of all, how do we protect them? So I'm not going to borrow more than 75 % of the after repaired value. I didn't say 75 % of purchase price, 75 % of the after prepared value. So let's cut that. Arve that after prepared value back down to 200,000. Cause it'll make figuring a lot more simpler. I know it's hard to find an after prepared value house for 200,000, but it makes the, let's do 400,000. Let's do 400,000. Okay. Let's do 400. So I just snatched one up for two 65. So they're out there. There you go. There you go. Um, so let's say you got a house that you're negotiating on. It's got an after repaired value of 400,000. Okay. I'm not going to borrow more as far as structuring the deal. I'm not going to borrow more than 75 % of the after repaired value, which means I'm not going to borrow more than 300,000, but everything. Right. But if that house needs renovation and it needs, it needs rehab and then I'm not, I'm, might buy that house for $200,000, 50 % of the after repaired value. Maybe the rehab is going to be 50 or $60,000, which you know is common these days. Yes. Yes. If I, if I'm on borrow 300,000, which is 75 % of 400,000, if I buy it for 200,000, that means I'm bringing home a check at closing cause there's no draws. There's no draws. There's no construction draws in this world. So I'm going to bring home what my real estate attorney on her check stuff calls excess cash to close excess cash. So in that scenario, I'd bring home a $100,000 check when I bought that property. Here's the question. Who wants to get paid to buy properties? Right? So I bring home a 100, right? You do key. So I bring him $100,000 excess cash to close. Now I'm going to use 60,000 of that money for the renovation. That still gives me an extra 40,000 that I could use for carrying costs. Um, for anything that I wanted to write. Yeah. The private lender has still got a $100,000 equity cushion. That's the difference between what I borrowed 300,000 and the after repaired value of 400,000. Yeah. Yeah. How else do we protect them? Well, we name our private lenders on the insurance policy, the property and casualty insurance policy. We named them as the mortgagee. Well, if you borrow money from a mortgage company or a bank, you're naming them as the mortgagee. On the insurance policy, we give our private lenders the same protection and we named them as the mortgagee. That means if there's ever a claim against that insurance policy, then the check is made payable to the private lender and to my company. So now the private lender has got the sign off on that check. Another layer of protection. We also named them on the title policy as an additional insured in case there's any title issues down the road. So they're going to get a promissory note drawn up by my attorney. Now, what's that note look like if they're using liquid funds, just investment capital, the length of the note is two years. If they're using retirement funds, the length of the note is five years. Now, the reason we do that five years on the retirement funds is that we just don't flip all of our properties. If, you know, we might sell the property on lease purchase or rent to own and help that buyer get ready for a mortgage. Well, that's going to maybe take 18 months or two years for them to get ready for a mortgage. So we just don't want to have to keep extending the note. And plus the private lender does not want their money back in that retirement fund because they get it back. They're not earning any money. So that's the, that's the length of the note. That's the, um, that's the loan to value. Maximum loan to value of 75%. Uh, and that's how they're protected. Uh, we also in the promissory note, give them a 90 day call option. A 90 day call option. So that means if they've got any kind of emergency that comes up and they need their money back early prior to the note, come and do, then they just have to give us a 90 day notice. And that gives us plenty of time to replace their private money. With another one of our private lenders, private money. So those are some of the highlights, uh, in the opportunity, the program is to how we protect, our private lenders for someone that's just getting started in this, and they're wanting to do something like that. You said you offer coaching programs for this. Yes, we have different levels of coaching. So, I've, I've got one student that got my book. And he's raised $13 million of private money of just reading this book. My national bestseller. Where to get the money now. Okay. I'll put a link. I'll put a link to that book. Yeah. the link for this book is www.jconnorjayconner.com slash book. It's that simple. The book's free. Just cover shipping and handling. I'll autograph it. I'll rush it out to you. Three day delivery. Where to get the money now? jconnor.com slash book. And then, um, I've got a, a collection of what I call private money, million dollar scripts. So I've got a collection of 12 private money scripts that answers any question that a potential private lender may have. And the very first script is called the curiosity opener. One common question I get from. Real estate investors is Jay. How do I even start a conversation? How do I even start the conversation where you can download this script for free. It's a PDF and you can download it at jconner.com j a Y C O N N E R.com slash scripts. And that's plural jconner.com slash scripts. And then what people really get a lot of benefit out of is I put on in-person live, a live conference. It's called the private money conference, the private money conference, and it's a three day event, Wednesday, Thursday, Friday. I only do it three times a year. Got another one coming right up, right around the corner, but you can check out everything that's going on at the private money conference at jconnor.com. a Y C O N N E R.com slash event. And that'll give you all the details for the private money conference. Nice everyone that's listening, go check those links out and I will put them underneath this podcast as well. I think this is great because I've been doing real estate for a while now and I've done a lot of deals and I've used a lot of hard money, right? And then I see I do like the BRRR method usually on most of my investments. So I hold them as long term rentals after they're fixed up. refinance to pay off the hard money lender. And now I have, you know, a traditional loan uh where I'm holding the property. But even in those cases, I still have to put like 10 % down. There's a lot of other costs that go into it. You eat up a lot of money in the origination fees and these other things. And this sounds like, you you find a good deal. It's better to go to private money because you're gonna save so much money. And private money is fast. mean, I, I, I, I make my offers. can close in seven days and you have a lot of these sellers are for sale by owners. They're still living in the house. And so I'll close in seven days and they can live their rent free for whatever period of time that we agree upon 30 days or 60 days. Cause you know, time kills deals. The more time goes by all kinds of things can go wrong. Yes. I'll give them 50 % of their proceeds. at closing seven days down the road. When they vacate and move out, they get the balance the other half of what that allows you to do is go ahead and close on the deal and not, not let things go sideways. Yeah. I like that a lot. Um, so everyone that's out there definitely check Jay out. Uh, he's, he's He's given us a ton of knowledge. really do appreciate you coming on here, giving us tips and tricks on private money. I know I personally got a lot of value out of this episode and uh it made me really think because, you know, I kind of know about private money is there but I've never actually gone after it and I just think like, why not? Why am I not leveraging private money? I should be. So I'm definitely going to get your book and I'm definitely going to download your script and take a look at that as well. Jay, um, any last words you want to give to my audience? Yes. If you've been thinking about taking action, don't think anymore. uh Take action. mean, you know, on this podcast with Keith, I mean, you learn a lot of information, but you know, don't waste any more time implementing, you know, what you're learning. Right. Um, you know, order, order, order the book. I'll autograph it. I'll ship it to you. Uh, check out the live event, that script, uh, take, take action. Just don't be a consumer of knowledge cause nothing's going to change. Right. Until you actually implement what you're learning. That's right. All right, Jay, I appreciate you, man. Everyone out there. That is it for today. Hope you enjoyed this episode. Please be sure to subscribe. God bless.