How to Raise Private Money for Real Estate Deals Without Banks: Jay Conner on Funding Deals Fast

Steven Weinstock (00:00) Hello and welcome back to another episode of the Wealth Clock with Steven Weinstock podcast. Today we have Jay Conner. He's been involved in real estate since 03. He went through the 2008-2009 crisis. He pivoted like a lot of real estate investors did. But I'm gonna let him talk about his background. Before we start, I do have a sponsor, Cable NOI. NOI is a net operating income. A lot of apartment owners are leaving money on the table with internet and cable agreements through Cable NOI. They help multifamily owners. Anybody who owns a property with 20 units plus can get money from Verizon, Charter, Cox, AT&T. They don't have to wire the apartments. They don't have to bill the tenants. Everything is done through the regular channels. And the cable companies give some of that revenue to the landlords. They give them an upfront payment, usually somewhere in the hundred fifty dollar per door range as a one time, and then an ongoing revenue, five or six percent of their cable bill. CableNOI.com, CableNOI.com. Okay, Jay Conner, welcome to the podcast. Jay Conner (01:12) Steven, thank you so much for inviting me to come along and talk about my most favorite subject that I'm so passionate about, and that's private money for funding real estate deals. Why am I so excited about it? I'll tell you why. Because ever since February of 2009, when I started using private money, I've never missed out on a deal for not having the funding ready to go and close fast. Steven Weinstock (01:37) Okay, so we're gonna talk about private money. I've been in the business since 01. I've bought a lot of properties with seller financing. We have structured deals, lots of creative ways from master leases to lease options, depending on where you're from. Money held in escrow for years sometimes just to make a deal go through. Talk to me about private money. What does it mean? Does that mean you're going to your local watering hole and asking friends for money? Talk to me about what private money means. Jay Conner (02:04) Yeah, so first of all, and I'm glad you asked, Steven, so we can be perfectly clear, a private money transaction is a simple transaction between an individual, a human being — that's the private lender — and the real estate investor that is borrowing the money. There's no middle person. We're not talking about any kind of institutional money here. So the question is, where are these private lenders? Well, there are three categories of places where these private lenders are. The first category is what I call the warm market. These are your connections, your network of people. They're already in your cell phone. This could be your social circle, co-workers, your professional circle, your attorney, your CPA. Those are gatekeepers of a lot of people that have investment capital and/or retirement funds. The second category is your expanded warm market. So if you're gonna scale your business, sooner or later you're gonna run out of your own connections. At my private money conference I do a deep dive on how to grow your network, but one resource you can use overnight is Business Networking International, BNI. I've gotten millions of dollars by being involved in the local BNI chapter. The third category is existing private lenders — individuals already loaning money out to real estate investors. You find those at self-directed IRA networking events. Seventy percent of people that have an account at a self-directed IRA company want to loan money out to real estate investors. Coming back to that first category: I've had forty-seven individuals fund my deals over the years, millions of dollars, and none of those forty-seven private lenders ever heard of private money, private lending, or self-directed IRAs until I put on my private-money-teacher cap. I just led with education. I did it with one-on-one conversations and with private lender luncheons. My very first luncheon, I invited about 20 people, had my real estate attorney, CPA, and realtor there, fed lunch, did a 30 minute presentation, and got $969,000 pledged. There's no begging, no selling, no chasing, no persuading. In fact, I've never pitched a deal. Part of the secret sauce is separating conversations between sharing what the opportunity looks like and having a deal for them to fund. Desperation has a smell to it. So I share the opportunity, and then I come back for the deal to get funded. I've got a script I call the good news phone call and I get my deals funded 100% of the time because my private lender is already waiting for the phone call. Steven Weinstock (06:21) Okay, so there's a lot to unpack. You mentioned inviting people to lunch or dinner — a captive audience for a thirty minute presentation. You're focusing on past deals, not necessarily a new deal that you're seeking, because of desperation. One thing I really liked is that you're inviting your lawyer, accountant, realtor — these people give you gravitas. When you say private money and lenders, the actual legal structure — and I'm gonna guess — you're still setting it up as a first lien position. So instead of the lien being Wells Fargo or JP Morgan, it's potentially John Smith LLC as the first lien. Am I correct? Jay Conner (07:53) That's correct. The private lender is not a joint venture partner. Think of the private lender as the bank. Your entity, your LLC, is the borrower, and the private lender is going to get the same security and protection as the local bank. This is asset-backed debt. They get a promissory note, and a deed of trust or mortgage depending on the state. We name the private lender as the mortgagee on the insurance policy, so if there's ever a claim the private lender is named on the check. We name them on the title policy as an additional insured. So they get all the same security as a mortgage company or a bank. Steven Weinstock (09:22) So this gives them the security of a bank. There's more flexibility with private lenders than with institutions — leverage, upfront points, speed of execution — and depending on your relationship you might be able to get a more curious deal across the finish line because you have the lender's confidence. Jay Conner (09:46) Absolutely. There's twenty reasons why I love doing business with private lenders. Number one is speed to close. We can close deals much quicker without all the entanglements of institutional money. I make offers to my off-market for-sale-by-owners and close in seven days. If they're living in the property and can't get out that quickly, we close within seven days, give the seller half their proceeds at closing, they stay in the property for free for an agreed time, and they get the other half when they vacate. You get more offers accepted the quicker you can close. Secondly, there's no limit to the number of private lenders or the amount of private money you can borrow. With Fannie Mae you're maxed out around ten deals. Another reason: when I'm buying a house that needs rehab I'm getting all my rehab money up front. There's no such thing as draws. I always have excess cash to close because I buy at a discount and I'm able to borrow more than I need for purchase and rehab because of the equity. So instead of taking money to closing, I'm actually getting a check when I buy. Only 13% of for-sale-by-owners will sell creatively. The other 87% require all the cash. When you've got private money on the shelf ready to be deployed, you make more offers because you know exactly where the money's coming from. Have you ever heard the guru on stage say, "just get the deal under contract, the money shows up"? That's hogwash. Common sense — get the money lined up first. Steven Weinstock (12:58) And when you have the money lined up first, you can make offers similar to cash offers. You're not relying on an institution that might deny you or change the proceeds amount as you get closer to closing. Jay Conner (13:14) Or like I experienced in January of 2009 — I thought I still had a line of credit. For the first six years I was using the bank line of credit. I had two houses under contract, called my banker, and learned over the phone that my line of credit had been pulled with no notice. So I knew I had to find a better and quicker way to fund my deals. Steven Weinstock (13:36) Yeah, I was around during that period — stated income loans, buying with a first and a second, simultaneous closings. Once 08, 09 hit it got really tough. I was upgrading my personal home in 2010, putting down fifty percent, in Brooklyn, and the banks were so gun shy. It took me six or seven months to buy a primary home. Things picked up around 2011-2012 with DSCR loans, but private money was always the best. Let me pivot — what kind of properties are you buying and what are you doing with them? Jay Conner (15:19) Since 2003 I've focused on single family houses. How I buy determines how I sell. I've sold a lot of homes on lease purchase or rent-to-own and helped people increase their credit score so they could cash out. Since COVID in 2020, the majority of these houses we've turned into brand new homes — renovated and cashed out. Our average profits have been $86,000 per single family house. Steven Weinstock (16:04) When you say cash out — getting a permanent loan or selling it? Jay Conner (16:10) Selling it, putting it in the MLS. Steven Weinstock (16:20) And when it comes to private money, are the terms structured usually short term — three to twenty four months? Jay Conner (16:31) The length of the notes are either two years or five years, which gives me flexibility on exit strategy. If they're using investment capital I do the note for two years. If I haven't cashed out in two years they don't want their money back anyway — what are they gonna do with it? So we'll extend. If they're using retirement funds I introduce them to the self-directed IRA company I recommend, they move the money over, and we set the notes on five years for flexibility. Steven Weinstock (17:26) Typically the payment structure is interest only, balloon at the end. Jay Conner (17:32) Yes, all interest only. It's a win for the lender — they make more money because none of the principal is being paid down — and a win for the borrower because payments are smaller on cash flow. Frequency is monthly, quarterly, or semi-annual unless it's a quick flip, in which case interest accrues and is paid at payoff. If retirement funds, I pay quarterly or semi-annual since the interest isn't going in their pocket directly anyway. If investment capital, I let the private lender choose — some need monthly income to supplement, others are fine with quarterly. Steven Weinstock (18:57) Let's dive into the tax aspect. I own property from single family to multifamily, all the way from sole owner to syndicating on the LP side. Tax benefits on the LP side are significant, but they don't have a lien — they really need confidence in you. With a lien on the property, lenders are secure even with some hassle. Are these taxed as regular income for your investors? Jay Conner (20:07) It depends on what money they're using. Investment capital — ordinary income tax, just like a 1099-INT from the bank. Retirement funds — either tax deferred or tax free if it's a Roth. Steven Weinstock (20:48) Yeah, I have some investors on the LP side using self-directed 401k trusts and they're never bothering me about K-1s, depreciation. Let me ask — where are you from? Jay Conner (21:23) Eastern North Carolina, a very small town, Morehead City. Our total target market is only two counties here in North Carolina. I like being a big fish in a small pond. Steven Weinstock (21:49) Born and raised there? Jay Conner (21:51) Yep. Steven Weinstock (21:53) How'd you get into real estate? Jay Conner (21:54) I was actually born into the mobile home business — manufactured housing. My father was the largest retailer of mobile homes in the nation back in the eighties — 160 sales centers in ten states. In the early 2000s all the consumer financing for that product went away. So I knew when I got out I wanted to get into single family houses. I started flipping in 2003, before HGTV was even a household name. Steven Weinstock (22:50) Mobile park business is a good business these days. Have you ever bought 2-4 unit properties or strictly single family? Jay Conner (23:29) Just single family. However, the private money I'm talking about can easily be used for duplexes, triplexes, quadplexes. Steven Weinstock (23:42) Single family on the management side is tough to scale, but they're the most liquid — you can sell to investors and homeowners, the best loan products are available on them, and they're a hedge on inflation. Ever thought about going into another market? Jay Conner (25:01) A lot of friends invest outside their market, but I've made a business decision — unless I can drive by it within thirty minutes, I'm not interested. Steven Weinstock (25:15) What was the first deal you bought? Jay Conner (25:17) All the way back in 2003. First deal was on Maybury Loop Road in Morehead City — a bank owned property. This was before I knew anything about private money — I had a bank line of credit. If you had a decent credit score and could fog a mirror you could get a line of credit. I bought that house for $50,000 and put $50,000 in rehab, so $100,000 in it, value $140,000. Put it on the MLS for $140,000 and it sat for forty-five days with no showings. Beautiful, staged, landscaped. I read in one of those books to put an ad in the paper offering owner financing. I did, and my phone rang off the hook. I didn't know what owner financing was but I figured I'd figure it out. Linwood called and offered me an $18,000 lease option deposit. I didn't know what a lease option deposit was either, but my daddy told me if somebody offers you money, take it and figure it out. So Linwood wrote me a check for $18,000. I was still a licensed loan originator at that time, so I got Linwood an FHA mortgage, used that $18,000 toward closing cost and his down payment, and cashed him out — sold for $140,000. I decided I liked $40,000 better than $3,000 on a single wide mobile home. Steven Weinstock (27:00) Great story. I really like the dinner idea — it's smart and economical. Any other ideas for finding private lenders? Networking is tough for a lot of people. Jay Conner (27:28) Most people have over a million dollars of potential private money sitting in their cell phone contacts. I've put together a 5-step simple system. Step one — make your list. In my book Where to Get the Money Now I teach how to make that list. Step two — a very simple opening conversation; I teach the direct method and the indirect method. Step three — the 16 minute audio called Stress-Free Investing. I recorded it for hundreds of real estate investors and it does the heavy lifting. You text or email it. Step four — put on your teacher hat and teach the private lending opportunity using my PowerPoints. Step five — get a verbal pledge and go find a deal to put their money to work. Steven Weinstock (28:52) Jay, great talking to you. Part of why I do these podcasts is to learn and expand my network. Tell us where to get the book and how people can reach you. Jay Conner (29:56) Thank you, Steven. Quickest way to connect is my free gift — the Private Money Million Dollar Script Collection. The first script, the Curiosity Opener Script, is a free download at JayConner.com/scripts — J-A-Y-C-O-N-N-E-R. Secondly, my book — $20 on Amazon — but I'll give it to you free, just cover shipping. JayConner.com/book. Third, I have a $3,000 gift for your audience: two tickets to my upcoming three-day private money conference. We do it three times a year — private money, finding deals, negotiating, a rehab bus tour, how to automate the business, how to sell any house in three days or less. Small registration fee. Details at TheprivateMoneyConference.com. Steven Weinstock (31:46) Jay, this was an incredible conversation. Access to capital is more about relationships, communication, and confidence than anything else. You took a setback from 08-09 and turned it into a new business model and educational platform. Thank you, Jay. For everyone, thank you for listening to this episode of The Wealth Clock podcast, available on YouTube for the full video. Jay, thank you so much for coming on. Jay Conner (32:38) Steven, thank you so much for having me.