Joe: Hey, welcome to the Real Estate Investing Mastery show. Glad you're here. My name is Joe. Today on today's episode, we're going to be talking with a good friend of mine. His name is Jay Conner, and he's known as the private money man. We're going to be talking about how to raise all the private money you could ever need for your deals, whether it's a house, vacant lot, commercial property, whatever. Jay is the man. He's been doing this for a very long time. We're going to be talking deep into how do you raise private money for your deals? Because it's a skill, it's an art, It's a science. It's very easy to do, though, if you know what you're doing. We're going to be I'm going to be asking the questions, what comes first, the deal with the money. And it may be both, I don't know. But Jay is going to be the one to give us all those answers. So if you're ready, I think we could just jump right in and bring him on. Let's see if I can do this thing just right. Jay, are you there? How are you?

Jay: I am here, Joe, and I'm so excited to be with you. Thank you so much for inviting me along. First, to have this discussion about my most favorite topic that I'm most passionate about, that being private money. And the reason I'm so excited about it is because private money in the 20 years that Carol Joy and I have been full time investing in real estate, private money has had the biggest impact, the most important strategy and skill that I've learned of anything and everything that I know about real estate investing.

Joe: I love it. By the way, before we get too far ahead, because sometimes people don't listen all the way to the end, you've got a free book that people can get at Jay Conner dot com slash book, what's it called.

Jay: Where to Get the Money Now? Where to Get the Money Now? And the subtitle is How and Where to get all the Money for your real estate deals without relying on traditional or hard money lenders. So this book. Well, I mean, I had nothing there's nothing hidden. I'm revealing all the secrets and steps that I use to get private money to where it puts you in the driver's seat as the borrower. And you make the rules.

Joe: Love it. So, again, they can get it for free. Jay Conner dot com slash book. Now Conner is Jay Well, Jay is J A Y Conner is C O N N E R dot com slash book for our audio listeners here so if you can't see that link on the screen but good Jay thanks for being here. Talk about your story using you've been in real estate for 20 years. Is that what you said.

Jay: Full time, 20 years now? Absolutely.

Joe: Cool. What did you do before that?

Jay: Well, I was actually raised in the mobile home business way back then. Some people called them wobbly boxes, single wides, double wides, you know. And so I'm here in eastern North Carolina, which was at one time, you know, the capital of mobile homes in the nation between North Carolina, South Carolina, Georgia, Florida, Alabama, Texas. And so I was raised in that industry. In fact, my dad, Wallace Conner and Lord willing he's going to be 90 years old in just a few months coming out. And he's still a mover and shaker. I mean, he's got three developments he's got going right now. He's got a 350 hours development that's halfway built out over 90. They like him. Wow. So anyways, he was and the you know, a couple of decades ago, his company was the largest retailer of mobile homes or manufactured homes, as they were called in the nation. And so I grew up around my dad in the housing industry, specifically helping people own a home in what we called the affordable housing industry. So I've always been around housing and unfortunately, quite a few years ago, like 20 years ago, the majority of the financing for the consumer that would buy a mobile home, the majority of that financing all went away. The industry fell out of favor with Wall Street paper was not being bought. And so, you know, when consumer financing shuts down, you can't sell the product. So I transitioned from manufactured housing and to investing in single family houses. Now I do commercial as well. I've done condominium developments from the ground up. I've done shopping centers from the ground up. But mine and Carol Joy, my wife and I, our focus for 20 years has been in single family houses here in eastern North Carolina. We're in a small market, only 40,000 people, but we do 2 to 3 deals a month. Our average profits right now are $78,000 per day. So we don't do a lot of deals. 2 to 3 a month. But, you know, two or three a month, 30 a year, so to speak, at 78,000, that may or may not be the I'm sorry, you're I don't share that to brag at all about me and how wonderful and great and smart I am because I've made a whole lot more mistakes than I have good decisions, truth be told. But the reason I share that story is as a real estate investor, you don't have to be. In a big market to make significant income.

Joe: OK good. Well, what kind of deals are you doing?

Jay: Most of the deals in today's market flipping most of them now, by the way, I've never wholesale the deal in my life. I know how to wholesale a deal, but I'm never wholesale it on the line. I ain't got nobody to wholesale it to me. So it's like I wholesale it to myself. Right, Right. I've rehabbed a little over 475 houses now over that period of time. Sounds like a lot of houses, but it really isn't if you divide it over 20 years, you know? But so most of what I'm doing now, the majority are fixed and flips, funding them with private money. However, I do a lot of terms deals I buy subject to the existing No, you know, I buy with creative financing. I know lease options is like, you know, one of your magic gems that you had going on for some time. But my rule of thumb, Joe, is if I buy with cash, if I pay all private money, I want to cash out. I went down that road years ago. I would rehab them and I would let the market speak. If somebody came along with a cash offer that I like wonderful or if I rent to own terms. Buyer came along. I would sell it on terms, but I don't do that anymore. I got tired of rehab and I'm more than once another one of my big mistakes. Yeah. So my rule of thumb now is if I pay with private money and I rehab that thing into a beautiful home that's ready for Southern Living magazine pictures, I cash that baby out in the model lists and service. But if I buy on terms, typically I want to sell on terms. If I buy creatively, such as subject to the existing note, I'm going to want to turn around and sell that on terms he on a lease purchase.

Joe: Okay. All right. Good. You've been in the business a long time. Somebody might say, well, hey, your dad's successful. You grew up with a silver spoon. And did you really have to work that hard to do these deals or to raise private money? Can you talk about your journey into the business? And, you know, why do you even need private money.

Jay: While in fact, I counted them up this afternoon? I have 15 big reasons as to why I absolutely love private money, but I'll just give a summary of those. But first of all, how did I get involved in private money? Well, I can tell you, I just didn't wake up one morning and say, you know what, I think I'll go raise me some private money. It didn't work that way, as a matter of fact. And Joe, I know you can relate to this, the growth personally and the growth in business most of the time, in my experience, really takes place when there is a problem, when there's a difficulty going on. So the first six years that we were in this business investing in real estate, I relied on the local bank. That's all I knew to do. I was just using my experience from the mobile home industry. You know, you're supposed to get a line of credit to buy your inventory and you know, you use the bank and they make the rules. And that's what I did. Well, that worked very well from 2003 until 2009.

Joe: Now what happened in 2009. I wonder.

Jay: Something happened. Yeah, something happened. So I remember like it was yesterday. Joe, I know you may find that hard to believe, Joe, but can you believe we still have handsets and receivers here in North Carolina with.

Joe: You have one on your desk?

Jay: Yeah. I mean, isn't that amazing? So I picked up my telephone in January of 2009 and I called up my banker. His name was Steve. I called him up. And this conversation that I had with Steve Joe, I had had many times for six years, I had two houses under contract. I told Steve about the deals, the funding required when I wanted to close, and I didn't know there was going to be a change in conversation. Steve says to me on the other end, he says, Jay, don't you know there's a global financial crisis going on right now? He says, Your line of credit has been closed to the bank. You ain't got no line of credit and no funding. My first thought, Joe, was it sure would have been nice if Steve had picked up his phone and called and told me that before I had earnest money put down on those houses in 2009, you couldn't get your earnest money back. I mean, when you gave it, it was gone. And so that was my first thought. And my next thought was I didn't know there was a global financial crisis going on, but now I got a crisis. I can't fund my deals. What am I going to do? So I sat here this desk for a moment, and I thought to myself, Who do I know that can help me with my problem? And let me tell you something, Joe. Let me tell you something. It just makes me want to throw up when somebody looks at you and says, Oh, don't you worry. Every problem is actually an opportunity I want to throw up. I ain't got no opportunity. I got a problem. I got to. Is under contract and no way to fund them. So I've picked up the telephone receiver and I called my good friend Jeff. Jeff Blankenship is the first guy that came to mind when I asked myself, who can help me with my problem? So I called him up. He was investing in real estate in Greensboro, North Carolina, and I told Jeff what had just happened. He said, Well, welcome to the club. I said, What club? He said, The club of losing your line of credit at the bank. They cut me off last week. I said, Well, how are you funding your deals? He said, Have you ever heard of private money? I said, No. And I didn't know what private money was. He said, Have you ever heard of Self-Directed Ira? And I said, No. And he says, Well, you need to learn because that's how we're going to fund our deals. So I started learning about private money right away, and I put my program together. And Joe here was my biggest challenge when it came to this world of private money. And that was, you know, the traditional way of borrowing money, like I did with Steve, is you went to the bank, you got on your hands and knees, you put your hands underneath your chin and you said, please fund my deal. Please fund my deal. Right. And when Steve cut me off, well, you know, what am I gonna do now? So in this world of try, we're raising private money. And the way I do it is it's a 180 degree shift. We don't go and ask for money. We don't ask to be approved. We don't fill out an application to be approved. Because I'm not talking hard money here. And by the way, you and I have got some really good friends that are hard money lenders. I say establish as many relationships with people as you can. But in this world, I'm not talking hard money or a broker. I'm talking about doing business with an individual, another human being, just like you and me, that loans money to us. The real estate investor from either their investment capital or their retirement funds. So I learned about private money when I lost my line of credit in January 2009. And I just started and I haven't asked about it for money. I started teaching people. I put my program together, which, by the way, my private lending program that I offer and I teach to other individuals to be an investor with me. It's all laid out in my book. All laid out in my book. Exactly. My program. And so I was able to attract 2 million, $150,000 in less than 90 days when I was cut off. And for goodness sakes, if you're a new real estate investor, you don't need $2 million in private money. My very first private lender gave me $250,000 and man, I was off to the races with that $250,000 burning a hole in my pocket. So that's how I got started in. And I mean, I just didn't, you know, I mean, it was out of necessity of getting cut off from the banks that I had to find a better, faster, easier way to fund my deals. So that's how I got started. But you let me know when you want me to share why I love it.

Joe: Let's get to that. But let's get to that. Talk about qualifying that first guy, though.

Jay: Because I know private money is all around you. Private money is all. I mean, it could be your brother in law. It could be your cousin, it could be a coworker and x coworker. It's like it's all around you. I mean, your private lenders are in your cell phone. Your private lenders are on your email list. Your private lenders are on your social media, your Facebook. And I don't mean your fake Facebook friends, but people you actually know. And so my very first private lender and by the way, I still had those two deals under contract. So I learned about private money. But Joe it was on a Wednesday night at Bible study. Carol Joy and I've been going to the same church since 1988. And so I learned about private money. I got these deals under contract. I've lost my line of credit at the buying shows on a Wednesday night at Bible study. I get there to church on Barbour Road here in Morehead City, and I walk into the four year and I look over and I see a gentleman that I've known for some time. He's retired. And I looked at him and I said, Let's say his name was Frank. I said, Frank. I said, I got something I want to visit with you about confidentially after Bible study. Could you visit with me for a few minutes after we finish? He said, Well, Brother Jay, of course we'll get together. So we sat down for Bible study. We have the opening song, couple of songs, we have a prayer. We are this Mr. Bible study. So we have the Bible study finishes. You know, we got the invitation song and then we got the closing prayer. And at the end of the day, Amy and I raised my head up and I look across the auditorium and Frank, Frank and his wife sat on the other side of the auditorium. And I see. Stand up and you know, elderly gentleman when they trot don't look very sophisticated. But Frank is trotting to the back of the auditorium coming over towards me, and he walks up to me. I've barely raised my head up from day many says that, Brother Jay, what you got in mind? Well, I then figured out Frank ain't been thinking too much the past hour except one the world I want to talk to him about confidentially that I mentioned the hour ago. And I said, Well, Frank, let's come down here to the nursery and we can talk about it. So we walked down there and he's following me down to the nurse and we shut the door. And here is what I said to Frank. I said, Frank, you know everybody in this town. And he did. He was the original Zenith television dealer. Now, if you don't know what the Zenith television dealer was, ask before Wal-Mart came to town. That's where you went to buy your TV and get your TV repaired. I said, you know, everybody in this town, you're an idiot. I said, You're involved in the Rotary Club. You got a lot of people respect you as Frank, I need your help. I said, You see, I have now opened up my real estate investing business by referral only to people that I trust, and I'm paying insane high rates of return on my deals to people that invest with me. So here's what I need your help with, Frank. When you run into somebody that's complaining about the volatility in the stock market and you know how you can't get nothing in the local cedi at the bank, you know, the 12 month C.D., would you refer them to me? And I'll tell them about my program. And he paused for a sec and he looked at me. He says, Well, now, Brother J, what you got in mind? And I said, Well, what do you mean? He says, Well, what kind of rates are you paying to your investors? And I said, Well, you know, that depends on the deal. But you know what sounds high to you? They says, Well, we're only getting about 3%. And the local bank. And I said, Well, now, Frank, are you saying that you and your wife might be interested? He said, Well, yeah. He says, we're losing money in the stock market and, you know, we're not getting anything in the bank. I said, You know, he says, What can you pay? I said, Well, I don't know. What do you think? He's Well, I don't know. Would you pay five or 6%? J. I said, Frank, I can't pay you 6%, but I can pay you 8%. He's put me down for $250,000. So I went to his and his wife's home. The next day I went over the program as to how I'm not borrowing unsecured funds. I'm actually going to give them a deed of trust, a mortgage to secure their No, you know, with the collateral of the real estate I'm borrowing. And I went over how, you know, the frequency of payments, how often I would pay them. And I went over in my program how they can get their money back, you know, early if they got some kind of emergency. Well, you know, I learned very quickly, Joe, private lenders always have more than they tell you. So we did that first deal with Frank and his wife and they star and they and he held me out. He started referring other private lenders to me. They quickly became my $500,000 lender. And here's what's interesting. They were using investment capital, just money that they had sitting in the bank. But then I taught them about self-directed IRAs and how they can move their retirement funds over to a IRS approved self-directed IRA company. And then they could start investing with me and getting returns, either tax deferred or tax free. Well, they loved that. And they started telling other people. So my very first private lender was at church at Bible study on Wednesday night. They referred a lot of people. And now today we got 47 individuals like Frank that are investing with us. And again, if you're brand new to real estate, for goodness sakes, you don't need 2 million, you don't need 47. All you need is one or two to start and now to get you off to the races.

Joe: Wow, that's a cool story. And by the way, everybody, you're listening to this or watching it. Pause this rewind. Can you do you still rewind on videos these days? You're not there's no rewind button. Just rewind back goes go back a couple of 5 minutes and listen to what Jay just said, because that's a great script. Do you did you notice Jay never begged for money. He never said, Hey, I've got a deal. I was wondering if I could talk to you about seeing if you would be willing to invest in the deal. He probably would have turned Frank off. Frank probably would have said, Oh, something's wrong if he's asking me for money, but I'll talk about. Would you second, Jay, why you chose the positioning that you did. You needed money for a particular deal. You knew Frank had it, but you didn't go and ask him for it. Talk about that because it's so subtle, but super important the way you did that.

Jay: Yeah, well, it is very important. First of all, desperation has a smell, you know, it's desperate. I mean, you know, the most danger. The most stressful, the worst time in the world. To be raising private money is when you need it. Well, I needed it. Yeah, I needed it. But, you know, my instinct told me my instinct told me that if I talked to Frank about this program I've got and these two deals that I'm trying to close, that I was going to obey without even if I did my best not to sound desperate, I'd be desperate. I mean, without even saying it. I'm going I need you to fund these two deals because they're under contract. So it's so important. Just separate. Separate the conversation between, hey, would you like to, you know, learn about how you can earn high rates of return? I mean, I love. Did you? No questions. I love starting a conversation with hey, I mean, I'm just having a casual conversation, right? I'm shooting the breeze and I say, hey, did you know there's a way people can earn unlimited money tax free? And of course, they're not gonna know the answer to that question. And my follow up question is, well, have you ever heard of self-directed IRAs? And in all probability, they haven't. So now I just listen to just a very casual conversation. But back to the point and so important. So after I went to Frank's and his wife's home that next day and they said, hey, we want to start with $250,000 when you know, and then of course, when they're when they're like all excited that they want to. Well, when can you start? When can we start? When can we start? I did not say right now because I would have scared them off. Then I say, right now it's like I said, you know what I think I said, You know, I've got offers going on all the time. I told them, I said, I think I'll be able to put your money to work. And that's my phrase I say all the time, I think I'll be able to put your money to work probably within the next week, probably within the next. I can't guarantee it, but probably. And so I waited a few days and I called them up. By the way, I didn't have them sign anything. They didn't sign any pledge. I promised to old my $250,000. This is this is a handshake on trust that it's going to be there when I call up. So a few days go by, I pick up my handy dandy receiver here in my office and I call up Frank. And here's exactly what I said to Frank. You're ready. Here we go. I call him up, takes out the phone. He played golf. We are not chit chat. I said, Frank, have you played golf today? Nah, it's too hot. Too hot to play golf. They just don't go. I said, Well, I'm calling you with some good news. I can now put your money to work for you. I can't put the old 250,000 to work for you, but I can put 150,000 of it to work. I've got a house in Newport now under contract. The after repaired value is $200,000. The funding required for this deal is 150. Closing is next Wednesday, so you'll need to have your funds wired to my real estate attorney's trust account by next Tuesday, and I'm going to have my attorney send you the wiring instructions so you can send the wire over. End of conversation. I didn't ask Frank. Did you want to do the deal? Of course he wants to do the deal. If I ask him. Do you want to do the deal? That's the most stupid question in the world I could ask Frank. They've been waiting for the phone call for me to put their money to work, and so I'm just calling them with good news. I got great news. I can now put your money to work.

Joe: And so this is all good. I hope you guys are writing notes.

Jay: Let's like I mean, of course he won't send. And I'll tell you something else. If Frank had a moved retirement funds initially over to the self-directed IRA company that I recommend, and all my private lenders have their retirement funds there, of course, they would be dying on the vine from me to call him because if I mean, when your private lender trust you, you're very prevalent or trust you to move their retirement funds over to where you recommend they move them to. You are now their trusted advisor and their money is sitting there earning nothing whatsoever until you put it to work. And I'll tell you something, you have got an ethical obligation to put that money to work. You got an ethical obligation to borrow that money because they have moved that money over for you to use. So use it.

Joe: Got a lot of questions for him and write them down. You offered him 8% instead of the 6% he wanted. Why was that? And wasn't that more than what you wasn't that interest rate higher than what you used to pay the bank for? So why are you paying your private investors? More interest than you would pay a bank if you were borrowing from them. Does that make sense?

Jay: Excellent question. Well, first of all, the access to the money is more important than the interest rate, quite frankly. But I sure wasn't going to offer a hard money lender rate of 12% and points and etc.. So that's another big that's another big point. No pun intended. That's a big point there. I don't pay my private lenders any points. I don't pay them any origination fees. So that 8% that I'm paying them includes everything as if I were paying points. Obviously, I wanted to give them a strong incentive to do business with me and make it, you know, somewhat higher than they could get at the local, you know, to get at the local bank. And so in answer to your question, Joe, he said, I don't know, maybe five or 6%, Why don't I offer a I had already determined two reasons. Two reasons I had already determined what I was going to haul from my private lenders. I had already put my program together. Remember, you make the rules. The lender doesn't like the rules. The private lender is the bank. They don't own the property. This is not a joint venture agreement. You know, my entity owns the property. They are the lender. But we make the rules. We set the interest rate, we set the term, we set the frequency of payments, etc.. So I had already put my program together. 8% is what I had already decided to pay. Secondly, I had already determined I am not going to negotiate rate with my different lenders because I don't want to try to remember what am I pay? And Tom and Joe and Dick and Harry and Sally and Frank and Aubrey, they're all paid the same through. Thirdly, private lenders talk, particularly in your own little home town of Morehead City. They talk when how much is GE paying you? 8%. Well, how much is it paying you? 6%. Why is it paying you? 8% is paying me 6%. So keep it simple, by the way. It's simple interest. It's not compounded interest. It's just simple interest. So it keeps it just all above board. Everybody's treated the same. You know, there's no preferred rate for, you know, my brother in law. Right. Everybody's treated equally. And then I just don't have to worry about keeping up with it.

Joe: Yeah, that's so good. All right. Let's talk about some of the people who are listening to this maybe are new and they don't have a deal yet or they're wondering, should I raise private money first or should I get a deal first? What do you say to them?

Jay: Well, in my world, Joe, you know, I understand. I know what it feels like to be stressed out, to have two deals on a contract and no word. And I don't know where I'm going to get the money. That's like that's just pretty, you know, stressful, right? So it's been my experience when we raise the money. And by the way, I have reviewed over 20 years thousands and thousands of property lead sheets, you know, information of themselves for sale by homeowners. Now, of course, if something's listed in the model or a listing service or it's a bank owned property or it's at auction, of course you've got to have the cash. But those for sale by owners, my statistics show, and I'm a pretty good negotiator and my acquisition is has been with us for 15 years. My statistics show that of all those for sale by owners, 13% will sell to me creatively. That's pretty good. 30%. 13% of all of our fiz mo property lead sheets are poorer. I pulled them all out and I didn't pull them all out, but I ran the numbers in our software last year. Of all the says most we got how many would sell to us creatively? 13%. What are the other? 87% require all the money. And so, you know, sometimes a new real estate investor will say to me they'll say, J, I don't need any private money. I just want to do the terms business. I just want to buy, send it to the existing note and control it on own lease option. And thus and so. And I say, Well, that's great. I did the same thing too. But you know, do you want to miss out on 87% of the deals that the people require? All the cash. Right. And so when you've got the cash, the private money ready to go, are you going to be any more confident when you're brand new? Are you going to be any more confident making offers? No. One, you can take that deal down. Now, of course, if you're wholesaling, you don't want any private money, you're in it private money for wholesaling. But if you are a wholesaler and you're getting houses under contract and you're looking to flip that contract for an assignment, see, my guess is if you've been wholesaling for any length of time, there's probably been a deal or two that you would have loved to have stayed in the deal if you had the funding required. So again, we're going to use private money. When the seller I don't care who it is for sale by owner, you know it nonetheless is serving the seller requires all the cash. That's when you're going to use private money.

Joe: Excellent. Okay. Can you go into and talk a little bit about the terms that you offer to investors? You already had a little bit, 8%, but is there do you like limit? Does it depend on the deal? How long of a period your you would lend the money or borrow the money from them?

Jay: Yes. So all of our notes, the term, the length of the note is going to be two years, two years. If I'm borrowing investment capital, if I'm borrowing retirement funds that I just go ahead and borrowed for five years because they're not looking to get the money back anyway. And, you know, the length of the note from the perspective of the private lender really is sort of irrelevant. Even though you got to have it, you got to have a length to the note for to have a note. But it's been my experience that when I go to pay off a house and I cash out once, the first thing they say and I ask, can't you just keep the money? Can't you just keep the money and not pay me off? Well, no, I can't keep the money if I pay off the house to keep it collateralized. I got to pay them off and then, of course, go back and put their money back to work for them just as soon as possible, because they're not earning any money unless I'm using the money and I've borrowed it.

Joe: Good. So. But what if it's a short term rehab? You know, you buy you're going to rehab it for three or four months, put it on the MLS, sell it, you know, a couple of months later. So you only need the money for six or seven months.

Jay: Typically the quickest cash an hour on deals these days is typically around nine months. It's not because the market isn't hot. I mean, we put a house on the model is service and we got multiple offers. But I'm doing so many deals, I'll have three or four or five houses sitting in the wings waiting for my contractors to get to because they're backlogged. I'm backlogged so maybe three or four months before they get there and then they start on it. My average rehab now is running about $50,000, if not more. And so it's going to take them a couple of months, two, maybe three months to get it done. Then we put down the amount of listening service. It's going to take 45 days for that to cash out. So it's going to be that nine months or even 12 months before it actually cashes out. So what happens is can I borrow two different kinds of private money or two different sizes of private money? I buy private money for purchases, larger amounts, and then I'll use smaller amounts, you know, 30,000, 40,000, 50,000 for rehab money. Well, that money goes in what we call second position. Now, something important is also what's called total loan to value. I protect my private lenders by not borrowing more than 75% of the after repaired value. So how in the world do I always bring home a big check without taking any of my own money to the closing is because I'm buying at a significant discount. I mean, it's typical for me to buy a 50% of the after apparent value. And so when I go to cash out, I may have a So let's go back to that example. It was a $200,000 after repaired buy your house, let's say, and I borrowed 150 from Frank in that story. But let's say I was using two private lenders to fund that deal. Maybe I had 100,001st position that I used for purchase. And then let's say I had $50,000 from another private lender in second position. So 100 plus 50, that's total loan amount from both private lenders of $150,000, 150,000, about 200,000 after repaired value, of course, is a total loan to value of 75%. So I go to cash out that house. Well, the lender, they gave me a $100,000. I'm going to pay that lender off unless I've got another house that I'm close in on simultaneously, that I could do a substitution of collateral. So we do substitutions as collateral, loan modifications, if you will, on a lot of deals, particularly on the smaller loans on my loan amounts to. Well, let's say I've got a $50,000 second note from a private lender. I cash out that house. Well, I got another house over here in the morning that I haven't started the rehab yet, but I'm getting ready to start the rehab. Well, I can keep that $50,000 note open and still in play and the lender keeping invested. But we're going to keep the note in place, but we're going to substitute the collateral. The collateral that was backing that $50,000 note is that house that I sold. Now I'm just going to move in. Substitute the collateral and now use a different house to collateralize that. No. How do we do that? I sent an email to my real estate attorney and say, I'm paying off this house. Keep the note open on Joe McCall and move it over and collateralized by this other house on Paradise Circle. Boom. Done. Now, your private lenders got to agree to that. They have to sign the loan modification and have their signature notarized. But then again, they don't want their money back. They want to keep earning money.

Joe: Yeah, definitely. Good. You said something earlier. When you protect your private investors, you give them if they needed their money back early. You give them an option to get it back early. Can you talk about what that is?

Jay: Sure. So if they're loaning me investment capital now, I typically don't do this. If they're loaning me money from retirement funds because they're not looking to get their money back any way, I mean, it's retirement funds. They want to keep it invested. But if they're going to me, investment capital, part of my program in my book is I offer what's called a 90 day call option, a 90 day call option. Now, it's your program. If you're I mean, you don't want to offer an entity call option. I do. But what is another day call option? It gives the lender, your private lender, the right to give you a 90 day notice that they need to call their no do early. They had something come up. They need their money back early. And so that gives me a 90 day notice to replace their note with another private lenders money. Now, you may be afraid that is going to keep you awake at night if you all for another day collapse. And you might be thinking, well, gee, what happens if they call my no do and I don't have another private lender to replace their money? What am I going to do? Well, let me tell you what happens in the real world. So obviously, I've done hundreds and hundreds and hundreds of these private lender notes and I've been offered 90 day call options since we started all the way back in 2009 doing private money. I've only had two notes, two out called the early. Both of them were small. They were only $30,000 notes and both of them were because of a medical situation was going on that I needed. So there's no problem with me replacing that? No. But let's say you offer an entity call option and you and then this call for some reason and you go, I don't have another private lender. Well, that's why I don't borrow more than 75% of the after repaired value. I could pay I could I could sell at a discount and make the private lender all of I do. Or you could go to that hard money lender, the traditional bank, and you could refinance that thing and cash out your private lender as another option. But I will tell you this, you don't have to offer a 90 day call option. So I got a lot of friends that I will offer any call options. I mean, you sign up for two years, It's two years. But I will tell you, you'll get more private money because they know that in case of an emergency, they have options.

Joe: I got burnt one time, twice. Maybe. When that happened, I borrowed the money in 2007 and 28 timeframe and with a property that was protected at 75% of loan to value during that one or two years was now had maybe 95% loan to value.

Jay: Because the value came down.

Joe: Because the values came down when the when the housing market crashed. And so then I had two investors at the same time want their money back. These were small second position notes and it was not easy. I didn't have the money. I couldn't replace it with another private investor. They were all scared of putting any money into real estate, number one. And number two, there wasn't any equity left in the house. And so one of the I worked out something with one of the investors. The other investor threatened to foreclose on me because he really was desperate, get his money out. And he wouldn't he wasn't willing to work with me at all. So it got down to the to the to the last day he gave me a 30. I got a 30 day letter from my attorney. From his attorney. You got to pay this off or we're going to sue you because the contract had a 90 day option. I had to borrow $27,000 from my assistant because I didn't have the money. I borrowed $27,000 from my assistant to pay that private investor back. So for me personally, I would be I would be very careful with a 90 day option. I wouldn't feel comfortable doing it because you just there is so much fear in the market back then in oh eight, No. Nine, where even if there was 25% equity in the deal, it was hard to find an investor willing to put their money into real estate because it was just collapsing. Now I got out of all of that. I paid all of my private investors back. I had like 12 different properties where I'd either taken over the mortgage, bought it with. Bank financing or lease options, subject tos and things like that. But of all the private money, I paid all of my private investors back. So some of them took me three years after I lost the house to foreclosure. I paid still paid my private investors back three or four years later. But anyway, you got to be careful when borrowing private money. So talk, Jay, about some of the risks involved and how do you protect yourself and how do you protect the investor from the risks of whatever could go wrong? You know what I'm saying?

Jay: Sure. And in everything that we do, there's risk, right? There's risk on the lender. There is risk on you that's, you know, doing the deal. So what do we do to protect ourselves? Well, let's start with the private lender. So we already know we're not borrowing unsecured funds. Right? You can legally, but don't do it. But again, for your private lender and give them that data trust. So that mortgage, how else are we going to protect them on the insurance policy? I'm going to name the lender as the mortgagee on that insurance policy. And you know what? In this world, unless you're doing this for your private lender, they don't. I mean, if they're if they've never done this before and you've taught them what private money is, they're not going to know how they need to be protected. So you got to look after them. So I'm going to name them as the mortgage on the insurance policy. How does that protect them? Well, if there's a claim against that property, then guess what? The check is made payable to the mortgagee, the lender and to you, your entity. I mean, that's just like the bank. I mean, the bank's going to be happy. If you borrowed money on Real saver in the bank, the banks will be named as the mortgagee in case there's any claims. They want to make sure that they're signing off on that check first before you get it. How else are we going to protect them? Well, on the title policy, I'm on minimum residential insured. I've never bought a house full out of title policy, but I've never had a claim. But you know what? Then I might have a claim tomorrow on a title policy. So I know my private lenders on that title policy as well. Now, how are you going to protect yourself and the private lender, both in the offer and the offer you got to buy right? Then you got to know how to buy, Right. And yes, if there is a rehab involved, you need to know how to ask to make repairs. But you know what, Joe? Out of 407, if I rehabs, I ain't got a I ain't got a rehab estimate right yet. Right. So the magic is really not an estimate in repairs, even though you got to be I mean, you estimate repairs to make your offer. You do not close until you got your bid from your contractor. Right. And you've got that home inspection. How are you going to protect your private lender? You're not going to buy a house. You shouldn't buy to start. Well, right. And home inspections kills deals, Right?

Joe: You know, that's so good because when some of those bad deals I was I remember being aggressive with the what I felt were the comps for those properties. And I remember when I bought them, the market was already kind of teetering, you know, and I was being more optimistic on the value of the house. So if it was like this is one thing I tell people all the time, always under-promise and overdeliver, especially with your private investors, right? So when I was looking at these deals, I was you know, the range was 200. What was the house worth? You know, 200 to 200, 25,000. I would go it's a to 25. You know, if the repairs were 40 to $60000, I would go with a $40,000 for repairs and my margins. And Mike offers, if the rents were 1000 to 1200 a month, I would choose 1200 of my. Do you see why you can get a spreadsheet to tell you anything you wanted to tell you? And so when you're dealing with private investors, it's always super important and this is a word of advice from experience, underestimate, overdeliver, right? If you know a property's worth 200 or 225,000, go, It's a 200,000 number, right? If you think you can sell in 4 to 6 months, plan for six months to sell it if you think the rents can are 1000 to 1300 go with a thousand like always be looking at worst case, be conservative because then your investors are going to see that they're going to be like, Oh, you know what? I like this guy because he's not overinflating his numbers, right? Well, especially when you're selling deals to other landlords or you're wholesaling deals to rehabs, you just got to be so careful with that because things can go wrong and many times they will, especially since 2012. So the last 11 years now we've seen an incredible run up in prices. Now, there probably will still be going on for a while because there's still such a huge under supply, a lack of supply. Right. Huge demand. Lack of supply. Still. But, man, you got to be. You got to protect your private investors. And I say this all the time, too. And it's funny, Jay, when I talk about this, I when I talk about how important it is to protect your private investors, make sure they get paid first. I always get people come up to me and say, hey, Joe, do you have any money I can lend you on deals like that? When you start talking about these things, people will come to you and say, Hey, I've got some money. I can invest with you if you're if you're interested, if you're looking for it. But talk about that for a second. You know the importance of putting your investors interests ahead of yours. That's for me. That is, like, super important. Isn't it?

Jay: Well, it is. And Joe, you and I have heard this said by 100 other people. How you do anything is how you do everything. So lead with a servant's heart and everything you do, put the other person first. That applies to private lenders. That applies to when I'm talking to someone that's facing foreclosure, for goodness sakes. I mean, these people are facing foreclosure. They're stressed out. Right. Well, if I put their interest first, how can how can I put somebody that's in foreclosure, put their interest first? One of the first questions we ask them on the phone is, do you want to keep your property? And if the answer is yes and we can give them an idea on a loan modification or deferment program or anything like then they keep their property and it works out for them. There's nothing in it for us. Right. But guess what? Zig Ziglar said it best. One of my heroes, God rest his soul, and I'll paraphrase, Paraphrase what he's saying. You hope another people get what they want and you ain't got to worry about yourself because of the law of reciprocity. What goes around comes around. And I'll tell you what, and here's a rider down or from my experience, it's not about reapin’. It's all about sewing. It's all about sewing. They about reap. And you got to show first before you reap. And one way that you so first is you look out for the other fella first, and then you ain't got to worry about yourself. It's just a way of life. That's a way of doing business. And I'll tell you from my own experience and observations, the people that are looking after themselves first and not looking after the other people, they're not going to be around very long. They're around for a while. The more of the word don't get around, particularly Joe, in our industry.

Joe: Yeah that's really, really good. Again, your book is at Jay Conner dot com slash book. Jay Conner dot com slash book. I got another question for you real quick. What IRA company do you recommend to people these days or do you would you rather not make that public?

Jay: Because you know, I'm glad that six months I'm glad to make that public because I have done business and recommended all my private lenders to move their retirement funds. Those that are using retirement funds don't get confused. If you're tuning in here to the show, you're not just going to be using an individual's retirement funds to invest with you. They use investment capital, liquid funds. They use retirement funds. Well, I have recommended to my private lenders and by the way, this is so important to establish a relationship with a self-directed IRA company that's reputable and that you can count on. And here's why. Over half of mine and Carol Joy's private lenders are using their retirement funds. And if you don't have a relationship where they self-funded a retirement account or a company to refer them to, you're going to miss out on over half of your funding out there and they're going to be counting on you for the referral. Well, I have referred my private lenders to other companies that had horrible service. I mean, horrible service. But I'm going to tell you one right now that's got the best customer service from my own experience of any company I know and that is www dot quest trust dot com out of Houston Texas. I get my deals funded with my private lenders that have their account at Quest Trust. I get my deal funded in three days three days from the time we send the promissory note and the deed of trust to quest trust the money is wired from my private lenders account to my real estate attorney's trust account. And we're closing that deal in 72 hours.

Joe: Yeah, love it. Good. Anything I should have asked you that I didn't Jay. How about this? How about this? Well, I'll let you answer that, but I got another question for you.

Jay: Well, you're too much like me, Joe.

Joe: Oh. Here's my other question. What are some of the biggest mistakes you see beginning investors make when they start asking for private money?

Jay: Well, that's the mistake. They ask for private money.

Joe: Okay.

Jay: Don't ask. Don't ask for private money, put on your teacher hat. And start teaching people that you have some kind of connection with about private money and what the program is and how they can earn high rates of return, you know, safely and securely. And beyond that, the mistake just starting out. I mean, for goodness sakes, if you're listening to this show, if you're a new and you've never done a real estate deal yet, for goodness sakes, don't do what I did. Don't go out there on your own without somebody that can hold your hand. That's been through the minefield before. So let me tell you something. If you don't work with someone such as Joe McCall, that can hold your hand. And, you know, I mean, Joe, been through the fire, right? I went through the fire. I mean, I made some stupid mistakes. If I hadn't had that, I would not have made it if I had not. I mean, I didn't get my first coach until I'd been in this business for six years and my lands wasn't that a wake up call, I said good night. If I had have done this when I started out, how much quicker and safer I would have gotten there. So, yeah, don't go with this alone, for goodness sakes.

Joe: Yeah, that's good. All right, Cool Jay, obviously your book, Jacob Intercom slash book. Well, I'll put it up there again. Jay Conner dot com slash book. How can people reach you? Do you have a podcast as well? Talk about your podcast.

Jay: Absolutely. So please check me out. The name of my podcast is Raising Private Money with Jay Conner. That's like it's on iTunes, it's on Spotify, wherever you like to listen to your podcast, Just search for private money, raising private money with Jay Conner. I do two shows a week and I have and we always talk private money. Of course, that's the name of the show. And I have amazing guest on my show, just like Joe McCall.

Joe: I was on it the other day. Yeah, it was awesome. Yeah, it was really good. Yeah, it's a great podcast, guys. Go check it out. Raising private money with Jay Conner. Wherever you listen to podcasts, you're on social media, you're on Facebook, you're on YouTube. So it's good to hanging out with you. Jay Probably see you in September, I think, in Tampa.

Jay: Yes, Carol Joy and I were looking at the calendar this morning, and in fact, we already got our hotel room reserved for them together with you and the other mastermind members to hang it.

Joe: I need to get mine. I'm always the last minute, but I will this time. How cute. What we're talking about is a mastermind we go to called Family Mastermind that Matt Andrews does. Okay, Jay, appreciate you so much. Thank you for being on my show.

Jay: God bless you, Joe. Thank you so much for having me. And I look forward to seeing you in person soon.

Joe: All right. Thank you. Bless you, too. Bye bye, everybody. See you.