Raising Private Money Without Banks

In this episode, Derek sits down with Jay Conner to unpack the art of raising private money for real estate without using banks or institutional lenders. Jay shares his journey from depending on traditional financing to mastering private money strategies since 2009. Together, they walk listeners through mindset shifts, finding and educating lenders, and even turning dead leads into funding opportunities.

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Welcome to the Generations of Wealth podcast. I’m your host, Derek Dombeck. And today, I’ve got a guy named Jay Conner, who I’ve actually been on his podcast a couple times. A great guy. This is all about how to raise private money. And Jay and I have been doing this for many, many, many years. So before I bring Jay on, you know, you guys hear this often when you listen to the show. I really appreciate you. I really, really appreciate anything you can do to help grow the Generations of Wealth. And, you know, if there’s anything I can do to help you, don’t hesitate. You know, go to thegenerationsofwealth.com, go to derekdombeck.com, or send me an email, derrick at globalgow.com. Let me do what I do and help you. So, all that said, let’s bring on Mr. Jay Conner. And now, as promised, Mr. Jay Conner. Jay, thank you so much for joining us at the Generations of Wealth show. How are you today?

Derek, I’m doing fantastic, and I just can’t thank you enough for inviting me to come along and be a guest on your show and talk about my topic that I’m so excited about, that being private money. And the reason I’m so excited about private money is the same reason you’re excited about private money is because since I started using private money to fund my real estate deals, I’ve never missed out on a deal for not having the money.

Well, I love that. You and I have got a little bit of history. We were talking before we started the show. So I’ve been on your show a couple times, the Raising Private Money with Jay Conner podcast, which is amazing. Everybody definitely needs to go check that out. And, you know, we’ve got a very similar history, which we both started about the same time, 2003. We both used banks in the beginning part of our career. Correct me if I’m wrong on any of this stuff. We both kind of hit a ceiling or a point in time where the bank’s didn’t really want to do what we wanted them to do. And private money was born, right? Well,

yeah, actually, so from 2003 to 2009, those first six years, Derek, all I knew to do was go to the local bank when I needed a deal funded and get on my hands and knees and put my hands underneath my chin and say, please fund my deal. And the banker would make me pull up my skirt and show all my personal assets. And they’d pull my credit score. Well, that’s all I knew to do the first six years. And, you know, Derek, that worked okay for the first six years until everything changed in January 2009. I remember like it was yesterday. I called up my banker. His name was Steve. I had two houses under contract that I thought I still had a line of credit, you know, to fund at the local bank. And I learned like that over the phone that they had shut my line of credit down with no notice whatsoever.

Yes, I have some very similar experiences. Most of mine were the banks that I was using got shut down. Somebody else shut down your bank, which ended up shutting you down. The relationships I had got walked out the door. And we were also, all of my listeners know, like we were upside down on our properties and had a whole bunch of foreclosures against us. So credit score was in the toilet and, you know, banking was not an option anymore. So, man, we know where we’ve come from and it’s very well documented on my show and your show. And people can definitely go back and listen to that. But I want to know, what are you doing now, man? I mean, we’ve been through a couple market cycles together. Many of our listeners, both yours and mine, have not been through market cycles. Many of them are starting to freak out over 7%, 8% interest rates. You know, what are you doing today, Mr. Connor?

What I’m doing today, Derek, is the same thing I started doing in 2009 as far as raising capital. And that is, you know, when I started out, I had to get my mind wrapped around this notion and concept that instead of applying for a mortgage, instead of filling out applications, instead of asking for a mortgage, instead of asking for a line of credit, I just reversed that 180 degrees. I’ve never asked anybody for money since 2009. Instead of asking and begging and chasing and persuading, I’m offering a mortgage. So what I’m doing now is what I did in 2009. I raised over $2 million in less than 90 days without asking anybody for money. So how did I do it? Well, the first thing I did was put on my teacher hat, which says private money teacher, and I went about teaching people in my own network, in my cell phone, people I go to church with, etc. I started teaching them about this world of private money and how they can get high rates of return safely and securely. And so I got rid of the idea that he or she who has the money to lend makes the rules. That’s the only way most people know to borrow money. So what am I doing today? I am still offering the same opportunity that I did in 2009 to individuals, just like you and me, that are human beings, that loan money out to us real estate investors, either from their investment capital and or their retirement funds. And so as a result, I’m paying the same thing in interest that I was paying in February 2009 as I am today. And what is that? 8%. 8%, no points, no extension fees, no junk fees, and because I can always borrow more than I need to do the deal and get my rehab money up front. I always bring home a big check when I buy. So what am I doing? I’m still teaching people in my own network what private money is, how they can get rates of return that are high, and the loan to values as compared to after-repaired values, conservative. And so I’m still leading like the Pied Piper. These people, these individuals that are sick and tired of getting less than a quarter percent in the local bank in a savings account. They’re only getting 3% in a seven-month certificate of deposit. So what am I doing today? I’m still offering the opportunity to my private lenders. I got 47 of them, and none of them ever heard of private money until I told them about it. So what am I doing today? I’m making a difference in people’s lives that have money to invest. They’re sick and tired of the volatility of the stock market. They’re sick and tired of the low interest rates of the local bank. They’re looking for a way to get a better return on their money that is safe and secure. What am I doing today? I’m not borrowing any unsecured funds. I’m backing their note with the, most people call it a mortgage in North Carolina. It’s a deed of trust. I’m securing their note with the real estate that I’m purchasing. And, you know, as I say, I’m still, you know, I’m still doing the same thing that I was in 2009. And here’s the deal. There’s more money out here in the market than we can use for our deals. There’s more money than there are deals.

Yeah, everything you’ve said, I agree 150%. And, you know, for me personally, I know my method of finding private money. And, you know, I want to hear yours because many people, the first thing they say is, well, you know, what’s the best way to find private money? And you touched on it already a little bit within your network, but can you expand on that a little more? Sure. So, first of all, where are

these people? Who are these people? Who are individuals that would love to invest in your deals? I call your own connections, your own warm market. You’ve got some kind of relationship with them. They’re in your cell phone, social media. You go to church with them. Here’s the question that I ask new capital raisers, And that is who and where do you go every week that people see you regularly, right? Why is that a great question? Because those people already know you and like you and trust you because they see you on a regular basis, right? You’re showing up for whatever you’re showing up for. So the first category are people in your own warm market. The second category of where you find private lenders is what I call in your expanded market. Now, what in the world is your expanding market? If you want to scale your real estate investing business, then you’re going to run out of your contacts. You’re going to run out of names, you know, on your list. I don’t care how big you’re. I was going to say Rolodex. Most people don’t even know what a Rolodex is. So in your contact list. So if you want to scale your business, I teach this and coach this to my community all the time. How in the world can you, like, overnight expand your connections? Well, my favorite place, and the list is long. I’ve got a long list of how you can expand your network of connections overnight. One of my favorites is BNI, which stands for Business Networking International. I’ve gotten millions of dollars in private money and funding by being very active in the local Business Networking International chapter. I mean, here in my little old area, there’s multiple networking groups. And the beautiful thing about BNI, founded by Ivan Meisner decades ago, is that your fellow members in your local chapter, you’re all there to open the door and give each other leads for whatever business you’re in. So when I joined BNI, I was a founding member here in the local area. I joined as a real estate investor. and in my 60 second talk that all of us get every week, I would just tell people I want to get in front of people who are sick and tired of low interest rates in the bank, they’re sick and tired of the volatility of the stock market and they’re looking for a safe way to get insane high rates of return. That’s who I want to get in front of and here comes the referrals. The third category of where you find private lenders are what I call existing private lenders. These are people, individuals just like you and me, that are already loaning money out from their investment capital and or their retirement funds to real estate investors like us. So the question is, okay, Jay, where are all them people?

Well, I can tell you one place they are. So self-directed IRA companies, also known as a third-party custodian, Self-directed IRA companies have networking events at least monthly. Since Zoom came along this side of COVID, they have monthly Zoom networking events. And what they do is they allow people that are looking for money, like us, real estate investors, to network on Zoom or in person. Of course, it’s better if you can go to one of the in-person networking events. And you network with people that have accounts. They already have accounts at the self-directed IRA company. Here’s an interesting statistic. 70%, approximately 70% of account holders that have accounts at a self-directed IRA company, they are looking for you, the real estate investor. They want to passively invest in real estate by being a private lender and loaning that money out to you. So imagine you’re at a networking event of a self-directed IRA company, and every seven out of ten people that you walk by, they’re looking for you. They’re wanting to loan money out. But there’s a catch. There’s a catch. Those people already know what a private lender is. Those people already know what they want. They already know the return they want to get. And a lot of those people, they’re not going to talk to you unless you’re going to pay 10 or 12 or more percent. That ends up being a negotiation conversation. So that’s why I prefer to teach people in my war market, in my expanding war market, what this world is all about. Because when you’re teaching them what this is all about, you make the rules. You set the interest rate. You set the length of the note. Hey, here’s a writer downer. You, as the borrower, you are your own underwriter. You created the terms, right? And so I’d much rather create my own terms and teach and offer the opportunity than having a negotiation conversation with, say, an individual that’s already spoiled and accustomed to getting 12% or 14% or whatever it is. But those are the three categories where you get private money, your own existing connections, then you expand your connections, and then you have existing private lenders. I mean, my mastermind members have access to my private lender data feed.

I mean, we update it every month. We get every private lender closing in the nation in our software, contact information, how much they’re loaning out. I mean, we even know the interest rate that they’re getting. So there’s a lot of people in the data feed that are happy with 6 % and 7%. So we don’t try to talk them people into 8%. No, if you’re going to give them exactly what they want, give them exactly what they want. Exactly. I want to add one, Jay, just because it’s something that I talk about, especially at local REIA meetings and stuff. I’ve raised a fair amount of money from the actual sellers, people I’m talking to about buying their property. And if I realize that they’re likely not going to sell to me, then I change the conversation to when you sell to Jay and you get all this cash, what are you going to do with the cash? That’s a great question. And I’ve had one in particular, I raised about $320,000 when he sold his house. And within six months, he invested another half a million dollars with us. And that was all from a dead real estate lead that 99% of people would have hung up the phone and walked away from.

Let me tell you, if you’re listening to this show, that was worth you getting out of bed this morning right there. Powerful strategy. Powerful strategy. So, I mean, taking a dead seller lead and converting them into a private lender when somebody else gives them the cash. And you have nothing to lose. If they say no, they say no. It was a dead lead anyways. Oh, exactly. I mean, a mentor of mine told me 40 years ago, boy, I just dated myself. The mentor says, Jay, you can’t lose what you do not have. One of my favorite quotes, and I don’t remember where I heard it, was if you don’t give somebody the opportunity to say yes, they won’t. You know, some people might have to walk away and think about that. Absolutely. So, Jay, okay, interest rates have gone up some now with the bank, and you were paying 8% all through the era of banks giving out money at 3%, 4%, 5%. Why should private money be used in real estate deals instead of using a bank?

Oh, my word. Well, I got 20 reasons why I love private money over bank or any kind of institutional money. For the sake of time, I’m not going to share all 20, But I’ll share some big ones right now. And, of course, they’re the same for you, Derek, because you’ve raised millions and millions. So these are in no particular order because they’re all important. They’re all important. So number one, in no particular order. Number one, when you’re using private money, there’s no limit to the amount of private money you can get. When I was borrowing money from the banks, institutional lenders, hard money lenders, there’s a limit to the amount of money you can get from that one source. right? I got 47 private lenders now. I could have 100 private lenders if I wanted to. So there’s no limit to the number of private lenders you can have. Number two, there’s no limit to the amount of private money you can be using, right? Number three, I already said, you’re in the driver’s seat. You make the rules. You set the interest rate. You set the length of a note, the frequency of payments, right and you need to determine first what is it that you want to be offering right what are you offering what interest rate are you offering right what um what’s the maximum loan to value as relates to the after repaired value we don’t underwrite as in a percentage of purchase price i mean i always borrow more than i need to buy and if i’m renovating um you know i get all that money up front um your credit score. Your credit score has got nothing to do with how much private money you can have. Closing quickly. I make all my offers to for sale by owners that I can close in seven days.

Now, I’m going to share a big tip right here. Most people, well, in fact, everybody that’s living in the house that you’re negotiating to buy, they can’t be out in seven days, for goodness sakes. I mean, that works on vacant properties, bank owned properties, whatever. But if you’re negotiating with a for sale by owner and it’s not an absentee owner or, you know, they got a tenant in there. So here’s how we get more offers accepted. So this, what I’m getting ready to say, might also be worth you getting out of bed this morning and tuning in here to the show. so we’ll make our offer can close in seven days they say well i can’t be out in seven days and i say no problem we’ll close in seven days you as the seller you can stay in the house for as long as you want to rent free for whatever period of time that we both agree right that you can stay there for free and we go ahead and close i’ll give you half of your proceeds on the closing day you’re going to get your check half your proceeds and live rent free I’ll give you your other half of your proceeds when you vacate the property within the length of time that we agree to and we do a walk through that you’ve cleaned everything up then they get the other half of their proceeds here’s a writer downer time kills deals period the more time that goes by between you talking to a seller negotiating the deal closing on that property more stuff can come up and go wire and go sideways from another buyer coming in and scooping up your deal away from you and I don’t care what you got in writing I don’t care what offer to purchase you got in writing if they’re going to sell to somebody else they’re going to sell to somebody else and good luck on suing them and getting blood out of a turnip right so I want to close now more reasons I love private money I always bring home a big check when I buy and you may say well how in the world can you bring and I take none of my own money I take none of my own money to the closing table you say well Jay how in the world can you bring home a big check when you buy the property well first of all I can’t bring home a big check unless I’m buying the property at a discount of course right I got to buy it at a discount and at a discount typically unless there’s some kind of distress. There’s some kind of distress with the property. There’s some kind of emotional distress with the seller or maybe all the above. So I’m buying at a discount. And when I say that I’m not going to borrow more than 75% of the after repair value, let me give an example of that. Follow the money. Here’s how I bring home a big check. I’m $50,000 check in this example without taking any of my own money to the closing table. Here’s the question.

Who wants to get paid to buy properties and take none of your own money to the closing table? Here’s the example. Let’s say that I’ve got a single family house and a contract to buy that’s got an after-repaired value of $200,000. I’m using small numbers because it makes it easy. So an after-repaired value of $200,000. Now let’s say also I’m buying that property for $100,000, which I’ll do all day long. I buy properties all the time at 50% of the after-repaired value, sometimes 80% and 90%, excuse me, 30% and 40% of the after-repaired value. Depends on how much rehab is needed. So let’s say I’m buying it for $100,000. Follow the money. Now remember, in what I offer my lenders, I can borrow up to 75% of the after-repaired value. So the after-repaired value is $200,000. I buy it for $100,000. And I’m going to borrow $150,000. That’s 75% of the after-repaired value. So let’s take a look at what happens at closing. I go to the closing table. my private lender has already wired $150,000 to my real estate attorney’s trust account. Or if you do business where you got a title company, they wired it to the title company. So there’s $150,000 sitting in your closing agent’s trust account. So I go to closing. I’m going to take $150,000 that’s sitting in that trust account and $100,000 my attorney or your title company is going to send to the seller because the seller is selling it to you for $100,000. Well, what’s going to happen to the other $50,000 that is sitting in your closing agent’s trust account? Well, they’re going to keep their closing costs. So whatever their closing costs are for you to buy that property, they’re going to hold that money back. Let’s say it’s $1,000 for easy figuring. So $150,000 came in, $100,000 goes to the seller, $1,000 goes to your closing agent. Now there’s what’s called excess cash to close. In this example, there’s $49,000 in excess cash sitting in the trust account of your closing agent. They can’t leave the money in there. They’re audited all the time. They got to have their checkbook balanced with no money in that trust account unless it is attached to a transaction. Well, the transaction’s over.

So now my real estate attorney cuts my company a check for $49,000, and that’s called on the check stub excess cash to close. And I love me some excess cash, right? So I pick up a check for $49,000 at the closing table. Now, do I get to keep all that money? Of course not. The majority of that $49,000 is going to go for the renovation or the rehab. Let’s say the renovation is $35,000. Well, guess what? There’s still an extra $14,000 in my checkbook that I didn’t use. I can use that money for anything I want to. Carrying costs, paying the private lender, paying the guy that cuts the grass, paying the utility bill. And so talk about fixing your cash flow problems. That’s another reason I love private money is because it fixes your cash flow. People ask me all the time, Jay, what’s the quickest way when I’m starting out in real estate investing to get a bunch of money in my checkbook? Private money. Find a deal that you can buy, a property you can buy at discount. Borrow up to 75% of the after-repaired value and bring them a big check. And for goodness sakes, take your loved one out for a $300 dinner and celebrate.

Yeah, and I’m going to say something, Jay, now, and I’m going to ask you this question directly, but I’m not saying that this is how I lend money, but this is how I typically borrow money. I can count on one hand how many personal guarantees I’ve signed in the last half a dozen years, and I can count on less than one hand on how many credit checks I’ve had done, right, for private money. Now, I’m an open book. If one of my private investors wants to see anything that has to do with the transaction, but it’s asset-based lending. They are lending the money, and the security is the asset. I am typically not personally guaranteeing. I’m not saying I won’t, but typically I don’t. What’s your experience with that?

I’m glad you asked, Derek. So to date, we have now, I have now flipped over 500 houses here in our local area. And of those 500 flips, not one have I personally guaranteed the note. The real estate backing it, as you said, Derek, it’s asset-based. It’s a collateral-based loan. I’ve done no personal guarantees. By the way, did you know, not you, Derek, but your audience, did you know that when you’re borrowing private money, you do not have to disclose on your financial statement any of your private money lending loans or notes? You know why? Because none of it is personally guaranteed debt. The only on your financial statement, the only debt you have to put on your personal financial statement is personally guaranteed debt. So that doesn’t go in your personal financial statement. How much better do you think that’s going to make your personal financial statement look? Your other question, Derek, was how about credit? I’ve never had any of my private lenders asked to see my credit score, asked to see my credit report. it never comes up in conversation. In fact, I’ve never had any of my private lenders ask for points or ask for origination fees. And first of all, if they don’t bring it up, why should I? But secondly, who gets paid points and origination fees? Brokers. Brokers get paid origination fees and points.

Well, guess what? In this order of private money and private lending, there is no broker to pay because it’s a direct one-on-one transaction between you and your private lender absolutely and we’re not going to probably dive in real deep because i want to keep us on time here but paperwork people always ask about the paperwork and and i’ve said publicly many times you know i don’t hand out my paperwork now if it’s somebody that doesn’t deal with me of course they’re going to see my paperwork i have nothing to hide but i also want to make sure that anybody using paperwork understands what they’re using so what do you normally do with your you know your investors your lenders as far as paperwork so what i love that’s another reason one of my 20 reasons i love private money and private lending there’s hardly any paperwork It’s simple. So here are the documents that you will use when you have a private lending deal to do. And then I’ll tell you which documents the private lender gets. So you got a private lender closing. You’re going to have the HUD settlement statement. So the HUD settlement statement, of course, anymore these days, it’s called a seller disclosure and a buyer disclosure. We don’t even use those with private money. It’s just a HUD settlement statement. It’s so simple. So, you know, that balances out money coming in, money going out, and your real estate attorney or your closing agent prepares the HUD settlement statement. So you have the HUD settlement statement.

Then you have the promissory note. Well, the promissory note simply lays out the terms of the note. Who’s the lender? That’s your private lender. Who’s the borrower? That’s your entity. what’s the principal loan amount, what’s the interest rate, what’s the frequency of payments, what’s the length of the note. That’s the promissory note. Well, guess what? Your private lender does not sign the promissory note. Only you, the borrower, you sign the promissory note and the lender, your private lender, is going to get that original promissory note immediately after closing. Then you have the deed of trust or the mortgage. They both accomplish the same thing. That’s the legal document that collateralizes the promissory note. So your lender, your private lender, is going to get the original recorded. So the deed of trust or mortgage is recorded on public record to protect them. Right? Do not borrow unsecured money. Protect your private lender by collateralizing. So now they’re protected. I mean, you can’t go sell that property to somebody else without your private lender getting paid off, right? That’s how you’re protecting them. So your private lender is going to get the original deed of trust or mortgage, the recorded document after it’s recorded. And there’s only two other pieces or documents that they get in my world, Derek. I name my private lenders on the insurance policy as the mortgagee. So that way, that’s another layer of protection. If I ever file an insurance claim on that property, then the insurance company is going to make that check payable to the private lender and to my company, which means the private lender has got to sign off. They’ve got to endorse that check before I can cash the check. Another layer of protection. I also named my private lenders on the title policy as an additional insured in case there’s any title issues down the road. So that’s it. What do they get? I copy the title policy with them as additional insured. The insurance property and casualty insurance policy with them named as the mortgagee. Their side of the HUD settlement statement, the original promissory note, and the recorded mortgage.

That’s it. So let’s say I had an appraisal done, which I hardly ever get an appraisal done. I rely on my realtor to give me a comparative market analysis. And I got to have that to make my offer. So my private lender does not get that. If they want it, I’m glad to give it to them. But here’s my philosophy, Derek, just like yours. I want to keep this whole transaction super, super stupid simple. right I don’t want to tell my private lender all this stuff that I’m doing that has no relevance to them right all they want to know is how much am I loaning you what property is protecting my my note uh what interest rate are you paying me how often am I getting my payments and that’s it that’s it right so i don’t need to encumber my lender with all the other stuff that’s going on you know making this deal happen um just keep it simple for them absolutely well jay i know that you’ve uh you’ve got a book that you are generously going to be you know offering our our audience and I do have a link that’s going to be thegenerationsofwealth.com/jaysbook and that’s j-a-y-s-b-o-o-k so thegenerationsofwealth.com/jaysbook and hit that link we’ll we’ll send you over but jay what’s the book all about sure so this book I’m so excited about it it’s a national bestseller the name of the book is where to get the money now and the subtitle is how and where to get all the money you’d want for your real estate deals without relying on institutional lenders or hard money lenders and uh the book 20 bucks on amazon but don’t spend 20 bucks on amazon let me give you the book just spend a couple of bucks on shipping and i’ll send it to your priority mail and the book is very simple to read. I actually have in the book the details of the private lending opportunity that I teach and that you can teach to your new prospective potential private lenders that you’ve already got, you know, a connection with these people. And it’ll walk you right through it. I got a chapter on how to have a successful private lender luncheon.

I’ve raised almost a million at just one luncheon. And so the book tells you exactly how to do that. And as an additional bonus, Derek, I didn’t even tell you. Along with the book, I’m going to include two tickets. I’m including two tickets to my private money conference, which is a $3,000 event. And I put the conference on three times a year. All the details about the private money conference will be included along with the book. And I’m including two tickets to that private money conference live event as well well that’s awesome and one last time thegenerationsofwealth.com/jaybook that’s j-a-y-s-b-o-o-k j and time flew by uh we’re wrapping up any any last comments before we we shut this one down absolutely um my last comment would be, do not hesitate and wait to get this book. Order this book now because it really will take the handcuffs off of your real estate investing business and allow you to not miss out on any deals and not see your other real estate investors, you know, scooping up the deals while you’re sitting there watching them go by. So take action now. Order the book. Let me be a part of helping you never miss out on any deals.

Absolutely. Oh, I forgot this, Derek. Yeah. Yeah, one last thing. If you love this topic of private money, then for goodness sakes, come on over and listen to my podcast, which is Raising Private Money with Jay Conner, Raising Private Money. It’s on all, wherever you like to listen to your podcast, just type in Raising Private Money and it’ll pop right up. I release two shows a week. Now, why would you like to come to listen to this show? Because I’m always interviewing people twice a week like Derek Dombeck on how they raise private money and we can all learn from each other.

Absolutely. And if you weren’t going to plug the show, I was going to plug it one more time. And so go out there, look up that show. If you love the sound of my voice, go and look for the show that I did with Jay. I’ve been on there a couple of times. But either way, Jay, always a pleasure. Thank you so much for your knowledge, and I’m sure we’ll cross paths again soon enough. Derek, thank you so much for having me on. God bless you. Absolutely. And for everybody else, thanks for following us. Thanks for expanding and sharing the show with anybody you think that this can help. And until the next one, get out there, do some deals, and raise some private money. See ya.

Important Links:

• • EliteNegotiations.com
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About Jay Conner