Unlocking Private Money Secrets for Real Estate Success with Jay Conner: High Returns and Flexible Terms in Your Investing Arsenal

Prepare to unlock the secrets of real estate investing with our special guest, Jay Conner, who's been thriving in the industry since 2003. Jay breaks down the often-confusing world of private money versus hard money, showing you how private funds can lead to lower costs and more flexible terms. You'll learn about Jay's unique approach to educating potential private lenders, including leveraging self-directed IRAs for higher returns. He also emphasizes the critical importance of access to capital over the interest rate, a strategy that has allowed him to maintain a seven-figure income while working less than 10 hours a week.

In this episode, Jay shares his remarkable journey from securing a $250,000 unsecured line of credit to flip his first house, turning a $100,000 investment into a $40,000 profit. Listen as Jay discusses the vital role of mentorship in navigating the complexities of real estate, and why private lenders find 8% returns more enticing than traditional investments. Backed by real estate and conservative loan-to-value ratios, these investments offer security and reliability even during market fluctuations. Whether you're a seasoned investor or just starting, Jay's strategies and insights provide a roadmap for success in real estate investing. Don't miss out on this opportunity to learn from one of the best in the business!

More info @ http://www.jayconner.com

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Transcript

David McIlwaine: 0:01

Hi everybody, david McIlwaine, with another episode of Break your Golden Handcuffs With me today. I'm excited to have Jay Conner, who has been buying and selling houses since 2003 in a town of only 40,000 people with profits now averaging $78,000 per deal. He has rehabbed over 475 houses and been involved in over $118 million in transactions. He has completely automated his annual seven-figure income business, where he works in his buying and selling houses business less than 10 hours a week. His passions are motivating and teaching other real estate investors how to raise private money without ever asking for money as a result.

David McIlwaine: 0:42

I want to talk to you about this right and he has consulted with over 2,000 real estate investors one-on-one. In 2009, when he lost his lines of credit at the bank, jay raised $2.1 million in less than 90 days in private money after the banks cut him off. He's also a commercial developer of shopping centers and condominium communities. He's a national speaker on topics of private money, foreclosures, automation in your business and personal development. In addition, jay is a two-time national bestselling author and past president of BNI Business Networking International. He and his wife, carol Joy, reside in Moorhead City, new North Carolina. Welcome to the show, jay.

Jay Conner: 1:24

Red City, new North Carolina. Welcome to the show, Jay. David, thank you so much for inviting me to come along and talk about my topic that I'm so passionate about that being private money, because private money has had more of an impact on our real estate investing business than anything else that we have implemented.

David McIlwaine: 1:41

You know it's interesting, I own three different businesses. I own an executive coaching business, I own a private equity commercial fund Mac Ass much and the seller said to me, well, isn't hard money really expensive? And I thought to myself, no, it depends on the use, and I'd love to hear your answer to that question Isn't private money really expensive?

Jay Conner: 2:22

Well, private money compared to hard money, hard money is expensive. So when I talk private money, I'm talking borrowing money from individuals, human beings and when I talk hard money, most of the time I'm thinking about a brokerage that has raised money from individuals and now they are reloaning that money back out, paying their investors or private lenders a return, but then charging a higher interest rate, charging points for origination fees and et cetera. So, by the way, I say, establish relationships with everybody that you can Some of my best friends on the planet, with everybody that you can, some of my best friends on the planet. We're in masterminds together and they are hard money lenders, and so all your relationships are important. The biggest difference between private money and hard money is that when you're doing business with individuals I'll just give you an example, david.

Jay Conner: 3:21

Right now, carol Joy, my wife and I just give you an example, david, right now, carol Joy, my wife and I we've got 47 private lenders, individuals that are funding our deals, loaning money on our real estate deals. And here's what's interesting Not one of those 47 private lenders had ever heard of private money or private lending until I put on my teacher hat and I started teaching them what private money was these 47 private lenders? David, never even heard of private money or private lending until I taught them what this was all about how they can earn high rates of return safely and securely. How they can use their investment capital and, in addition to that, if they have retirement funds and they're not happy with those returns, how they could move those retirement funds over to an IRS approved self-directed IRA company and then loan that money out. Now let me come back to your question. Your initial question was do you think hard money is expensive? Do you think private money is expensive? Here? You think private money is expensive. Here's the answer. Where are the two?

David McIlwaine: 4:27

compared. Where are the two compared right? Hard money, is hard money, expensive. And then what's the comparison like?

Jay Conner: 4:33

Yeah. So, like you know, in today's market I've got hard money lenders that are loaning money out at 12% and 13% and 14% APR, and you know charging original and APR stands for annual percent of return right Correct Annual percentage rate. I'm paying my private Go ahead.

David McIlwaine: 4:53

So is an APR in your mind different than an annual, an AAR or an average annual return?

Jay Conner: 5:00

So, yes, I'm only paying interest on the money I'm borrowing while I'm using it. So let's, for example so like you know, an easy example. Let's say I'm borrowing $100,000 on a real estate deal and if I'm paying 8% annual percentage rate, that means I'm going to pay $8,000 if I'm using that $100,000 for the entire year, $8,000 if I'm using that $100,000 for the entire year, but if I'm only using that money for six months, then I'm paying 4% because I only used it for six months. But back to your question is hard money expensive? Let me answer it this way the access to the money is more important than the interest rate, the access to the money.

Jay Conner: 5:45

Here's another answer to it. It really doesn't matter what the interest rate is between 8%, which is what I pay my private lenders with no points and no origination fees but if it's 8%, 12%, 13% or 14%, if you're only going to use the money for six months and your average profit is $82,000 per deal, which is what my average profit is now in our small little market of 40,000 people, I don't care if it's 8%, 10%, 12% or 14%. If it's going to be short-term money, now if you're using the money for a long-term, on a buy and hold, then that's a whole different story.

David McIlwaine: 6:23

Yeah, and that's exactly the answer I gave my client was that, okay, it might be 14%, but if they're going to hold it for 90 days it's not, yeah, it doesn't matter, Right? So I kind of jumped in with both feet and I usually ask my guests this question first and I kind of started going down a different rabbit hole. Have you ever had golden handcuffs?

Jay Conner: 6:46

I love the name of your podcast Break your Golden Handcuffs Podcast. I mean, you got a corner on that market, david. If I were you, I would trademark the name of that podcast. Never heard it anywhere else. Have I ever had golden handcuffs? The answer is yes. So I was raised in a family. I've been around housing, helping people own affordable housing all my life. My most important mentor is Wallace Conner. Wallace Conner is my father. He's now 90 and a half years old and he doesn't let you forget the half part of that.

David McIlwaine: 7:20

He's earned it. He's earned that. He's 90 and a half.

Jay Conner: 7:23

And here's what's interesting he's been an entrepreneur all of his life. He was in the US Army for four years. Right out of college he went to Wake Forest and he's been an entrepreneur ever since. And today, at 90 and a half years old, he is in the middle, slap dab, middle of a new subdivision of 350 houses. He's the developer. His partner, jeremy Jeremy's doing all the building.

Jay Conner: 7:51

And just yesterday my dad, at 90 and a half years old, had a um, had a um commercial realtor email me a contract for me to review on a $385,000 sale that he's doing in Newport. So he's very, very active. So for years he had the largest retailing company of manufactured homes mobile homes, if you will in the nation and so I was around my dad and so I worked for my dad and with my dad for many, many, many years until we got out of the mobile home manufactured housing business. The consumer finance for that product, the consumer financing for manufactured homes, went away in the early 2000s and I knew if I ever got out of the mobile home business and that was no longer a viable option, then I knew I wanted to get into single family houses. So I've been out totally on my own, now full time since 2003,. Loving what I'm doing, setting my own schedule, making an impact, giving back by educating and coaching other real estate investors as well educating and coaching other real estate investors as well. But I guess you would call it golden handcuffs, because I knew I was going to be loyal to my father for as long as we were going to be in that business together.

Jay Conner: 9:17

But there were positives, there were negatives to that experience.

Jay Conner: 9:22

It takes a very, very, very special relationship for a father and a son to be able to work together in very, very close proximity, and so I had to learn very, very quickly how to navigate that relationship.

Jay Conner: 9:40

I remember my dad telling me early on in my 20s he said I remember my dad telling me early on in my 20s he said don't ever try to be like me. You got to be you, you got to do your personality and you've got to develop your own skill sets as far as what you enjoy, what you're good at. So my dad and I, we actually have very, very different personalities. My dad actually is an introvert and if you look at the DISC personality profile, d-i-s-c profile, my dad wins the prize worldwide for having the highest D or drive or driver of anybody on the planet, and my DISC profile is very, very different. My interest in people is off the chart and my drive is not as high as his is. But anyway, we had a great working relationship for many, many, many years, but we've been doing our own thing now since 2003.

David McIlwaine: 10:42

You know the fascinating thing about that and congrats on doing your own thing for 21 years. Most folks that have had golden handcuffs get stuck where they're afraid to leave because it will cost them too much in one way or another, and one of the ideas behind this podcast is that while you're wearing those golden handcuffs, you can make them into golden bracelets.

Jay Conner: 11:07

Now, what's a golden bracelet, ask your wife. Well, she's got more than one Right?

David McIlwaine: 11:15

Yes, exactly. So if we think about this, and my mom, who sold jewelry for 20 years, has about 5,000 golden bracelets, when she passes away after I finish crying, I'm going to take them all and hock them. And my mom, who sold jewelry for 20 years, has about 5,000 golden bracelets, when she passes away after I finish crying, I'm going to take them all and hock them. I'm going to enjoy it. But if you think about a golden bracelet, it allows you to build plans. Purview changed on mobile homes. I'm assuming that you had taken action proactively to turn what was a committed family business and then go out on your own.

Jay Conner: 11:55

Yeah.

David McIlwaine: 11:56

When you made that plan, what were you thinking about?

Jay Conner: 12:02

Well, I was thinking. First of all, I started researching, real estate investing and probably two years before the company shut down, we almost went bankrupt.

David McIlwaine: 12:15

My father, and I, so you saw it coming.

Jay Conner: 12:18

Oh, it was coming.

David McIlwaine: 12:20

Big red truck coming down the road right.

Jay Conner: 12:22

Oh yeah, there was no doubt. No doubt. This company was going out of business and it's a whole lot more fun to build a business than the shutdown one. I'll tell you that from experience. It ain't no fun letting 25 people, 25 ladies out of 31,. Let them go in one day. That ain't no fun, yeah.

David McIlwaine: 12:47

I've done that, that ain't no fun.

Jay Conner: 12:50

That's no fun. When I knew that the end was in sight, I said you know what? I got to work on something positive at the same time. And so that's so. In 2003, october that year, this was back, david, and I know you remember I mean in 2003,. If you could fog a mirror and you had a pulse, you could go to the local bank and get a line of credit unsecured. An unsecured line of credit.

David McIlwaine: 13:22

They called them stated income loans.

Jay Conner: 13:25

Yeah, as long as you had a credit score, you know. So I went to the local bank it was Branch Bank and Trust at the time Got a $250,000 line of credit burning a hole in my pocket and so I'd read in one of them books. By the way, if you're listening to this podcast, for goodness sakes, don't start in real estate investing the way I did my lands. All I did was read books. Don't just read books. Get yourself the right mentor or coach that knows what they're talking about. Right, they can hold your hand that's already been through the mines and gotten blown up a few times themselves. Anyway, I digress. So I read one of those books. So I looked for the nastiest smelling house in the multiple listing service with my realtor that I could find, and I found it. It had been on the market here in our local area for nine months and had over 60 showings and no offers. I said, well, that sounds like my house. So, anyway, I took that $250,000 line of credit and I bought it for $100,000. No, I bought it for $50,000 and I put $50,000 in rehab in it and then I sold it for $139,99 through an ad in the classified newspaper. But anyway, the point of the story is, I started working on something positive because, quite frankly, I was getting downright depressed with the company going out of business. So that's how I started. That's when the window opened and I'll tell you what, david. It was so weird.

Jay Conner: 14:57

I came from the family slash corporate. It was a corporation, pretty large corporation. I came from the corporate environment to where I was at the office at 8.30 in the morning. I was there till five in the afternoon and I'm managing people, and that was Monday through Friday. That was before. Taking Fridays off was the thing to do. And so I'm in this corporate environment and now that is shut down.

Jay Conner: 15:22

And now here I am, out on my own and I go from a staff of 31 people and 65 retail locations and district managers and all that stuff to me Very different. It's very different to manage other people versus managing yourself. And that's all you got to manage. And so I found myself like sort of floundering. I got all this time on my hands. I mean, there's not that much time quite involved in making an offer on a house and hiring a good general contractor to fix it up and put it in the multiple listing service. I mean, for goodness sakes, how much time does that take, right? That's how I started out, and so I really, really had to find my own way of building this new real estate investing business, and so that that was a challenge. I mean, I had to learn how to become comfortable with being uncomfortable, mm hmm.

David McIlwaine: 16:33

Yeah, and I think that's an interesting take when you are trying to break your handcuffs. You said two things that I think are fascinating here. One of them was as you make a plan, find optimism. You didn't say it quite like that. You said fine, you said I'd have to do something that brought me joy. But you know it goes back to optimism, right. And then I think you also said somewhere in here get somebody to learn from and wish I had. I wish I had.

Jay Conner: 17:02

Yeah.

David McIlwaine: 17:04

Oh, I agree, and then you know it's. I'm going to take it as a calculated risk, because what I heard was you went out and basically levered the entire flip and you borrowed $250, used $100 of it to make $40.

Jay Conner: 17:21

No, I'm sorry, I didn't mean to say that. So I had the line of credit of $250, but I used $100 of the $250 on that first house.

David McIlwaine: 17:30

Yeah, you used $100 to make $40. Correct, so that's a pretty good risk. It's a great return. 40% return in less than a year is a home run for anybody's analysis.

Jay Conner: 17:42

Actually, I think it was an infinite rate of return, because I never used any of my own money.

David McIlwaine: 17:47

Right, but you know I'm the guy that says that's true but it's not true right, because you paid some money and so, in essence, you put at risk $100,000. So you made $40,000 off of $100,000 risk. There's a high, huge IRR in that Fascinating. But I like the idea of the plan that you got to go somewhere that you like and you got to take action and you got to look ahead Because you said you could see this thing coming a mile away. He went through the pain of the layoffs and in my story, I laid off a third of my staff and then two years later, laid off another third of my staff. I still had golden handcuffs and I refused to make part of the plan. I refused to see the writing on the wall. I made some financial moves but I didn't make the career moves, and it's just interesting how people do take on this. So I had the economic house in order. I didn't know where I was going next and I think that optimism piece is so crucial right.

Jay Conner: 18:41

Yeah.

David McIlwaine: 18:42

I agree, yeah, and you're a private money guy. So what's the biggest benefit for the private money lender?

Jay Conner: 18:52

Well, there's three big benefits, Three big benefits for the private money lender. Well, there's three big benefits, three big benefits for the private money lender. Number one they're going to make a lot more money than they can in a traditional way of investing, such as putting their money in a local CD, certificate of deposit, certificate of deposit at the local bank. When I shoot, prior to COVID, the average 12-month CD got down to 0.17%, according to the front page of the USA Today. Every Tuesday they used to come out excuse me, every Thursday they used to come out on the front page with the average CD yields in the US Today, right down the street at First Citizens Bank, you can get 5% in a CD. I've been paying my private lenders the same thing since 2009 when I started using private money and they say, jay, rates have gone up so much in the market, how can you still be paying your private lenders 8% and they get 5% in the local bank? I said, well, the answer is very, very simple. They like 8%, a lot better than 5%, and plus it's backed by real estate. I'm not borrowing unsecured, so the rate of return they get is very, very enticing.

Jay Conner: 20:04

The second reason that they love being a private lender is their investment is secure and it's safe. Let me explain that it is safe. Because it's safe? Let me explain that it is safe because it's a conservative loan to value. It's a conservative investment. We're not borrowing more than 75% of the after-repaired value. I didn't say 75% of the purchase price, 75% of the after-repaired value. Secondly, it is secure. It's safe. It's secure. We're not borrowing unsecured money. You can legally I don't recommend it. The promissory notes are backed by the real estate that I'm buying and therefore, if I don't pay them, the property does. That's their recourse. They could foreclose if that had to happen. So that's their security.

Jay Conner: 20:52

The third reason they love being a private lender is because their investment, their principal loan amount, the value of what they invest, is not volatile. I'm contrasting that to the stock market. If they were to invest their money in the stock market or mutual funds, the value of their investment is up and down all the time. Right, what they invest today can be worth less tomorrow, it can be worth more tomorrow.

Jay Conner: 21:20

But in this world of being a private lender, when the private lender loans money or invests money, the principal loan amount remains the same. The value, the principal loan amount remains the same until cash out, which means I'm going to pay them off their principal loan amount plus any unpaid accrued interest. So they know they can sleep at night. And I've got a number of private lenders that are elderly, that, quite frankly, could probably not live long enough to live through another correction in the stock market. And is there going to be another correction? Absolutely Always is. But in this world of private money it's just like them putting money in the bank and they know what the rate of return is going to be.

David McIlwaine: 22:06

All right. So the premise here is that the note is guaranteed by the hard asset and the lending is actually not on the just like a hard money lending, but it's private as opposed to hard. So it's an individual versus an institution, and your premise here is that the value of the house will stay at minimum the same, if not higher. Did I get anything wrong in that?

Jay Conner: 22:33

You nailed it 100%. For example, I've got a house right now at 1903 Arendelle Street. We're finishing up the renovation right now, putting it on the market next week and the value of that house now is $575,000. And we borrowed. How much did we borrow on that house? Right at four hundred thousand. So there's this large equity cushion between the value of it and how much private money is loaned against that property, that asset.

David McIlwaine: 23:08

So that delta of 25% has to come from somewhere, right? But you're borrowing on ARV as opposed to LTC, correct? So? Arv after repair value, ltc loan to cost value, and so, in essence, you're borrowing the purchase price plus I'm doing the math in my head right You're borrowing the purchase price plus the cost of rehab. Correct my head right you're borrowing the purchase price plus the cost of rehab. So what happens for the lender if the rehab goes massively over budget or falls apart and you find some horrific problem in the flip, because God knows I have walked into and every investor has experience where something's gone off the rails what happens for the lender there?

Jay Conner: 23:53

has experience where something's gone off the rails. What happens for the lender there? Yeah, that's a great question.

Jay Conner: 24:00

Well, first of all, renovations never come in on budget. They're always over. I've done over 500 renovations and I hadn't had one come in on budget yet. Right, that's because Murphy lives in every house I've done. Sometimes Murphy's cousins, aunts, uncles, brothers and sisters show up as well.

Jay Conner: 24:21

I'm renovating the house right now at one 23 paradise circle have locked North Carolina that only had a $23,000 foundation Murphy surprise, right? But where is the cushion? Where's the security? How is that risk mitigated?

Jay Conner: 24:40

And here's the answer the risk is not mitigated in the estimation of repairs. The risk is mitigated in your offer that you bought the house for, mitigated in your offer that you bought the house for. That's why I have a formula that I follow as to the maximum that I will offer when I'm paying all cash with private money. But if the after-repaired value is less than $300,000, I always throw in an extra $10,000 budget for who knows what. If the after-repaired value is over $300,000, I throw in an extra $20,000 for who knows what, as to hedge against and mitigate the unexpected. And I'm so glad you asked this question, David, because check this out Ever since borrowing private money renovating over 500 houses since 2009, every one of our private lenders and their notes have been paid 100% of every penny that was coming to them, and that's because I learned a long time ago how to buy right and how to hedge against and mitigate against the unexpected.

David McIlwaine: 25:49

And therein lies two of the magic keys to living life well, when you're doing anything in business, the acquisition cost is often far more important than the disposition value Because, as any good CPA will tell you, the cost basis changes.

Jay Conner: 26:10

Absolutely.

David McIlwaine: 26:11

The cost basis is the key. And then to plan for Murphy and Murphy's law says if something will go wrong, it does go wrong is highly wise. That's why we have things like insurance right, absolutely, and you know.

Jay Conner: 26:30

What you just said, david, reminds me of a characteristic. If you're listening to this podcast and you're not in real estate yet and you're thinking about real estate, let me just tell you one thing. Number one this is not a get rich quick deal. If you're looking for the get rich quick, this is not for you, right? Number two if you don't have a wheelbarrow full of resiliency, don't even start. Don't even start, because resiliency and always never giving up and pushing through is probably the most common characteristic that I've noticed out there. David, I don't know about you. I'd like to hear what you think. But for successful well, it's not just real estate, for goodness sakes. Successful entrepreneurs I mean, you're an executive coach, entrepreneur coach. I know you hear it all the time and you know for sure yourself if you ain't got resiliency, then this is not the game.

David McIlwaine: 27:38

If you ain't got resiliency, you got some challenges and we need to definitely start with that.

Jay Conner: 27:44

That's right, and if you don't have that, then you need to hire David for him to give you a checkup from the neck up.

David McIlwaine: 27:52

Oh, it's going to be a checkup from the neck up. Oh, it's going to be a checkup from the toes up. So you know, this is fascinating and I try to keep the podcast here around half an hour. So tell me, jay, if someone wants to learn more about private money, how can they do that?

Jay Conner: 28:10

Absolutely. I'm so excited I finally finished writing my book. That is super easy, step-by-step how to get all the private money you would want for your real estate deals. In a world where you make the rules and the lender doesn't, you'll find it interesting to know. I never ask anybody for money and the book will show you how to do that. My book is called when to Get the Money Now. This is not a downloadable ebook. This is actually a book book book when to Get the Money Now how and where to get money for your real estate deals without relying on traditional or institutional lenders. It's 20 bucks on Amazon. But don't spend 20 bucks. It's free for David's audience. Just cover shipping and handling and, believe it or not, the postal service is still in business. I will three-day priority mail this to you, autograph it and you can pick up the book at wwwjconnercom forward slash book C-O-N-N-E-R dot com forward slash book. That's J Conner J-A-Y-C-O-N-N-E-R dot com forward slash book and we'll rush it right out to you.

David McIlwaine: 29:21

Well, that's a great offer. I appreciate that. I'm sure my listeners do as well, and I think that's how we also get a hold of you is at jconnercom. You got it. Would that be correct?

Jay Conner: 29:33

There. Hold of you is at jconnercom. You got it. That'd be correct. There we go and you know it's really a novel thing we've got going on here. We actually answer the phone when you call our office, you know, and you know some people don't even know what a landline is. But yeah, my phone number contact is at jconnercom and we're here to serve you in any way that we can to help you realize your goals and your dreams.

David McIlwaine: 29:53

Awesome. Well, thank you so much for joining us today, jay. It's been a pleasure, and you've been listening to another episode of Break your Golden Handcuffs.