On today’s episode of the Forever Cash Life Real Estate Podcast, we’re going to talk about something that’s super useful to everyone: where to get the money.
Jay Conner and I met in a high-caliber Mastermind group not too long ago, and he’s an expert on private money. I think you’ll find our conversation very valuable.
Why Investors Need Private Money Instead of Just Using Banks
One of the great things about land flipping is that you can do some amazing deals without needing much cash upfront. But sometimes you’ll have a larger land deal where the closing happens fast, and you need a big chunk of cash. This is where private money comes in.
Jay and his wife live in eastern North Carolina, where Jay was raised in the mobile home business. He’s been helping people get a home his whole life. In 2003, he knew he wanted to get into single family housing. From 2003 to 2009, he relied on the local banks and mortgage companies to fund his deals. He really didn’t know any other way.
In 2009, he had two deals under contract to purchase when he found out he had lost his lines of credit. He hung up the phone with his banker and had no idea what to do next. He called a friend who told him about private money, and he learned about it fast. He put his private money program together, educated people about it, and he was able to raise over $2 million dollars in 90 days for his real estate business. And he never looked back.
When Is the Right Time to Ask for Private Money?
Don’t wait until 10 days before you need the private money to get it lined up. Then the other party will have the advantage, the leverage. Jay says to get several people lined up, so they’ll be ready to go when you do need them.
Right now, he and his wife have 45 private lenders (individuals) investing in them and lending them money for deals. They have between 7 and 8 million dollars just rotating between properties. Often, they’ll refer to private money as “relationship money.”
Jay makes his own rules. He sets the interest rates he’s going to pay his lenders. And he’s put together a powerful presentation called, “How to Raise Money for Your Real Estate Deals Without Asking for Money.”
How to Talk to Your Lenders About a Deal
Jay says he learned the hard way never to teach people about his private lending program and talk about a deal he needs funded in the same conversation. You have to separate those two, or you’ll sound desperate. First, teach your program. Tell people you can put their money to work for them in 30 to 60 days. Then they’re sitting there just waiting for you to give them an opportunity.
Let’s say Steve is waiting for Jay’s call. When Jay finds a deal where he can put Steve’s money to work, he calls Steve and says, “Hey, Steve. Great news! I can now put your money to work for you.” He tells Steve four things about the deal. “I’ve got a house under contract here in Newport. It’s worth x amount of money, and I need y amount of money from you. We close next Friday. Wire the money to my agent. Here are the instructions.”
Jay doesn’t ask Steve if he wants to do the deal. Then he’s just planted a seed in Steve’s mind that he shouldn’t do the deal. He just states it matter of factly. It’s all in the positioning and your level of confidence. And of course you’re confident. Of course it’s a good deal. You wouldn’t be doing it if it wasn’t. After the first or second deal, when you’ve built up your track record, people only want to know two things: how much and when do you need it?
Where Do You Find the Individuals to Loan You Private Money?
Starting the conversation is one of the biggest hurdles, but the first hurdle you’ll actually get to is: who do you ask? How do you find these people? There are three categories of lenders:
Make a list of people you’re going to ask. Jay starts with retired folks, or people getting ready to retire. You can try a direct approach with this magic question: Do you have investment capital or retirement funds not paying you a high rate of return safely and securely?
Or you can do an indirect approach, where you ask someone at work, at church, in your social organization, “Hey, do you know of some people who are sitting on a lot of money and would like to invest it in this really great opportunity with a high ROI and very little risk?”
Jay talks about deals he’s done, and often that person is like, “ Wow, how can I get in on that?” And right there you’ve got another lender.
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