Prioritizing Profit, Escaping The Deal-to-Deal Cycle with Alex Chizhik & Shimon Lazarov

May 4, 2023

Episode 178: Prioritizing Profit, Escaping The Deal-to-Deal Cycle with Alex Chizhik & Shimon Lazarov

Profit First

May 4, 2023

We’ve got double the value for today’s episode with two great guests—Alex Chizhik and Shimon Lazarov, the hosts of The Dollar Auction podcast! They discuss anywhere from Bitcoin, government regulations, investing, economics, finance, and more.

Alex is an experienced executive with nearly two decades worth of experience in managing organizations and is passionate about technology and cryptocurrency. Shimon is a growth leader with an extensive strategy background in digital strategy, market research, and business development.

These two strategic minds join us today to discuss various topics surrounding money mindset and intentionality, and how it can greatly affect your business growth. Tune in!

Key Takeaways:
[00:48] Introducing Alex Chizhik & Shimon Lazarov

[03:48] Blitzscaling: Why People Don’t Prioritize Profit

[15:49] Why People Live Deal-to-Deal

[23:16] Thoughts on Fractional Businesses

[25:29] On Real Estate and Cryptocurrency

[33:55] Connect with Alex & Shimon

Quotes:

[15:37] “It doesn’t matter if you’re making a million a year or hundreds of millions a year. You need to know where you are on the financial side.”

[17:05] “If you don’t put some [money] aside, then you can literally have 10 years pass by and for nothing to show for it. And I actually have friends who worked on Wall Street and friends who worked in Silicon Valley making over half a million dollars per year. They didn’t save too much. ”

[31:50] “All these investments, including cash, is a tool for something…So be intentional about what you’re investing in.”

Connect with Alex & Shimon

Alex’s Twitter: https://twitter.com/mrebitda
Shimon’s Twitter: https://twitter.com/ShimonLazarov
The Dollar Auction Podcast: https://podcasts.apple.com/gb/podcast/dollar-auction-show/id1492748168

Tired of living deal to deal?

If you are a real estate investor or business owner who is tired of living deal to deal, and want to double your profits, head over here to book your no-obligation discovery call with me. Either myself or someone from my team will hop on a short call with you to get clear on your business goals, remove any obstacles holding you back, and map out a game plan to help you finally start keeping more of the money you work so hard to make. – David

Transcript:

Speaker 1:

You don’t put some aside, then you can literally have 10 years pass by and for nothing to chauffeur it. And I actually have, believe it or not friends who worked on Wall Street and friends who worked in Silicon Valley making over half a million dollars per year, they didn’t save too much.

Speaker 2:

If you’re a real estate investor who’s sick and tired of living deal to deal, then welcome home. Hear from everyday real estate investors just like you, and discover how they’ve completely transformed their business by taking a profit First approach. This is the profit first for re e i podcast, where we believe revenue is vanity. Profit is sanity. It’s time to start making profit a habit in your business. So here’s your host, David Richter.

Speaker 3:

Hey everyone, it’s David Richter again here on the Profit First r i podcast. Have a pair of guys here that I think you are going to enjoy warning from. They’re actually strategists and they are not just your typical strategist, like they’ve strategized with some huge companies and I believe in Profit First and what it teaches on the strategy of just making sure you’re a profitable business. I think they’re gonna even take it to the next level on this podcast. So no, no pressure here for both of them, but oh yeah. Have Alex and Simone here. I’m really excited to make sure that they give you as much value as possible. Thank you guys for being on the Profit first, r e i podcast.

Speaker 1:

Thanks for having us.

Speaker 3:

Why don’t you give a brief background, maybe like a minute or less on each of you, just like what you’ve done, what you’ve accomplished, like where you are now. Can you do it in like a minute or two? And I’ll start with Alex, why don’t you give your background first?

Speaker 4:

Sure. Yeah. Happy to be here. So my, my background is my whole career I spent scaling and building up businesses with the Boston Consulting Group from Management consulting style. And then Microsoft. I used to work at Microsoft Strategy, ran the strategy teams there work on ai, autonomous driving health crypto Bitcoin over there. Then over the last six years, for the last four years, I actually spent running a business. I was the chief revenue officer, chief operating officer of a research company. That was that one ended up going public. And so when it went public, I went back into crypto, which is my love. And been focusing on Bitcoin and crypto for the last two years ever since. And super happy to be here.

Speaker 3:

Awesome. Alex. Now Shaone, how about you? Your background?

Speaker 1:

Yeah, so I also come from a strategy background, but after the Boston Consulting Group, I moved to Silicon Valley. And I did a lot of growth work for different companies at different levels of of scaling. And I’m excited to chat about Profit First because now there’s a big a big thing in Silicon Valley where the idea of let, let’s just blitz scale. There was a very famous book called Blitz Scaling which basically means I don’t care about profits. Top line is all that matters. It’s starting to fall apart, especially in these market conditions. Yeah, so excited to talk about that. But I’m also you know, a technologist and love crypto and yeah currently working at the second largest crypto exchange.

Speaker 3:

Awesome. So we’ll definitely talk about that. But as you can see, if you’re listening to this, these guys have worked at some pretty extensive companies and have a pretty extensive backgrounds here and from Silicon Valley all the way, you know, to Boston Consulting Group. Like these are some high tech and high, I would say hight intelligence individuals. But then, I mean, Simone even said like right now too, he also knows that <laugh>, it’s not all just about blitzing scale, which I thought that was great cuz I’ve heard of that book as well too, and like that why do you think, I’ll, I’ll take an answer from either one of you. Why do you think people get into the, you know, just scale at all cost mode? Like where did that come from? Like, where does that originate? Is that just business in general that’s been happening for thousands of years? Or like what do you think there, where that root cause comes from?

Speaker 1:

Well, I mean I think the the main culprit is that after 2008 you know, when the interest rates were very, very low so businesses basically could borrow money for free and or okay, close to free. And when you can do that, it actually makes sense to just like, grab as much of the market as you can. Yeah. And then figure out how to make a profit. Because once you’re big enough, it’s really hard to compete with you. And you’ll see that many of the companies that use this technique like Uber, like LinkedIn, it’s a winner take all mentality. Like if everybody’s on LinkedIn, everybody else wants to go to LinkedIn because all the info is there, but that breaks when interest rates are high because then the idea is like, okay, but you know, the cost of just servicing this scaling might not be might not be sustainable.

And also on the venture capital front, you know, VCO was probably a very lucrative asset class because when you could borrow at 0% and, and deploy it into startups, but if you have to pay 5%, or if you can get 5% as a limited partner, then it’s like, do I need all this risk? You know, because like with, with venture most companies fail and you’re trying to find one or two that will make up for all the other ones that fail. So, so yeah, that’s a new, I I think we haven’t been in these conditions for a very long time. So let

Speaker 3:

Me ask this, how does that translate to the main street? You know, like the mom and pop shops that maybe because a lot of the people listening now are real estate investors, they’re not going into venture capital, they’re not doing that stuff. But do you think that mindset permeates just business in general, even including, you know, like the mom and pop real estate investors or the people that want to scale real estate business, maybe doing five deals a month, want to go to 20 deals, you know, and selling, you know, these flip houses or wholesale or whatever. Do you think that is just comes down from those other types of things? Or do you just think that’s just a part of what everyone goes through in the business world?

Speaker 4:

I mean, I can, I can try to take this one. I think market structure is important and I’ll bring it down to Main Street in a second. I’ll, I’ll just say two things she won, talked about winner take all, if you’re in a winner, take all market on a oligopoly or a couple players. And specifically if you’re in a market of network effects, yeah, Uber, Lyft, Google, you want to go out and blitz, get scale, and then you raise prices later. Okay. That’s, most people aren’t there, right? Yeah. Most people like mom and pop shops, real estate, there are very few global or national real estate companies. And even those compete against those brokerage houses compete against each other. So, you know, for someone going out in the flipping houses or investing in real estate, you want to make sure that your cash management, your day-to-day cash management is, is actually very astute or on point, if you will.

You’re not thinking about just growing at all costs and pumping money into marketing. You wanna make sure that every deal brings in some sort of investment that you can either reinvest right, or pay yourself. You know, Robert Kawasaki talks about a lot about the mentality of paying yourself first and thinking about yourself and having a, you know, like a, you are a state, an important stakeholder in, in the business. Many people that are doing startups think about paying themselves last. That’s a tricky, so that’s a tricky path to go on. You definitely want to take care of yourself. You don’t wanna overpay yourself. You know, you have a business, you’re paying yourself $500,000 a year and you only make $500,000. Well, you’re gonna be in business for that one year and that’s gonna be done, right? Yeah. So so you have to be kind of smart about what you can sustain, what your burn rate is.

But for the regular investor, you should be thinking very, very carefully and astutely about where you spend your money. And I, and I’ll say kind of one last thing and, and this is what I think clicked for me over the last two years, you know, before I was in this mentality of go work, whatever work is get salary or get some sort of profit from network, you know, put some away for a rainy day you know, and then use the rest to do whatever to spend on going out to spend shopping, to reinvest in, in the business. And I think this mentality of put some away for a rainy day into a savings fund is actually the wrong mentality. And I think the right mentality is I have this access profit that I have, I’m going to think of like a capital allocator or an end size of one.

I’m gonna allocate that capital. I may allocate it into savings, I may and allocate it into buying more close to myself. But when I’m thinking intentionally savings shouldn’t be an afterthought. Yeah. I wanna be intentional about what I’m putting into savings and how I’m investing it. Because even different, like Shemot talked about, right? 5% the, the cost of capital went up. So maybe savings into a bank account is the wrong savings. Maybe my savings should be investing in a government treasury bill for a year that’s gonna gimme 5% versus a half a percent in the bank, right? So it’s just being more intentional about investing in saving the money rather than just, I’m gonna save, you know, 10% and then for a rainy day the, your rainy day fund should be a part of your investment portfolio.

Speaker 3:

Yeah. I think you hit the nail on the head cuz a lot of people just don’t have that intentionality. A lot of people just kind, the money comes in, the money goes out. Oh, where is, where did it all go? And I don’t know, I, so let me ask this cuz you’ve worked with some, some the larger companies, do they have a lot of controls in place like that to make sure, like every dollar’s accounted for or like <laugh>, I, I know what goes behind the scenes and a lot of the main street entrepreneurs and real estate investors and a lot of ’em are all just like money in, money out. What the heck’s going on? I don’t know. How is it at the bigger firms? Is it like that? Or do they have a lot more in place? Do they have like the No, this is right in line because then you hear about some people that go out of business, it’s like, I would’ve thought they would’ve had a billion controls at place to keep them from running out of cash or going out of business and like doing those things. So sometimes I know it’s probably viability of like the actual service or product, but I, I just want your perspective cuz we hear a lot of the times about the mom and pop type, you know, side of things. But I’m wondering if you guys have any perspective into kinda the other side, the Silicon Valley side.

Speaker 4:

So I work with, I did Microsoft that worked in consulted many of the, the major players, Google, among them, Facebook, apple. Actually, look, I think the, the question is a very good question. The quick answer I’ll give you a quick and, and a medium answer. Cause the medium answer I think is juicy. That’s, that’s where all the, all the, all the power comes in. The quick answer is, yeah, everyone has controls. I mean, the more professional you are and, and assuming that when I say professional, I don’t mean it to be condescending. I mean, just mean the bigger companies, you know, higher professionals do all these things. So the more, the bigger you are, the more money you can spend on lawyers and accountants and business development people, consultants that are useless, consultants like myself that, that basically come in and, and are able to structure the company for you.

You have a lot of controls, cash. So cash is king. And especially the, when you’re starting a business, right? When I, when I went to run the, the company I ran for four years, my partner and I, when we took the keys to the business, when the first question I asked them, I said, I said, who has the power to write checks? If we have the power to write checks, we control the business. If someone else like the, the o other owners have the power to write checks, we don’t. So as an owner, you want to be able to have the power ultimately to write checks and then work backwards, set up the right controls, purchases over certain amounts, need to get some sort of approval purchases under a small amount your employees can do and so on and so forth. Yeah.

here here’s the midterm answer, right? The midterm answer is margin and being a margin call. Mm-Hmm. <affirmative>. And I wanna explain for your listeners what that means because a lot of people in real estate are on margin. You take out debt and using debt as an asset, right? You take out, you take out debt in order to invest in your project. Debt can be good for two reasons. One, you’re borrowing someone else’s money and you can make more money on your own. So if I put 20% down on a project and I take out 80%, and the, and you know, the, the, the property goes from a hundred thousand, I put 20,000, 80,000 I take from the bank, the property goes from hundred thousand to one 20, I doubled my money more without, with without thinking about interest payments, right? So I’m borrowing someone else’s, I’m creating leverage.

On the flip side, if it goes down to 80, right? I lose everything. All my equity’s gone because I still owe 80 to the bank. So what professionals do is that they built all these models accounting for various scenarios of when they can be margin called out of the market essentially. So can there be a scenario where all the bad things happen? You know, in a, an amount pop you lose, let’s say a source of income, a couple properties fall through, you go into a flip and it’s running months behind. And also then you can’t sell it. And then zoning laws come in and, you know, whatever the, the the big upgrade you were gonna do is no longer there, right? Or no longer can be done. Now you’re getting all of these negative things hitting at the same time. Can your portfolio, can your burn rate and burn rate is the cash out that you need to operate your business, including to yourself?

Yeah. Can your burn rate sustain that kind of black swan event, that margin call? So the name of the game in investing is not to be margin called, right? Not to have your portfolio fall enough that your debt is being called in to be repaid. And that’s actually that a again, and that’s thinking very intentionally about debt and very intentionally about scenarios. So if you’re looking to go into any project or house, you wanna think about, okay, if it goes well, the happy path is X, great, amazing. We all want the happy path, the okay path, the bad path, and then the bad path times two, and then the bad path times three or times four, right? You wanna create certain scenarios for you to say, Hey, if I’m gonna take out this debt and l hell breaks loose, right? And I get hit here, here, here, here, here. I can withstand it. And it’s very hard to do many professional shops like you said, they’re going bankrupt, haven’t done this and don’t do this very well. Because sometimes, you know, like a 2008 comes Lehman Brothers, right? Like bear Stearns, one under Lehman Brothers, one under Merrill Lynch, one under, I mean, these are century old investment banks on Wall Street that got this wrong. So it’s okay to get this wrong, but you have to think about it.

Speaker 3:

Yeah. Then that’s really good cuz that’s where I, we keep coming back to that word intentional, you know, like you’re being intentional with what, with everything that you’re doing. And, and I think it’s interesting that you’re saying this because a lot of people I know in the small, you know, the real estate world and in like the small mom pop, you know, they are not at Microsoft and they’re not at that level. The ones that usually can weather those bad storms are the people that have thought about the bad storms before those bad storms hit <laugh>. You know? So they were intentional even upfront being like, okay, what if a black WAN event came, you know, and completely wiped us out. So that was really good. I think that’s if you’re listening to this episode of the Pro First Aria podcast, these guys know what they’re talking about.

And they also have seen this on different levels as well too. So it doesn’t matter if you’re making a million a year or hundreds of millions a year, you need to know what you, where you are on the financial side. You need to be very intentional with the dollars that are going through your pocket. So I guess then I, can you speak either one of you, can you speak to why I, to the main street side, why someone would live, you know, paycheck to paycheck or deal to deal in the real estate space? Or like how do people get into their own rat race and like, how do they get like to the, they’re just not making enough even to like, they don’t know their burn rate or they don’t know what they don’t know. So can you speak to like, why, where does that mindset come into play?

Speaker 1:

Yeah, I mean I can speak to that. It’s, it’s you know, I’m experiencing it right now, which is like, you know, we were living a really good life, let’s say 10 years ago. Yeah. Like, I’m thinking of my life. I, I’m with my wife for 10 years, we’re having a lot of fun now. We’re making so much more money and we’re still living a good life, but we’re not saving, like now we’re not saving too much. And it’s this creep of, of it’s it’s expenses on, on the personal side, but on a business side, people want growth at all costs, right? So it’s like, what’s the next project? What’s the next thing? And so it’s really, really easy to just like keep investing the money or, or, or just risking it on different projects because like you’re looking at what will happen in the long term, but like, yeah, if you don’t put some aside, then you can literally have 10 years pass by and for nothing to chauffeur it.

And I actually have, believe it or not friends who worked on Wall Street and friends who worked in Silicon Valley making over half a million dollars per year, they didn’t save too much because, and, and it, it’s interesting I think that this idea of intentionality, it, it sounds very simple, but it’s actually not because it’s really hard to, you know, tell your wife, okay, we’re not gonna take this vacation. And she’s like, okay, but not, not my wife or not people that I know, but like, I can imagine a scenario where people are like, but, but we have the money. You know, why not do it? Like, we only live once? Or like, you, you have a deal that you can invest in that you’re not a hundred percent certain of, and you’re like, okay, I have the money, let’s do it.

It’s, it’s the bias to action, especially I feel in American culture, there’s like a lot of bias towards action. Like, if you’re not doing stuff, something’s wrong with you. And I think psychologically that’s actually very very damaging because also, first of all, investing, you can read any investing book and it’s, it all boils down to doing a lot of basically doing the same thing over time and letting the compound interest grow for you. That’s easier said than done, right? Because you know, that means saying no to lots of things. So that’s one thing. And then the other thing I wanted to mention what Alex said before, I think it’s a very, very critical point that not many people think about, which is like, how do you protect yourself from many events that are connected to each other even though they don’t seem connected?

So for example, with real estate, you can say, okay, I have a salary. I’m gonna take some of, of my salary and, you know, buy a property, rent it out, and use some of my salary to pay the mortgage. It all sounds really good, but guess what, under a situation where let’s say there’s an economic downturn, you’re likely, I mean, not your likely, but there’s a likelihood of losing your job and also not being able to find tenants for your property. So those two things, they’re connected even though they’re, they’re separate. And so I know many people, especially in real estate that in 2008 will see how now it what, what happens now with the interest rates. I personally don’t think that they’ll be able to sustain them at very high levels. But like, you know, people who bought a property got a 3% mortgage you know, in 2021, and now the, the mortgage is like 7%.

What happens if you have to move? Like you know, you can’t just sell one house and buy another. So people are, okay, I’m gonna rent out my house and then use the rent money to pay for the other, but what if rents go down? So a lot of these things you just think are, are the risks connected to each other or are the risks not connected to each other? For example, having a disease and, and losing your job because you can’t work is not a function of depression or some kind of economic, you know condition. So those two things are not connected, but like having a job and having rental income, those two things are very connected. And in businesses what I’ve seen, it’s not so much about the controls. Like again, at, at those levels where you raise venture capital and everything, you have very tight controls.

Like you have lawyers, accountants, everything is accounted for, but guess what? You don’t have controls over your decision making. You know, as a CEO you have to make decisions. Nobody can tell you is it a good decision or bad decision. So like, it’s really, really important to think of all the scenarios and, and how to protect oneself against against bad scenarios. And, and the last thing I’ll say is that there will be pressure when times are good. Alex and I experienced this, when times are good, there is pressure to go up the risk curve. So to do more risky things. Yeah, because you see all of your friends or co colleagues or you know, people, you know, they’re making all this money. And so you almost feel something’s wrong with me if I don’t do the same. But then when the downturn comes, we know some really, really smart people that lost everything with ftx. And you know, FTX is a crypto exchange that collapsed, right? People put all their money there, it went under, who knows if they’ll get it back. Some of the smartest people I know went through this. So like those are the controls we should be thinking of more than just the dollars going in and out.

Speaker 3:

Man, there was a lot there, there was a lot of good stuff. You started off with the expense creep on the personal side, which I don’t think we touch on enough where it’s just like, okay, where, and you even gave that great scenario, which I’m sure no one’s ever gone through. Like, we have the money, why don’t we just buy the thing? You know, like, we could do this. That was, that was great. And then scale creep too, you mentioned like in the business side, it’s the scale side, it’s like scaling at all costs, which that was great. <Laugh> bias forward to action in America. Like, we just can’t sit still. We can’t sit still. We’re addicted to everything. We just want, we’re addicted to the hustle, the grind you know, the next thing. I thought that was a great point because then we always want to be doing things, but like you said, real investing is picking the boring stuff and having it go and ride out for a long time and using compound interest and actually seeing, you know, the magic of being able to do.

I thought that was great. Saying no to lots of things. You said that as well too. It’s not what you say yes to, it’s what you say no to. I thought that was so good where you just threw that in there. That was just a little line, but it was like, that was gold. You know, like, what are you saying no to now that’s protecting you from that next Black Swan event or like something like that. That was then you said the decision making process, especially as a main street entrepreneur, they don’t have a lot of people, you know, to say, is this a good decision? Like, they’re not going to their team of lawyers, accountants, data analysts, you know, like all this stuff say, is this a good business decision? Which I thought that was really good because then to be, to be fair here, I run a fractional C f O business.

So like we’re trying to bring a little bit of that, you know, like to the market. So like what is your, I, it’s my show here. I’ll, I guess I’ll ask the question. What are your thoughts on those types of roles? Because a lot of people can’t afford a full-time c f O on main, you know, they’re a mainstream entrepreneur, they can’t afford a full-time COO a lot of times too. And number two, like they can’t afford the, the C-suite executive team. What are your thoughts on the type of fractional type businesses or those four mainstream entrepreneurs?

Speaker 4:

It’s terrible though. Actually. I, I’ve been pushing for this a lot. I, I think fractional, fractional cfo, O c you know, accountants they work really, really well. Caveat, yeah, okay. The caveat is, I think it’s okay if you own your own business to be a hard ass and to expect and push people, typically when people are factionalized, they you know, they do it for the hours and they build by hours just so the output, you know, isn’t there. So I would just find someone that’s good, be okay, firing people and, you know, and, and getting someone else be graceful, right? They, nobody wants to be treated like shit. And sometimes people mistake being tough in terms of business tough with just being an asset or a jerk. You don’t wanna be a jerk to people. You don’t wanna treat them like like garbage.

But you do wanna ask for a lot and you want to hold them accountable. So here’s what I need. Timelines get shifted. I, I’m very bad. This is probably my Achilles heel. I’m very bad with shifting timelines and real estate, you know, I haven’t developed a lot, but a feeling if I developed a developer and they kept on pushing timelines on me, we would have, we would have, you know, the the Eastern European will come out <laugh> on that developer about getting, pushing timelines. But look, it happens, right? I, my my whole point is it’s a great way of bringing in professionalism into your business without having to pay salaries. However, please, please, please be mindful, intentional with, you know, giving those people enough work to do to keep them busy and hold them to aggressive timelines. It’s okay to hold, to be aggressive. I think it’s just not okay to be a jerk.

Speaker 3:

Yeah. Well that’s good. I think the, the, the moral of this episode is intentionality. If you keep hearing people come up, like with the people with your money, with the processes, with whatever you’re investing in, like you even mentioned, you know, ftx, it’s like a lot of smart people, you know, went down. It’s like, well how intentional were they with those dollars versus just being like, okay, someone else is doing it. I really trust them. Let me, you know, just park money there. Exactly. I think I think there’s lots of lessons all around. We’ve only got a few more minutes here. I do want you to, I don’t know, can you give us like, in just a few minutes your thoughts between crypto versus real estate? Cuz I know this is probably something you eat up and like want to just, you know, spread that message. But I, I, I know there’s a lot of investors too that have gone down the crypto roads. Some still love it even though the ups and downs have been, you know, pretty high and pretty low. But I’d love to, you know, but they’re still investing in both. So I would love to know your perspective on real estate and crypto.

Speaker 1:

Yeah, I mean, I can take, do first stab and Alex, I’m sure we’ll have other thoughts. So basically I, I’m, I’m, I’m starting to like real estate for two main reasons. One, I, and when I say starting to, like, I never had anything against it. I just, like my previous mentality was like, I just rent and invest all my money in the stock market, just like you know, s and p 500 in Nasdaq. And that worked really well. Cause I’ve been doing it since 2012. So again, the, the compounding, but two things that are, are great about real estate. One is that you can see you, you get kind of free money from the government. Like a lot of the loans are subsidized one way or another. And so it’s like really hard to get leverage where you don’t get a margin call.

Like, you know, as, as long as you make your monthly payment for the mortgage even if, if the price of real estate goes down, even if your equity’s worth negative you don’t lose the house. And that’s not the same case with stocks. You know, you can, I can borrow against my stock portfolio, but then I get margin called immediately. They, they don’t even ask you. So that’s one thing that I love. And then the other thing that I’ve been starting, I just bought my first house I’m like 40 years old, bought my first house. What I love is that I think people can, so investing, a lot of it is about asymmetrical knowledge. So it’s like you should know something that other people don’t know. Yeah. And then you capitalize on that, right? I’m seeing that like real estate in a sense is a, is a call option on the economic growth of an area, basically. And so what’s the call

Speaker 3:

Option?

Speaker 1:

You want? A, a call option is basically you, you can get outsized returns. So if, let’s say the, the area grows, the GDP of the area grows by like 5% your real estate portfolio can grow by like 50% if, you know, with all the leverage and all, and all of those things. So I think someone can assess an area in, in the prospects of an area really well. And, and that could give you an advantage. I’ll give you an an example. San Francisco. I, I lived in San Francisco for 10 years. It’s not, I, I wouldn’t invest there. Now because like the, the, the politics of the place is just like, it’s really mismanaged and, and people are just like escaping. You can see the zip code data of the, the U S P S just published, like people who moved and it’s like everybody’s leaving California for like Miami and for like other places that are better run.

So I think you can just like, have some thoughts of the economic prospects of an area and just capitalize on them by real estate investing. Now, the one thing that crypto is better at is one, the, the upside is bigger. The volatility is bigger, so the downside is bigger, but like on average it has been performing better than any other asset class. And the second thing is, you don’t have maintenance costs. You don’t have like all these like costs of, it’s, it’s super liquid. It’s one of the most liquid markets. And so I think it’s not either or. It’s about like how much you allocate to each to each category. And it’s funny like I’m, both of us are Jewish in the tmu, which is the Jewish derivative of the Bible. 2000 years ago, they gave investment advice, which says like, one third of your money should be in land. One third of your money should be in your business, and one third of your money should be in gold, which is like basically liquid money. And when you think about it, you can translate it to, to today. Mm-Hmm. <affirmative>, the business is stocks, land is like real estate and gold is basically we think it’s Bitcoin, but I mean, it can be treasuries, it can be bitcoin. Interesting. 2000 year old financial advice. <Laugh>. Yeah.

Speaker 3:

Yeah. No kidding. Awesome. Alex, do you have anything to add on that part? That, yeah, no, I, I

Speaker 4:

Echo everything as you once said. I think we can go a little bit, you know, deeper. Probably we can de dedicate a whole episode here. But, you know, look, I, one, another big aspect for real estate is, look, somebody just wanna live in a nice place and it’s your home, right? There’s an intangible value to just living in your home right now. When you think about real estate from an investment perspective, you should just think about what, like, like she remember a third or third, a third or different risk returns of your portfolio. Intentionality, right? You can have part invest in savings and invest in holding cash. When I hold a $5 bail on my wallet, that’s an investment in cash in that $5 bill, because alternatively, I could buy a stock with it, right? But cash stays more or less steady or loses, you know, call it 6% a year right now with the current inflation, stocks can go up and down, more volatility, more return Bitcoin, much more volatility, much more return.

But if I’m going in and starting my own business, right, and I’m, and I need to take out loans for hardware, I need to take out loans for, you know, buying a house and I need to pay the painters and such and such a, maybe Bitcoin in this case isn’t right for me because if it’s, if it’s going up, it’s beautiful when it goes down, I have to wait two years for it’s recover again. So it, it’s just all, again, I wanna bring it back to the whole portfolio theory. You know, I’ve also, I I don’t own a house. I, I’ve always rented because I’ve always invested that money. Yeah. it’s just my personal my personal choice. Although I also see the value of real estate. Like said, I can buy a house when interest rates become normalized again and then borrow against my equity in the house.

And I don’t have to, like, nobody’s gonna kick me out of the house versus stocks. If I borrow against stocks, I get margin called in a second. God, holy moly, if I borrow against Bitcoin, I’m gonna get margin called, you know, it can dip like 20% in in the minute, come back up 20%, but in the 20%, you know, minute, you know 1 0 7 I Bitcoin is worth 20,000, right? One 10 it’s worth 20,000. But in between I just wiped out all my money cuz it dipped really quickly. Yeah. So it’s just, you know, every, all these investments including cash is a tool for something that’s a be intentional about what you’re investing in. Real estate is a tool for X, it’s less returns, easier to borrow against equities, higher returns, harder to borrow against Bitcoin, highest returns hardest to borrow against and so on and so forth, right? And then you can construct a portfolio that does what you need it to do.

Speaker 3:

Awesome. I really like that. That’s some good advi. I like the whole theme of this is just be intentional with everything that you do. Like we keep hitting on that and then it keeps coming up in every conversation here. And that’s where I think a lot of people, they just got a hold of this message from this podcast. I think they’d be a whole lot happier a year from now if they would just be intentional with their money, with the people in their life with the business that they’re running. So that’s, this is good stuff. So here we go. Here’s a recap. So we talked about, you know, paying yourself first, making sure you ride that line of like making sure you’re taking enough out but not enough to like tank the business and making sure that you’re actually growing it intentionally. And then I loved what you said about this was Alex, I believe you said, you know, like as the companies got bigger, they were able to hire more professionals to be able to control more and be able to have more access to that.

And that’s where it’s like, can you borrow from that as a smaller main street investor who’s out there, you know, buying the houses and that’s where maybe a fractional CFO, F o could come into play. Make sure you hold them accountable, just like Alex was saying then there was a lot of good stuff like what you said, Shae from express creep on the personal side, scale creep, you know, <laugh> bias towards action no matter what the cost as a, as an American, you know, that’s where I think that definitely permeates our mindset. Say no to a lot of things. This was just really good. Be very intentional if you’re going to invest. I even like what he said there about in the tel mood about the the third, third, third. Like, can you be intentional there? That’s like a form of profit first. Honestly, he was even telling you, you know, like, of making sure your money’s going to certain aspects and maybe setting up specific bank accounts and for your specific investments, maybe even on your personal, you know, the personal side to make sure, okay, money came in, I’m gonna set it aside here and then I’m gonna invest it.

So just being intentional with every dollar in your business. This has been awesome. So guys, well, how do they get ahold of you? What are you doing? I know you have a podcast that you have, but if they wanted to provide value back to you with all the value you provided here, how do they, you know, get in touch or listen to you or whatever that you wanna, you wanna send them to?

Speaker 4:

I I can start. So we, we do, David, you gotta come to our podcast, we gotta do an exchange. How about this? After this you come onto ours and we’ll do a, we’ll do a podcast show.

Speaker 3:

Sounds good. We’re

Speaker 4:

Doing it live. Yeah. Okay. We heard it here first. Live, live in the air. We we’re agreeing, we’re agreeing to this. So we, we have a podcast called the Dollar Auction Podcast. It was previously called Hardcore Finance. We did a lot of focus on finance investing, expanding a little bit. And actually we, we can tell you on our podcast why the dollar auction has a very interesting game theory solution. It’s, it’s a very interesting game theory game. But if you guys wanna hear more, please take a look on Spotify apple Dollar auction or maybe if it still hasn’t changed, the hardcore finance, same thing. And then we’re most active on Twitter. We, we share a lot of knowledge on Twitter. And speaking of Profit First, so my moniker is Mr. Mr ebida, which means earnings before interest, taxes, depreciation, and modernization, which is a, a financial term for profit. So there we go. It’s a perfect moniker for here. So Mr. Ebida, E B T D A on Twitter and Shon.

Speaker 1:

Yeah, so am Shimon Lazarov on Twitter. Probably David can put the handle in the show notes for sure. And the way you can help me is just like, listen to our content and ideas and let us know if they resonate. Because like, what, what we’re trying to do is take things from very academic, you know, heady to, to something that can appeal to the wider audience because frankly we think there’s not enough depth in the kind of mainstream financial, like when you listen to the news or something, it’s, it’s, it’s fine, but it’s not like deep enough. So we’re trying to bring a little bit more depth, but this balance about like not going too deep versus not being too on the surface would love to hear what you guys think.

Speaker 3:

Awesome. That’s good stuff. So we’ll make sure to put that in the show notes to follow them and follow their podcast. Listen to them. These are great guys right here. They provide a ton of value here. And if you are listening to this as a real estate investor and you’re like, oh shoot, you know, like I’m, the expense creep is there, the scale creep, like what the heck? I, you know, I’m just go, go, go. Where’s the money all the time’s. Head over to simple cfo.com. We can see if we could take help you on that road. Just click the schedule a call if we can or if we can at least pin you to someone who might be a really good fit for you. Cuz I don’t want you to stay there. There’s no reason to. As a real estate investor, thank you so much for listening guys, thank you so much for the knowledge you shared here. Alex Shaone, this was absolutely incredible. Thank you for being on the Profit First. R a I show. Thank

Speaker 1:

You David. It was a pleasure.

Speaker 2:

This episode of The Prophet first for r e i podcast is over, but there are plenty more where that came from. Are you ready to learn how David and his team can help implement the Profit First system in your business? Schedule a discovery call@simplecfo.com right now. We’ll see you next time on the Profit First for r e I podcast with David Richter.

Title: “Profit First Strategies with Jay Conner: The Power of Private Money”

Episode: 242

There are 15 reasons to love about borrowing private money over traditional money. One of them is making your own rules for your private money.

In this episode of Profit First for REI podcast, Jay Conner, a nationally renowned real estate investor and the king of private money. He talks about how private money works.

Jay helps you get your money from private lenders and will share with you the mindset that will get you money in the door without you ever having to worry about it.

Listen and enjoy the show!

Key Takeaways:

[01:01] Introducing Jay Conner

[05:00] Introduction to private money

[08:30] The Great News Phone Call

[11:23] Why don’t you use your own money?

[13:18] Maintaining relationships with private lenders

[15:40] Private money vs traditional money

[22:05] Things that make them want to recommend you

[25:18] Advice for real estate investors

[29:01] Connect with Jay Conner

Quotes:

[07:34] “If you are talking about private money and raising private money with an individual and you got a deal for them to fund, you already sounded desperate.”

[12:07] “If you want to scale your business, private money is the way to go.”

[16:05] “In this world of private money, we make the rules. We set the interest rate, we sent the length and all of that.”

Connect with Jay:

Website: https://www.jayconner.com/book-details/

Tired of living deal to deal?

If you are a real estate investor or business owner who is tired of living deal to deal and want to double your profits, head over here to book your no-obligation discovery call with me. Either myself or someone from my team will hop on a short call with you to get clear on your business goals, remove any obstacles holding you back, and map out a game plan to help you finally start keeping more of the money you work so hard to make. – David

Transcript:

Speaker 1 (00:00):

I got 15 reasons I love private money over traditional money. I won’t share all 15, but the biggest one is it puts you in the driver’s seat. The traditional way to borrow money is you go to the bank and get on your hands and knees and you’re begging and chasing. Well, they are making the rules right? Like the lender is making the rules. But in this world of private money, we make the rules, we set the interest rate, we set the length of the note and all that.

Speaker 2 (00:34):

If you’re a real estate investor who’s sick and tired of living deal to deal, then welcome home. Hear from everyday real estate investors just like you, and discover how they’ve completely transformed their business by taking a profit First approach. This is the profit first for REI podcast, where we believe revenue is vanity. Profit is sanity. It’s time to start making profit a habit in your business. So here’s your host, David Richter.

Speaker 3 (01:01):

We have Jay Connor back on the podcast. I love Jay Connor. He helps you get your money, the money from private lenders and that whole framework and process, but he does it from a passion and a place of heart. And servant Teachership. I feel like he goes out there and is a servant teacher of how private money works. Listen to this episode. He gives the magic question he tells about desperation and private lending, and I thought his perspective was so good, and then ultimately the mindset that will get you money in the door without you ever having to worry about it. So listen to this episode. Can’t wait for you to get value from it. Thank you for being a listener of the Profit First. RII podcast. Have a great episode. Hey, here’s the profit first RI podcast. Really excited to have Jay Connor back because he’s the came of private money. And this is where I love to go into this topic because I don’t care what kind of business you’re in, you probably need help with this, but especially if you’re in the real estate world, this comes up all the time at every event I’m at with every conversation I have. So we’re having the cane here talk about private money today. So Jay, thanks for being on the show.

Speaker 1 (02:07):

Hey David, thank you so much for having me come on here to talk about my most favorite topic. Of course, that being private money. And why is that? Because private money’s had a bigger impact on our real estate investing business than any other strategy that we’ve implemented in our business.

Speaker 3 (02:24):

Why did you go down that road though? I mean, you teach this all the time. You’re helping a ton of people, like anyone I’ve ever talked to that works with you is like he taught me how to do and I got money and it actually works. So I mean, how did you even go down that road where it made a difference on you and then you wanted to get it to others?

Speaker 1 (02:43):

Well, I actually backed into it. I didn’t do it on purpose. So here’s what happened. So my wife, Carol, joy and I, we’ve been investing in real estate, single family houses, other real estate full time here in eastern North Carolina since 2003. And here’s what happened. From 2003 until 2009, David, all I knew to do in my real estate investing business was rely on the local banks to fund my deals. I mean, all I knew to do was go to the bank, get on my hands and knees, put my hand underneath my chin, raise my skirt up so they could look at all my personal financial statements and stuff and actually beg to get my deals funded. That’s all I knew to do. And so I had a big wake up call in January of 2009 after being in this business here in Eastern North Carolina. I called up my banker.

(03:38):

I told him about these two deals I had under contract in Newport, these two single family houses. And David, I learned like that over the telephone that my line of credit had been shut down with no notice. My banker, his name was Steve, and the bank was bb and t at the time. I said, Steve, what in the world are you telling me? My line of credit is shut down. I got two deals under contract. You gave me no notice. Why is the bank closing my line of credit? He said, Jay, don’t. There’s a global financial crisis going on right now. I said, no, but now you just gave me a global financial crisis. Financial crisis, yeah, I ain’t got no way to fund my deals. And I got ’em under contract. So I hung up the phone and here’s what happened, David. I sat here and I asked myself a very important question.

(04:27):

And so I’m going to share this question with your audience right now. This question I’m going to share with you will help you solve any problem you’ve got. I don’t care if it’s business, financial, career, health, relationships. I don’t care what your problem is. By the way, David, these people going around and saying, any problem, you got some opportunity I want to throw up. I didn’t have no opportunity. I had a problem of not funding my deal. So here’s the question I asked myself. The question I asked myself was, Jay, who do you know that can help you with your problem? And when I asked myself that question, I immediately thought of my good friend Jeff, who lived in Greensboro, North Carolina at the time, and he was investing in real estate. And so I called him up and I told him what happened. And he said, well, Jay, welcome to the club.

(05:18):

I said, what club? He said, the club of the bank shutting you down and losing amount of credit. They shut me down last week. I said, well, how are you funding your deals, Jeff? He says, well, have you ever heard of private money? And I hadn’t. So Jeff told me about private money. He told me about self-directed IRAs and how people can use their retirement accounts and funds that they currently have and move them over to a self-directed IRA company and then loan that money out to us real estate investors, either tax deferred or tax free depending on the type of account they’ve got. Well, that just opened up my whole world. I’d never heard of that. And so what did I do? How did raise $2,150,000 in less than 90 days after being cut off from the bank? Well, here’s what I did, and here’s the secret sauce I put on my teacher hat.

(06:10):

So I put on my teacher cap, which is my private money teacher cap, and I just started teaching people in my own network what private money is, how they can earn high rates of returns safely and securely. And what’s interesting, Carol, joy and I, we got 47 private lenders right now. Not one of them had ever heard of private money and private lending. Not one of them had ever heard of self-directed IRA companies and what a third party custodian is. That’s important by the way, to establish a relationship with a self-directed IRA company because over half of my private lenders are using their retirement funds. And if I didn’t have that relationship to introduce them to move their retirement funds over, I’d be missing out on over half of my private money. So how did I go about raising all this money when I was cut off from the banks?

(07:02):

I led with a servant’s heart. I led with education. And here’s a really, really important point. I separated the activity. I separated the conversations of telling people what private money is and how they can earn high rates of return safely and securely and having a deal for them to fund. You see, desperation has got a smell to it. And when you talk about is that not true, David? Yeah, very true. So if you’re talking about private money and raising private money with an individual and you got a deal for them to fund, you’re already sounding desperate and you’re not even trying to sound desperate. So we don’t talk about deals and when we’re first exposing somebody to how they can earn high rates of return, we talk about private money. So how do we separate those conversations? Well, when someone has told me that they’ve got, let’s say they’ve got $150,000 they want to invest and get high rates of return conservatively, I’ll say, great, I’ll put your money to work for you just as soon as possible.

(08:11):

I don’t talk about a deal upfront. If they’ve got retirement funds that they want to get higher rates of return on, I’ll introduce ’em to the self-directed IRA company that I recommend. They’ll get their funds moved over. And so here’s what happens and here’s the magic sauce, David, I give ’em and I call ’em up with what I call the great news phone call. What in the world is the great news phone call? Well, the great news phone call is not a pitch. I’ve never pitched a deal in my life ever since I started raising private money in 2009. I pick up my handset with my cord attached to it here in North Carolina and I call some of your, don’t even know what that is. And let’s say, David, let’s say you’re one of my private lenders. So I’ll put my phone right up here and you’ll answer the phone and we’ll have a little chitchat and I’ll say, Dave, I got great news for you.

(09:06):

I can now put your money to work. I got a house in Newport with an after repaired value of $200,000. The funding requires 150. Closing is next Tuesday. You’ll need to have your funds wired to my real estate attorney next Monday. I’m going to have my real estate attorney email you the wiring instructions end of conversation. Notice I didn’t ask If you want to fund the deal, of course you want to fund the deal. You’ve been waiting for the phone call. I’ve told you the program. I’ve taught you the program, you know what kind of rate you get, what the maximum loan to value is, the program that I’ve taught you. And so now you’re waiting for the good news phone call, which I just gave you. And in addition to that, if you as my private lender, if you’ve moved your retirement funds over to a self-directed IRA company, you ain’t earning any money until I put your money to work.

(10:04):

You moved it at my recommendation. Now I’m ethically bound to put your money to work. You ain’t earning any money until you actually put her to work. So again, we separate conversations, we leave with a servant’s heart, we educate, and by the way, David, these people going around saying don’t just get the deal under contract. The money is show up. I want to throw up where is the money going to show up? Is it just going to rain out of clouds or something? No, get the money lined up and you can get it lined up fast. Just like me. There’s always going to be deals.

Speaker 3 (10:38):

Yeah. Oh man, that’s really good stuff. I love how you went down that road and it helped you personally. Now you’re just teaching a lot of people. I love that magic question. Who do you know that can help me with my problem? It’s that who, it’s not always the how. It’s the who did I know, and in that point it really helped you. I also run into a lot of times, I don’t know if you see this, where there’s someone who’s like, I could save a couple interest points if I just use my own money versus a private lender’s funds. What are your thoughts on that of always taking down your own deals versus going out there and putting the work into getting a private lender?

Speaker 1 (11:17):

Sure, I get that question all the time. They say, Jay, you making all that money? Why don’t you use your own money to invest in real estate? Why are you still borrowing private money? Well, here’s the answer. If you’re just going to do one deal, that’s a great use of your money. That’s a fantastic use of your money. But do you want to scale your business? I mean, right now we’ve got seven different projects going on, single family houses simultaneously. Well, I don’t want my money buried in seven houses or projects simultaneously, which here in our local market can easily be over 3 million with the prices of our homes. So if you want to scale and really, I mean most people have got a bottom of the bucket in their checkbook. So if you want to scale your business, then private money is the way to go. Another answer to that question is, do I want to pay myself 8% or do I want to use my money for something else,

Speaker 3 (12:22):

Right? Yep.

Speaker 1 (12:24):

So that’s a couple of answers to why I use private lending and why I’m still using 47 private lenders,

Speaker 3 (12:33):

Which is great. I love what you said. If you want to scale, it can run out of cash real quick. If you just keep using your own money where a lot of people have to choose between, okay, paying some percentage points or sleeping at night, and it’s like, I think I like your option a whole lot better, especially if you’re looking to grow. But I like how you said that one deal. That’s okay, but if you are looking to be a real estate investor, this is something you’re going to have to go down that road. Now, last time I asked you some questions about the private lending process. I don’t think I asked this one though, is how do you maintain a relationship with that many private lenders? You’ve got 47 people in your network that you call up with the good news call. So is it like how do you maintain a relationship with all those people?

Speaker 1 (13:22):

I mail ’em checks.

Speaker 3 (13:25):

I love that. That’s a great answer. Oh man. No better way to keep a relationship there.

Speaker 1 (13:33):

I mean, they love getting money in the mail, right? Yeah. They love mailbox money, so I mail ’em checks.

Speaker 3 (13:41):

So you mail ’em checks. So you’ve built a good enough business where you can keep 47 lenders busy and their money active.

Speaker 1 (13:50):

Well, to be totally transparent, I mean, it is a juggling act to tell you the truth. I mean, there’s more money than there is deals.

Speaker 3 (14:00):

Yep.

Speaker 1 (14:01):

There’s more money than there is deals. And so we got 47 private lenders. Some of them have got $30,000 with us, some of ’em have got a million dollars with us. I can’t buy a house for 30,000, but I can use 30,000 for rehab money. You can use private money, borrow private money in a junior position, you’ve got to disclose that. But I can put private money in a junior lien. But what comes into play there is what we call total loan to value. So I’m not going to be borrowing more than 75% of the after repaired value. I didn’t say the purchase price 75% of the after repaired value. But let’s say back to that example that we just talked about, David, where if I’ve got a after repaired value on a home of 200,000 for easy figuring, I can borrow up to 150,000. That’s 75% of the after repaired value. But if I buy it for a hundred thousand, which I do all the time, 50% of the after repaired value, I can have a private lender in first position at a hundred grand. I could have another private lender in second position at 50 grand. So add a hundred to the 50, now one 50 divided by 200,000 after repaired value, I got a total loan to value of still 75%.

Speaker 3 (15:27):

Yeah, I love that. And it seems like private money gives you flexibility and

Speaker 1 (15:32):

Options. Does that make sense?

Speaker 3 (15:34):

Yeah, that makes sense. A hundred percent.

Speaker 1 (15:37):

Oh, absolutely. Flexibility is where it’s all at. I got 15 reasons. I love private money over traditional money. I won’t share all 15, but the biggest one is it puts you in the driver’s seat. The traditional way to borrow money is you go to the bank and get on your hands and knees and you’re begging and chasing, well, they are making the rules, right? The lender is making the rules. But in this world of private money, we make the rules, we set the interest rate, we set the length of the node and all that.

Speaker 3 (16:14):

I love that. Flexibility is the ultimate play in real estate. You want to have flexibility and you want to be able to have that. So I love what you teach. Who is the person that you’re trying to teach out there? Is it the person that’s done one deal a thousand deals? Who are you trying to help the most with your business?

Speaker 1 (16:33):

Yeah, that’s interesting. At my live events, which is called the private money conference, and my live events, we have about 60% or so have already done deals. They’ve already done deals. They want to scale their business. They are real estate investors wanting to scale their business, and about 40% are looking to get their very first deal. So I’m helping everybody. I mean Stu and Harriet Baldwin from New York State, they enrolled and joined my mastermind membership community and they already had a portfolio of a hundred houses. They’d already raised over $2 million in private money, but they wanted to see how I went about it. Well, just one webinar that I recorded with them brought in 1.2 million in additional private private money. So I’ve worked with real estate investors that are brand new and those that are also seasoned to help them get more private money ready to go for their business.

Speaker 3 (17:33):

I love that. It sounds like a lot of people out there need private money, and even if you’re just getting started, if you don’t have the funds to do that first deal, like you mentioned, you do that first deal, that one deal at a time, it might be okay, but this sounds like a great spot where if you’re getting into it or if you’ve got lots of stuff going on, this could be another way to make sure your company can keep running without what you ran into with the banks back in 2007, eight or oh nine. Would you say that’s true as well?

Speaker 1 (18:04):

Absolutely. Absolutely. I mean, I’ve met very, very few people. In fact, I can’t even think of one. I haven’t met any real estate investor that says, I got enough money.

Speaker 3 (18:20):

Yeah, me either.

Speaker 1 (18:22):

I can’t use any more private money. However, David, you are looking at one right now. I got about almost $2 million right now, what I call sitting on the shelf waiting to be deployed. And I tell you what, I’ve had new private lenders come into my world that want to invest and just to prove to them that I can perform. I’ll take the new private lender’s money and pay off a current private lender, refinance the deal so I can get their money to work for ’em, right?

Speaker 3 (18:53):

Ah, yep, that makes sense. I like that. As you grow and scale, you might run into that issue and you make one lender a little bit happy. I mean, at least they’re getting paid off, but then they probably come back to you and say, I want you to put my money to work again. Do you have that come up a lot?

Speaker 1 (19:12):

Quite frankly, when I pay ’em off, they’re not happy.

Speaker 3 (19:17):

That’s why I said just a little happy, maybe a little bit.

Speaker 1 (19:20):

But when I pay ’em off, they’re not making any money on that money. In fact, with a new private lender, I’ll get ready to pay ’em off cashing out on a deal and I’ll call ’em up and say, Hey, just want you to know that you’re going to have a check coming in the mail from a real estate attorney’s trust account. We’re paying off this house. And they’ll say, Jay, can’t you just keep the money? And I’ll go, no, I can’t keep the money unless I’ve got your money secured by a property because we do not borrow unsecured funds. Now, here’s maybe a little advanced strategy for some folks, but I do substitutions of collateral or loan modifications all the time. If it’s a small amount of money that a private lender’s invested 30, 40, $50,000, and we use it for rehabbing a property. So when I’ve got another property I’m getting ready to start on, I’ll substitute the collateral and keep that 30 or $50,000 note in play. So they keep earning money on that money, but we will substitute the collateral just to a different project that we’re moving to.

Speaker 3 (20:25):

That’s awesome. So then sounds like you have a good problem. It’s like, I want that. Well, I think a lot of real estate investors would rather the problem, I have too much money versus I’ve got these deals and I can’t fund them. So I really like how you teach people that and where it could snowball into this, where it’s like, I’ve got 47 private lenders, I’ve got to go out there and get the deals for ’em. Absolutely. And I really like that. And

Speaker 1 (20:50):

For goodness sakes, you don’t start out with 47 private lenders. I started out with one, right? I started out with one and then that quickly became two and three and four and five because private lenders tell other people what’s going on. So I haven’t actively attracted private money for years because our current private lenders just keep sending us people. In fact, day before yesterday, day before yesterday, I got a phone call from the mother of a good friend of mine, his name’s Craig, lives in Newburg, North Carolina. Craig had told his mother about this investment thing that I got going on and she had never heard of it, which is really funny. I’ve been doing it now private money since 2009. So she calls me up and she says, Hey, my son’s been telling me about this investment thing you got going on. Tell me about it. So word of mouth gets around very, very quickly when you start doing business with private lenders the way I do.

Speaker 3 (21:53):

Yeah, I like that a lot. So in order to get people to talk like that, what are the biggest things that you do for your current private lenders that makes them want to recommend you?

Speaker 1 (22:07):

Well pay ’em on time.

Speaker 3 (22:08):

There you go. That’s a big one. Sounds like that would be a really great place to start.

Speaker 1 (22:12):

Pay ’em on time. But I also have three times a year I put on a party for our private lenders at the Dunes Club. So we have three times a year a VIP reception over at the Dunes Club on the beach, and it’s just an evening of private lenders getting together and we have a good old time and I feed them and give them all the soft shell crabs they want, and I tell ’em to bring their friends with them.

Speaker 3 (22:42):

Yeah, that’s awesome. So number one though, that anyone can do at any stage is pay people on time. So actually pay, would you say, what about communication? I hear that come up sometimes too. How do you do a good job on the communication with your private lenders as well?

Speaker 1 (23:03):

Well, it must be good enough. They never go away,

Speaker 3 (23:06):

Right? Yeah, that’s the big things I hear.

Speaker 1 (23:10):

Here’s one thing I have not delegated as far as communication. I personally, I mean my relationships with my private lenders are very, very important. So I personally pick up the phone, pick up the phone, and call my private lenders when I have got a deal for them to fund. I do not delegate that out. I could

(23:37):

Delegate that out, but I don’t, when I got a deal for them to fund, I’m the person on the phone keeping that relationship When I’m getting ready to pay them off. I don’t have a check just show up in the mail. Of course they got to sign a payoff instruction letter if a different closing agent is closing it for a buyer. But before any of that happens, I personally call ’em up and I tell ’em that we’ve got that property sold. We’re getting ready to pay you off. Or I’ll call ’em up and I’ll say, Hey, we’re getting ready to pay this property off, but I will keep your note open so you can keep earning money. I’m just going to substitute the collateral. We got some documents we’re going to email to you for you to sign and send back the communication. I’m personally involved in putting their money to work and letting them know when we’re cashing out and where they are on the deal.

Speaker 3 (24:31):

That’s awesome. Then since it’s the profit first I podcast here, I love this concept of the private money because you need your cash in your accounts. So to be able to run your business, do those things, and then setting up a separate account just for your private money lenders, so it makes it easier to do what Jay just told you to pay them back, to pay them back on time to be in good communication with them. So now this has been really good. Do you have any other advice before I ask you? How could they work with you? How can they get in touch with, because I know this is something that is needed desperately, that I send people your way all the time. I know I trust you to help people, but any other last minute advice here that you would give to the real estate investors listening to the podcast?

Speaker 1 (25:18):

Sure. I appreciate you asking that question. It’s going to be very hard to own a lot of real estate

(25:26):

Until you own the real estate between your ears. So what do I mean by that? People ask me, how do I start? How do I start raising money? I can tell you how you start raising private money. You get your heart right, you get your mindset right. So what do I mean by that? Well, what do you do? You lead with a servant’s heart, you lead with education, you put your private lender money hat on, you private lender, teacher hat on, and you leave with education, don’t pitch deals, and you really, really are concerned about the other person and realize, part of this mindset is realize you’ve got an opportunity to change people’s lives, right?

Speaker 3 (26:11):

That’s so good.

Speaker 1 (26:13):

We’ve got countless people that are particularly in their retirement years, that have thanked me and Carol Joy for making a difference in their retirement years to where they can, I mean, they don’t want to touch their principal. They want to live off of their principal investment. So they’ve been able to travel, go see grandkids, do all this stuff that they couldn’t do otherwise until they got involved in our program. So just know that you’ve got a way to really make an impact on other people’s lives. And lemme tell you another part of mindset. It ain’t about reaping. It’s not about reaping. It’s all about sowing. It’s all about sowing. I can’t be reaping all that private money and deals until I have sown and given and led with value first. So how you sow is how you’re going to reap.

Speaker 3 (27:08):

Yeah. Oh man, this is so good. I’m glad I asked that question because I hear the passion in your voice and I hear that you really care about the people you work with, the people that have private money lenders out there, you care about that relationship. I love what you said. Get your heart right, get your head right. I also think, like you said too, that if they don’t have that desperation has a smell. So if you’re out there, you’re desperate and you’re just going out there, then you won’t have people like you have that want to keep coming back, that want to continuously invest in you. So that was, I think, the best advice that you could give right there. Get it between your ears and get your heart right. I absolutely love that. And just to recap too, I love your magic question.

(27:55):

Who do you know that can help me with my problem? Then one day you’re going to wake up and you’re going to be like Jay, and you’re going to be helping other people with their problem. I’ve got money. I want to put it somewhere, and you’re the able to get them to where they can be. Desperation has a smell. I love that. And then honestly, I love that pivot. You are like, it’s not about the reaping, it’s not about the interest that I’m making or the profit I’m making for the deal. It’s more about sowing those seeds and ultimately you’re changing lives. That’s why you get private money, and it’s like that interest that you’re paying them is twofold. It’s like you get to sleep at night, you’re not using all your money and you’re getting to help someone else get a return that they wouldn’t be able to get anywhere else or in someone that they trust as well too, and that’s a little bit more tangible than the stock markets or all this other Bitcoin, some of that stuff that’s floating around out there. So this has been awesome. So how do people then, Jay, take that next step with you? Do you have a book? You talked about an event. What can people do?

Speaker 1 (29:01):

Absolutely. Well for your audience, David, I’ve got two gifts. First of all, I finished writing my book Where to Get the Money. Now, this is not a ebook. This is a book book that we actually send in the mail Autographic where to get the money. Now the subtitle is How and Where to Get Money for Your Real Estate Deals Without Relying on Hard Money Lenders or Traditional Lenders. It’ll walk you through step by step how to get all the private money you would want. Very, very easy to read. It’s $20 on Amazon, but you can get it for free. Being David’s audience, just cover shipping. You can go to www dot j Connor, J-A-Y-C-O-N-N-E r.com/book. So I’m an er, not an or. So that’s j Connor, J-A-Y-C-O-N-N-E r.com/book, and we’ll three day priority mail it out to you. Now, in addition to that, I’ve got an upcoming $3,000 per ticket live event right around the corner. But for your audience, Dave, I’m going to let everybody come for free with a measly $97 registration fee. This private money event. You can check it out at www.theprivatemoneyconference.com. The private money conference.com. That’s coming up right around the corner in June. Get on over there. Registrations are open, and I’d love to meet you in person at the private money conference.com.

Speaker 3 (30:31):

Awesome. I’m excited about that too. I love what you’re doing and you’re solving a big need that we hear all the time. Just like all people always needing to sharpen their acts when it comes to private money, you graciously have also invited me there to speak about Profit First. So I’m excited to get to tell people about that so they can get more private money and be more confident and not be desperate when they go and ask for people. So I’m really excited about that as well. So make sure we’re going to put those links there, but make sure either get his book or go to that event. I cannot endorse Jay Moore because I know how many people he helps, but then he also has the heart. You heard it right here. That’s how he wants to help you too. It’s very much a heart and a mission and a passion for him.

(31:13):

So Jay, thank you for coming on, for sharing your wisdom, your knowledge today. If you are listening to this episode and you feel stuck like, what the heck is going on? Where is my money? I don’t know what to do. I’m a little bit nervous to go out there and get private money. I can’t keep my own house in order. That’s where you could go to simple cfo.com where we can help you walk you through that process. We’ll link you up to Jay too. If you need private money or need to learn about private money, this is who we recommend. I recommend Jay to many people, so make sure that if you need that help you go to simple cfo.com. But Jay, again, thank you for being on the show and sharing your wisdom here today.

Speaker 1 (31:51):

David, thank you so much for having me. God bless you.

Speaker 2 (31:54):

This episode of the Profit First for REI podcast is over, but there are plenty more where that came from. Are you ready to learn how David and his team can help implement the Profit First system in your business? Schedule a discovery call@simplecfo.com right now. We’ll see you next time on The Profit First for REI podcast with David Richter.