In the latest episode of the Raising Private Money podcast, Jay Conner interviews real estate veteran Chris Prefontaine. With over 30 years of experience and having raised over $5 million in private money, Chris shares invaluable insights into successfully navigating the challenging landscape of real estate. The conversation revolves around creative financing techniques, the 3 payday system, and the intricacies of structuring and selling properties. This blog post delves deeper into these topics to provide actionable tips for both novice and seasoned investors.
The Birth of Creative Financing After 2008
Chris Prefontaine initially started his career in single-family real estate. However, the 2008 financial crash prompted a shift in his approach. Moving away from traditional financing involving banks and heavy cash investments, Chris adopted a strategy that combined private money with creative financing techniques. These include owner financing, lease purchase, and “subject to” deals. This pivot allowed him to maximize his real estate deals while minimizing personal financial risk.
Attracting Private Money
Chris first tapped into the private money market by approaching professionals he trusted—his attorney and accountant. By demonstrating the advantages of earning a 7 to 8% return on investment through his 3 payday model, he gained their confidence and subsequent referrals. Trust plays a crucial role in this process; as Jay Conner points out, investors are ultimately investing in the individual, not just the opportunity.
Understanding the 3 Payday System
One of Chris’s hallmark strategies is the 3 payday system, designed to create continuous income streams. This method ensures profits at different stages of the deal: principal payments, cash flow, and markup when selling on terms.
Breakdown of the 3 Paydays
- Day 1: Upfront Payment
– Earned at the outset of the deal, often during acquisition. - Continuing Cash Flow
– Monthly income generated from lease payments or seller financing arrangements. - Final Lump Sum
– Realized at the end of the term, either through selling the property or final payment from the buyer.
This approach contrasts sharply with traditional real estate models such as wholesaling and flipping, which are mostly transactional and offer income only upon the sale of each property.
Buying Real Estate on Terms
Chris emphasizes three primary rules when buying and selling real estate on terms: avoiding banks, requiring little to no money down, and creating 3 paydays.
Types of Creative Financing
- Owner Financing
– The seller acts as the bank, accepting monthly payments directly toward the principal. - Subject To Existing Loan
– Acquiring a property subject to its existing mortgage while maintaining the original loan terms. - Lease Purchase
– Lease agreements that provide the option to purchase at a future date, are often facilitated with little initial investment.
Benefits for Sellers
Sellers may agree to these creative terms for various reasons. Some are looking to solve financial problems or achieve goals that the conventional market cannot fulfill. For example, sellers with free and clear properties may be willing to accept monthly payments in return for a higher total payout over time.
Marketing and Selling Properties
Rather than relying on traditional multiple listing services (MLS), Chris uses a specialized company called Prosperity for marketing real estate deals. By focusing on direct referrals and automated processes, he can negotiate favorable terms with sellers and ensure a higher rate of return.
Identifying Ideal Prospects
One effective strategy for finding properties ideal for terms is targeting expired MLS listings. Approximately one-third of these listings are open to the concept of selling on terms, with about 10-15% willing to engage in serious negotiations.
Continuous Education and Support
Chris emphasizes the importance of continuous education and support through his community called Wicked Smart. This network provides interactive help and resources, particularly valuable for part-time investors or those with other lucrative careers.
Conclusion
The conversation between Jay Conner and Chris Prefontaine offers a masterclass in navigating the complex world of real estate. By embracing creative financing, establishing trust in private money relationships, and utilizing the 3 payday system, investors can create robust and continuous income streams. Chris also provides further learning opportunities such as his free book, “Real Estate On Your Terms,” available at https://www.wickedsmartbooks.com/jay1 and through the Wicked Smart community.
10 Lessons Discussed from this Episode:
- Chris Prefontaine’s Real Estate Origins
- Chris started his journey in single-family homes, initially building on vacant lots within established neighborhoods. This foundational period set the stage for his evolving strategies.
- Adaptation After the Financial Crash
- Post-2008, Chris shifted from conventional financing to creative strategies. This transition allowed him to avoid the pitfalls of relying on institutional lenders, focusing instead on safer, bank-independent methods.
- Integrating Funding Methods
- Chris began combining private money with creative real estate techniques. This dual approach facilitated down payments and covered sellers’ arrears, optimizing his deal-making capabilities.
- Effective Private Money Raising
- By initially approaching trusted professionals such as his attorney and accountant, Chris was able to attract private money. He demonstrated how unused 401(k) funds could generate higher returns, leading to further referrals.
- Foundational Role of Trust
- Jay Conner emphasizes that the key to successfully raising private money lies in building trust with investors. This relationship-focused approach ensures long-term collaboration and success.
- Innovative Property Acquisition
- Chris details three main buying techniques: owner financing, subject-to-existing loans, and lease purchases. These methods often require minimal or no cash upfront, making them accessible and efficient.
- Understanding the 3 Payday System
- This lucrative model involves earning from principal payments, enjoying consistent monthly cash flow, and profiting from the eventual markup upon selling properties on terms, creating multiple income streams.
- Advanced Marketing and Sales Techniques
- To streamline sales without relying on the MLS, Chris uses Prosperity for marketing. This approach automates the process, from promoting properties to managing sales, ensuring efficiency and reach.
- Benefits of Selling on Terms
- Selling on terms is particularly suitable for properties that failed to sell via traditional listings. This strategy not only provides sellers with more cash over time but also aligns with their financial goals without requiring immediate liquidity.
- Wicked Smart Community Support
- Chris highlights the value of the Wicked Smart Community, which offers extensive interactive support through platforms like Slack. This resource-rich environment is crucial for both novice and experienced investors navigating real estate challenges.
Fun facts that were revealed in the episode:
- Unique Seller Motivation: Chris Prefontaine shared that some sellers prefer owner financing for estate planning or tax reasons. For instance, a mixed-use building owner turned down cash offers because he wanted to avoid immediate taxation and preferred to receive monthly payments.
- Creative Start in Real Estate: Chris began his real estate journey by finding vacant lots in established neighborhoods, building single-family homes on them, and selling those homes—all while the landowners and subcontractors waited for the sale before getting paid.
- 3-Payday System: Chris trademarked the “3-payday system,” which creates three streams of income per deal: upfront money from the down payment, monthly cash flow, and a lump sum at the end, providing continuous income compared to traditional wholesaling and flipping.
Timestamps:
00:00 Real estate expert raises $5M in private money.
04:57 Buying deals without cash, creating 3 payday deals.
08:10 Utilize money to work for your advantage.
12:17 Monthly payments to sellers who become a bank.
15:16 Calculating seller’s benefit from selling through MLS.
16:09 Real estate investors seek big cash margins.
20:08 Analyze the market and costs for selling houses.
25:49 Real estate success without full-time commitment.
28:30 Repeating ideas, expanding options, promoting Wicked Smart.
29:12 Free Book: Free Book: https://www.WickedSmartBooks.com/Jay1
30:10 Connect with Chris: https://www.SmartRealEstateCoach.com/MastersClass
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