Real estate investing is an exciting and potentially lucrative venture, but it requires a comprehensive understanding of the market, strategic planning, and access to resources, particularly funding.
In a recent episode of the Raising Private Money podcast, Jay Conner and PMA member Erica Camardelle gave listeners an in-depth breakdown of how to execute a successful real estate deal using private money.
Today we will unpack the key takeaways from Erica’s deal and provide actionable insights that can help you navigate your own real estate investments profitably.
The Importance of Understanding Seller Motivation
One of the pivotal lessons Erica shared was understanding the seller’s motivation. This allows investors to better tailor their offers and negotiations.
Identifying Key Motivations:
- Inheritance:
The seller had inherited the property from her parents. - Out-of-State Ownership:
Living in a different state made managing the property inefficient for her.
These factors compounded to create a seller who was highly motivated to offload the property quickly, providing Erica with a leverage point in negotiations.
Negotiation Tip: Always dig deeper into the seller’s circumstances. Understanding their motivations can provide hidden advantages in structuring your offer.
Leveraging Private Money for Real Estate Deals
Erica and Jay detailed the significance of private lending, which can make or break a deal, particularly in competitive markets.
Utilizing Private Lenders:
- Borrowing Against After Repaired Value (ARV):
Erica borrowed 75% of the ARV ($166,000), amounting to $125,000. This ratio ensures a financial buffer, minimizing the investor’s risks. - Establishing Long-term Lender Relationships:
Erica’s success stemmed from a long-standing relationship with her private lender over several years. This not only facilitated quick access to funds but also built trust over time.
Pro Tip: Building and nurturing relationships with private lenders can lead to more favorable terms and quick approvals, crucial for seizing opportunities swiftly.
Effective Property Valuation and Budgeting
Understanding property valuation and accurately budgeting repairs are cornerstones of successful real estate ventures.
Valuation Approach:
- ARV Calculation:
The after-repaired value was set conservatively at $166,000. Despite this, Erica listed it for $185,000 based on market dynamics, which illustrates a strategic risk-taking approach to maximize profits.
Budgeting Repairs:
- Predictive Budgeting:
Erica initially budgeted $20,000 for repairs but managed to spend only $15,000. This conservative overestimation helps in dealing with unforeseen issues. - Carrying Costs:
Six months of holding costs were budgeted. This includes accounting for taxes, insurance, and private lender interest, ensuring no financial surprises.
Investor Insight: Always budget for higher than anticipated repair costs and consider listing slightly higher than the ARV to attract potential buyers willing to pay more.
Calculating Net Profits and Key Metrics
Jay Conner emphasized the need for accurate calculations to understand the true profit from a real estate deal.
Net Profit Breakdown:
- Sale Price:
Listed at $185,000. - Expenses Subtraction:
- Purchase Price: $96,000
- Repairs: $15,000
- Realtor Fees: 5%, approximately $9,250
- Private Lender Interest: $5,000
- Taxes and Insurance: Estimated at $2,250
Following these deductions, the net profit was calculated to be approximately $57,500.
Understanding MAO (Maximum Allowable Offer):
- MAO Calculation:
ARV($166,000) * 70% – Repairs($20,000) = $96,200 - Erica’s Buying Price:
$96,000, right on the MAO, showing meticulous calculation and discipline in the offering.
Pro Investor Tip: Using the MAO formula helps in setting the highest price you should offer, ensuring financial viability and profit margin protection.
Final Thoughts
Erica’s successful deal is a blueprint for aspiring real estate investors. Investors can maximize their returns by understanding seller motivations, leveraging private money, conservatively estimating budgets, and relying on strategic calculations.
Embrace these insights and transform your real estate endeavors into profitable ventures. Remember, success in real estate is not just about finding deals, but about making the right strategic decisions to bring those deals to fruition.
10 Discussion Questions from this Episode:
Deal Discovery:
How did Erica Camardelle and her team discover the Mississippi property they ended up purchasing? What are some other effective methods for finding real estate deals?
Seller Motivation:
What were the key motivations for the seller in Erica’s deal? How important is it to understand the seller’s motivation during negotiations?
Price Negotiation:
Erica managed to negotiate the purchase price down from $135,000 to $96,000. What strategies did she use to achieve this, and what can we learn from her approach?
Private Money Calculation:
How did Erica determine the amount of private money to borrow? Why is it important to calculate your borrowing needs based on the After Repaired Value (ARV)?
Repair Budgeting:
Erica initially budgeted $20,000 for repairs but ended up spending only $15,000. What are some best practices for budgeting repair costs in real estate investments?
Maximum Allowable Offer (MAO):
What is the Maximum Allowable Offer (MAO) formula used by Erica? Why is it crucial to adhere to this formula when making property offers?
Exit Strategy:
What exit strategy did Erica employ for the Mississippi property? How vital is it to have a clear exit strategy in real estate?
Listing Price Strategy:
Erica decided to list the property for $185,000, despite an ARV of $166,000. What reasons did Jay and Erica provide for listing above the ARV, and what are the potential benefits or risks?
Private Lender Relationship:
Erica and Jay mentioned having a long-term relationship with their private lender. What are the advantages of building strong relationships with private lenders?
Profit Calculation:
After all costs and fees, Erica projected a net profit of $57,500. What key costs were deducted to arrive at this net profit, and why is it important to realistically account for all expenses in profit calculations?
Fun facts that were revealed in the episode:
- Eric and Erica Camardelle’s Team-Up: Erica joined her husband Eric in the real estate business in 2020 after meeting Jay, transitioning their work from a hobby to a profitable venture.
- Negotiation Success: Erica managed to negotiate a property price from $135,000 down to $96,000 using their formula, allowing for significant cost savings.
- Strategic Listing: Although advised by realtors that the property’s after-repair value (ARV) was $166,000, Erica and her team are listing it for $185,000, demonstrating bold confidence in the market.
Timestamps:
00:01 Zoom training on real deal stories and private money.
06:30 Private lender consistently increases funding for projects.
07:27 Listed above appraisal, quickly sold to a cash buyer.
12:30 Erica accurately calculated and followed the maximum offer formula.
13:26 Thanks for sharing such an amazing deal.
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Turning an Inherited Property into a Profitable Deal Using Private Money with Erica Camardelle
Jay Conner [00:00:04]:
Alright. Well, welcome everybody to this special Zoom training this afternoon on private money. I’m so excited about this session because we’re going to be sharing actual deal stories. In other words, actual real deals that, some of our Mastermind members and Crystal Baker herself have done, and we’re going to be breaking these down. We’re going to be talking about where these, deals came from, and how we found these deals, and we’re going to be breaking down the numbers. Alright. Let’s dig into these real deals, real numbers, real private money. And so if you’re not driving, and you’re sitting there at your desk, I want you to start taking notes as to the specifics of these deals, I e, how much it was purchased for each deal, the amount of private money borrowed.
Jay Conner [00:01:04]:
I want you to take note of what percentage of the after repaired value of private money was borrowed on these deals, what’s the exit strategy, and all that kind of good stuff. So I reached my hand into the black magic hat, and whose name did I pull out first? Yes. Erica, you won the draw right there to go first, Erica. So, Erica, if you would introduce yourself, and where you are, just a little thumbnail quick.
Erica Camardelle [00:01:37]:
Yep. So in 2008, Eric started. We got serious. We decided to get married. So Eric decided to take his house and turn it into a rental. We kept that for years. In about 2018, we decided that we’re gonna get into real estate again. Eric was doing it all by himself.
Erica Camardelle [00:01:56]:
And then we met Jay in 2020 and I decided that if we wanna make this more than a hobby, it’s gonna take, take me helping him to get stuff done. So, I joined the team in 2020, and we’ve been here for 4 years with Jay. Started off doing terms deals. And when we met Jay, that missing piece of private lending, got us into the flipping business.
Jay Conner [00:02:20]:
Awesome. So, yeah, we’ve we’ve been in each other worlds now for, 4 years as of, I think, this past October. Alright, Erica. I’ve got my pen ready. Everybody else has got their pen ready. Tell us about your deal.
Erica Camardelle [00:02:34]:
Alright. So we have a deal that we bought, down on the coast of Mississippi. The seller inherited this house from her parents who passed away. She lived out of state. The lady who was selling the house did have rentals, but because she was in a different state, she decided not to keep this house as a rental. She was asking
Jay Conner [00:02:57]:
So the motivation so that’s another everybody, that’s another important piece on learning lessons, and that is what is the motivation of these sellers? Right? Crystal Baker says it all the time, you gotta meet them where they are. So I’m hearing at least 2 motivations here, Erica, help me out. One motivation I’m hearing is inherited. Yeah. So it was an inherited property. Another motivation that I’m hearing is our out-of-state owner. Right? Another motivation. Any other motivations? I mean, was the property in disrepair or not?
Erica Camardelle [00:03:35]:
No. It’s actually in pretty good shape.
Jay Conner [00:03:38]:
Alright. So okay. So not that much repairable here those numbers in a moment. F. J. Is asking, do you have on record how you found the deal?
Erica Camardelle [00:03:47]:
This was a pay-per-lead.
Jay Conner [00:03:49]:
A pay-per-lead. So, like, Google? Mhmm. Okay. I’ll send it.
Erica Camardelle [00:03:53]:
A Google service. Yeah.
Jay Conner [00:03:54]:
Right. So Google pay per lead. Alright. Excellent. Go ahead.
Erica Camardelle [00:03:58]:
Alright. She was asking for 135,000. It had an ARV of 166.
Jay Conner [00:04:08]:
I’m sorry. How much was the ARV?
Erica Camardelle [00:04:10]:
- A 166,000.
Jay Conner [00:04:13]:
Okay.
Erica Camardelle [00:04:16]:
We wound up buying the house for 96,000.
Jay Conner [00:04:19]:
Wait a minute now. How did you get her from 135 to 96?
Erica Camardelle [00:04:23]:
Hey. We used our formula, and she understood. And I guess because the house was free and clear, You know, 96,000 is almost as much as 135. Right?
Jay Conner [00:04:37]:
It is in my book.
Erica Camardelle [00:04:40]:
Yep. So we bought the house for 96. This was just a little bit of, cosmetic. So we were thinking it was gonna take about 10 to 15,000 in repairs, but we decided to budget for 20,000 with Murphy.
Jay Conner [00:04:55]:
Have you rehabbed it yet and do you know the actual, or are you in the midst of it?
Erica Camardelle [00:04:59]:
It is 15, I think. We’re in the middle of finishing up on it, but I’m pretty sure Eric told me it was 15 before he left.
Jay Conner [00:05:07]:
Okay. So you budgeted 20, and that’s important to know, folks because you’re budgeting 20, it’s because of the budget figure that you’re gonna use to calculate your maximum allowable offer when you’re paying all cash. So you have a budget of 20, so you use that to calculate your offer, but your actual repairs are 15k. Alright. Go ahead.
Erica Camardelle [00:05:35]:
We borrowed a 125,000.
Jay Conner [00:05:38]:
Borrowed 125. Okay, folks. So let’s drill down on that. Erica and Banjo borrowed 125,000. So, Erica, share with everybody what would be the maximum that you would borrow, and how would you calculate that?
Erica Camardelle [00:05:58]:
So we do that by taking our arf, our after-repaired value, and then we’re gonna multiply that, in this case, by 75%, which got us the 125 that we borrowed.
Jay Conner [00:06:09]:
Alright. So you borrowed 75%. I hope you all are taking notes. You borrowed 75% of the after-repair value, which is the maximum. So 125,000 is 75% of 166, so you borrowed the max. Okay. Go ahead.
Erica Camardelle [00:06:30]:
Yep. Let’s see What else do we need to know? Oh, so the private lender, we had this one. We’ve been this was our first private lender. As time goes on, he just continues to re-up how much he’s pledged. So this time, we called him up and said, hey. We have another house. Are you interested in funding it? And so we were able to get money through him that way.
Jay Conner [00:06:51]:
Okay. So this is a private lender you’ve been using for, you might as well say, 4 years. Mhmm. Got you. Okay?
Erica Camardelle [00:06:58]:
And then it should be listed next week for 185.
Jay Conner [00:07:02]:
Wait a minute now.
Jay Conner [00:07:04]:
Wait a Minute. The after-repair value is 166, and you’re listing it for 185.
Erica Camardelle [00:07:11]:
Yep.
Jay Conner [00:07:13]:
Why is that?
Erica Camardelle [00:07:15]:
Well, when we ask for a r from our realtors, we ask for a conservative r. We wanna know if we can sell it for 166, but whenever we go to list it, we always list it higher.
Jay Conner [00:07:27]:
So you there’s a rider downer. You always list for more than your realtor is telling you it will appraise for. The rehab house that I’m doing just put it on the market 2 weeks ago. My realtor told me, it would appraise for $250,000 and I should list it for 2.50. I listed it for 295, $45,000 more than what my realtor recommended. And I’m always going for the cash buyer, I don’t care what it will appraise for initially. Went under I had 8 showings within 24 hours of it going, active. Went under contract for 285,000 and they’re putting 50% down.
Jay Conner [00:08:09]:
So there’s your case in point, Erica. Always list for more than, anticipated. So you think you’ll sell it for 185?
Erica Camardelle [00:08:18]:
I do. Yep.
Jay Conner [00:08:20]:
Alright. Well, let’s run those numbers. If you sell it so I want you all to follow this on the net net have you already got the net net profit or projected profit figured out, Erica? No. Okay. Well, let’s run the numbers. So I want you all to write down all these numbers. Okay? To figure your net net net profit, here we go. You’ve got a sale let’s say it sells for 185,000.
Jay Conner [00:08:44]:
So it’s gonna sell for 185, We’re gonna subtract from that. Crystal, do you mind putting in this math so I don’t have to? Sure. So we got a 185,000. We’re gonna subtract from that the purchase price of $96,000 and then we’re gonna subtract from that actual repairs of $15,000. And then let’s see here. You got sell you got your purchase, you got the rehab, and subtract from that. Well, let’s tell me what we got so far. Purchasing 74,000
Crystal Baker [00:09:29]:
once we take away, the purchase price and the rehab.
Jay Conner [00:09:33]:
Alright.
Crystal Baker [00:09:34]:
So, realtor commissions, we would have to figure out.
Jay Conner [00:09:37]:
Yep. So what percentage are you paying your realtor, Erica?
Erica Camardelle [00:09:42]:
5%.
Jay Conner [00:09:43]:
So you’re paying almost $10,000. So you’re paying what is that? 185?
Crystal Baker [00:09:52]:
I’m doing it right now. Sorry. I was already 50. Yep.
Jay Conner [00:09:55]:
Subtract 9250. And how long will you have had this, Erica, from start to finish?
Erica Camardelle [00:10:02]:
Let’s see. We bought this house in October.
Jay Conner [00:10:06]:
And you’re so you should have it going in what? 2 more months?
Erica Camardelle [00:10:10]:
Yep.
Jay Conner [00:10:11]:
So 2 more months, October, November, December, January, and February. Let’s just call it 6 months worth of private money carrying cost. So you borrowed
Erica Camardelle [00:10:23]:
A 125. 125.
Crystal Baker [00:10:27]:
Well, 83333 a month. And I’m 6.
Jay Conner [00:10:31]:
Divided by 12. Yep.
Crystal Baker [00:10:33]:
So right around 5,000 for the yep.
Jay Conner [00:10:36]:
So subtract 5,000 for private lender interest. What would you estimate carrying cost, taxes, insurance? Give or take.
Erica Camardelle [00:10:47]:
I have no idea. Let’s go.
Jay Conner [00:10:49]:
I mean, taxes on that house out there in Mississippi are a1000 a year?
Erica Camardelle [00:10:54]:
Yes. Not much at all. Maybe 1500.
Jay Conner [00:10:58]:
Right. So you’re talking call it $750 for taxes, subtract. Your insurance on that house is what? Maybe 15,021,000 a year?
Erica Camardelle [00:11:13]:
Let’s go with 3,000.
Jay Conner [00:11:14]:
Okay. So subtract 1500, Ash I mean, Crystal. So we should take 74,000 minus 9,250, minus 5,000, minus 7.50, minus 1500, and that gives us a net net of what, Crystal?
Crystal Baker [00:11:30]:
I have 57.5.
Jay Conner [00:11:33]:
I like that. So you see y’all how this is not HGTV? HGTV would tell you they made $74,000 on this house, but you’ve got to subtract realtor fees, carrying costs, private lender interest, taxes, insurance, 57.5. Erica, any takeaway on this before we go to the next one?
Erica Camardelle [00:11:57]:
No. I don’t think so.
Jay Conner [00:11:58]:
Alright. Anybody got a quick question for Erica on this deal? I mean, there are quite a few takeaways here if you’re brand new to private money. Again, the maximum you’re gonna borrow is 75% of the after-repaired value, and the hey. Let’s run what the maximum allowable offer was. Okay? The MAO. So the maximum allowable offer, let’s see how good you did, Erica. Mhmm. You take the arb so here’s the maximum allowable offer formula, folks.
Jay Conner [00:12:30]:
You take the arb of 166,000, the after-repaired value, and you’re gonna multiply that times, 70%, that’s 116200, and you’re going to subtract from that repairs, which you budgeted 20,000, it’s 15. So MAO is 96 1,200 and you bought it for 96. So you bought right on the MAO formula. Excellent. So y’all see how she came up with the maximum purchase price? Right? That was after the repaired value times 70 percent less of budgeted repairs of 20,000 maximum offer 96,200. Alright, Erica. We’re gonna give you the very sophisticated golf club PMA Zoom membership clap right there. Way to go, Erica.
Jay Conner [00:13:26]:
Thank you for sharing. An amazing deal.