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.
Private Money Academy Conference:
Free Report:
https://www.jayconner.com/MoneyReport
Join the Private Money Academy:
https://www.JayConner.com/trial/
Have you read Jay’s new book: Where to Get The Money Now?
It is available FREE (all you pay is the shipping and handling) at
https://www.JayConner.com/Book
What is Private Money? Real Estate Investing with Jay Conner
https://www.JayConner.com/MoneyPodcast
Jay Conner is a proven real estate investment leader. He maximizes creative methods to buy and sell properties with profits averaging $67,000 per deal without using his money or credit.
What is Real Estate Investing? Live Private Money Academy Conference
YouTube Channel
https://www.youtube.com/c/RealEstateInvestingWithJayConner
Apple Podcasts:
Facebook:
https://www.facebook.com/jay.conner.marketing
Twitter:
https://twitter.com/JayConner01
Pinterest:
https://www.pinterest.com/JConner_PrivateMoneyAuthority
Listen to our Podcast:
Comments