Turning an Inherited Property into a Profitable Deal Using Private Money with Erica Camardelle

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: