BiggerPockets

Hi guys,
I have recently developed my company's business plan and goals. I wanted to give an overview of what they are and see what you experienced investors think of it. Here it is.

Target Market:
I want to target blue collar neighborhoods where ARV's are between 75K-150K. These areas will be good rental communities and will have the potential for $250/month cash flow. They may be lower income but will not be a war-zone and will have stable home values. Still have to pinpoint these areas.

Marketing Strategy:
I will market to pre-foreclosure, absentee owners and probate. I will use direct mail, bandit signs, flyers and printed/web classifieds to obtain my leads. Still need to work on my budget…haven't done that yet.

Acquisition Strategy:
I will obtain properties for <70% of current market ARV minus repairs, closing costs and transaction costs. Should I include marketing and holding costs also? For example,

ARV = 100k
Repairs = 20K
Closing Costs = 2K
Transaction Costs (cost of money) = 5K
MAO = 70K - 20K - 2K - 5K = 43K

I will encourage owner financing and subject-to by giving three offers, one being I finance, one being they finance and the other being subject-to. Obviously, the owner financing and subject-to offers will be higher than if I have to finance.

Exit Strategy:
My main exit strategy will be rehabbing and renting the properties. I will like to rent all of the properties obtained within the first 3-5 years, although if I obtain a deal through my marketing that doesn't work as a rental I will assign it to another investor. I will not do any flips in the immediate future.

Short-Term Goals (3-5 years)
Don't know if this is really short-term but I consider it this because this is kind of my first step in my overall plan, which is to acquire 25-30 rentals over the next 5 years max as a part-time investor. These rentals will cash flow anywhere from $200-$300/month. I will have 30% equity in all of my properties due to my acquisition strategy. Obtaining these properties will give me the experience needed to become a full-time investor and more importantly will give me the income that will allow me to go full-time. These properties will act as a safety net for me and my family.

Long-Term Goals (Past 5 years)
Transition from a part-time investor to a full-time investor. I will also transition my exit strategy from renting to wholesaling and flipping.

What do you guys think?

Mike,
When you say $100 cash flow what do you consider cash flow? When I say cash flow I am referring to money leftover after PITI and property management. Are you including more in this? From what I have seen $200-$250 is very doable in my area.
Thanks for your responce.

Jon,
As always your posts are very much appreciated.

Use the 50% rule, which is a more realistic estimate of expenses, and try for positive cash flow after allocating 50% of rent for expenses.

I will look over the 50% rule and apply it into my business plan.

Are you planning to do the PM yourself?

I am not sure if I want to do the PM myself. I am a little nervous to do that to be honest. I think I will start off with a PM.

If you want to do fix and flips, why not do that now?

While fix and flips are a very good way to make a living they do not produce long-term wealth. They can produce immediate wealth but when you go to retire then what? My rentals are my retirement plan and the flips will serve as my job which produces some immediate wealth for me. Could I live off of cash flow from 25-30 properties? Probably, but how well? Now when these homes are paid off I am golden but while they are just cash flowing it won't put where I want to be and it won't provide the lifestyle I would like to provide for my family. I could just keep obtaining more and more properties but I am not sure how many I actually want and also not sure how I would get around the 10 properties/person rule.

Joe-
Your business plan looks good; it gives a clear, concise overview of your company's realistic capabilities from start-up.
Jon-
I may be stating the obvious here, but I think the reasoning behind Joe doing the investing now and the fix and flip later down the road in life is because of time. Collecting supplemental passive income from rentals now is part-time while he is working;
Wholesaling and fix-and-flipping is very time consuming, so I can see why it would make sense to want to start renting out properties before being able to devote the time it takes to be a full-time investor.
Where it seems slightly "backwards" is that the money to buy the rentals can usually come from assigning contracts and the profits from flips... -Brandon

Speaking of flipping. How is the wholesaling market there in Denver?

I think I may be making a trip out there this Summer. Well actually I am going to be in Loveland. I was thinking of spending a few weeks or maybe longer out there. Are there enough houses moving in the Denver area to make an average income wholesaling?

Michael, I'd rather not hijack Joe's thread. Join the Denver Group and post your question there.

Hey John I'm assuming that the general 50% rule is excluding loans, Correct? I know stupid question but just checking to make sure, I've learned through experience that one musn't assume all the time.

Joe,

I would strongly suggest that you do the management yourself. It is the most overpaid job in the world. Don't forget that management is one job and maintenance is another. When Jon says that typical managers charge 10% of the gross rents plus a half month's rent to fill the unit, just think about what they're really doing for that money.

For example, if the rent is $1,000 per month, the manager is receiving $100 per month plus another $500 for placing the tenant. Assuming the tenant stays one year, the manager has made $1,700 during the year for placing the tenant; collecting the rent; sending you a monthly report of income and expenses; and answering phone calls from the tenant. For an average tenant, the manager may receive 2 or 3 calls from that tenant during the entire year.

Hey John I'm assuming that the general 50% rule is excluding loans, Correct?

That's correct. The operating expenses include everything but the mortgage payment (P & I only).

Mike

On the other hand, if the manager puts a scumbag in your rental and the tenant destroys your rental, the manager doesn't care. YOU are paying the repair bill. YOU are still paying the management fee. YOU might even be paying the manager a kickback fee when the manager uses uncle Jimmy to do the maintenance to fix the damage the tenant has caused.

I actually have revised my plan a little. I have come 180 degrees back to starting out flipping and cherry picking the deals to keep in my portfolio. I recently hired a coach who has given me really good advice, which is to do some flips and lease-options to get some capital to work with and slowly build your rental portfolio.
I was originally looking at building the rental portfolio first so I would have consistent income before I went full-time. This would give me more confidence to leave my job. But I think that it is more practical to do things this way. After I get my new business plan together I will post it.
Thanks for all the input.

I agree with everyone else that you should try to do the PM. I was nervous at first, but now I realize all I do is check the mail and cash the check.

Good luck man.