Plans and exit strategies
Hi --
I wanted to share my basic outline of my business plan here, and get some critique, if possible. I'm a little stuck on an "exit" strategy in that, in the interest of lowering taxes, I may NEVER exit, and instead simply "refi" on a regular basis OR simply live off the excess income once mortgages are amortized.
One thing my plan doesn't quite spell out, is to define the "quality" of the rentals I'm buying -- I want to mostly stay away from low income rentals.
An example is a 2 unit I have under contract now -- 106,500, each unit renting for $600, tenants pay own utilities (almost unheard of in this part of maine -- maybe 1 out of 20 2 units pay own heat, 1 out of 50 3 units and ZERO 4 units and above) -- it only cash flows slightly but it's in a very desirable neighborhood, dead end street, only sfs and duplexes -- tenants are a state representative who just graduated from Colby College and a high school soccer coach - longer term, very neat, professional. THIS is what I want for tenants! Just not sure how to define that in my plan, though the vague way it is now might just work: Okay, here it is!
Basic plan: Purchase single family homes in the Waterville – Winslow area, at a minimum 15% discount to market value with a price ceiling of approx. 70K, in well-kept, desirable neighborhoods, in-town, that need little or no work to bring to “move in†condition, and that will generate an average of $600 per year minimum net cash flow per year over five years, not including cash flow from self-managing / maintaining. Favor will be on single story, or at least those with a first floor master bedroom, to appeal to older tenants. The major portion of the income will come later from appreciation and equity--either in the form of cash-out refinancing, selling and holding first mortgage, or selling outright, or simply from the increased rental cash flow once mortgages are amortized. If owning appeals to me after second home is purchased and rented, I will move forward with owning ten units at the rate of no more than one per month. Alternately, I will have the option of branching into Multi-family properties as outlined below.
Multi Family: Purchase multi family (2-4 unit) buildings in the Waterville-Winslow area, in decent neighborhoods, in move-in or near move-in condition that generate(s) an average of at least $50 per unit per month cash flow on average over five years. Cash flow does not include an 8% factor for self-managing. Favor will be given to those with tenants who pay own heat, or at least have separate heating systems or the POTENTIAL for these conditions. Areas would include: Burleigh St / Mayflower area, Pleasantdale, nicer streets off Upper Main in Waterville, nicer areas off Clinton Ave. in Winslow. If the nature of ownership appeals to me after one year, I will move toward owning 40 units within 5 years, with the intention of generating $4,000 per month ($48,000 per year) average cash flow. The intention will be to replace my involvement with LaVoie’s Landscape with this activity. I can increase or decrease the amount of money we keep based on the amount of maintenance / mgmt. I have the time and willingness to do myself vs. hiring out. Additionally, we may buy commercial apartment buildings, 5 units and above that are also in decent neighborhoods and that cash flow an average of $75 per unit per month.
This plan does not rule out the possibility of picking up a small number of single family homes in lower income areas for cash flow purposes and “instant equity.†I believe that these situations will generate fewer calls than an apt. building or multi unit in same areas due to the higher level of tenant a single family home will attract. These homes will NOT comprise a major portion of our property portfolio, however.