My Business Plan

[Joe Salimao]

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 â€" 20K â€" 2K â€" 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?

[Jon Holdman]

Taxes, insurance, and property management are only three of numerous experiences you will experience. 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. Since you want to become a full time investor and live off the income from your rentals, they must produce real positive cash flow, not the false positive cash flow of your formula.

You don't have to be here very long before you see a post from an investor saying, "help! my tenant moved out suddenly and I need that money to make the payment, what do I do? The tenant is going to cause me to lose the property." No, the investors misunderstanding of true expenses is causing them to lose the property.

Are you planning to do the PM yourself? That's a way to take another slice of the rent for yourself.

Why would you transition to (I assume you mean) fix and flips? Not sure I see why. They're very different investment models. I don't actually consider either wholesaling or fix and fliping to be investing. They're jobs. As long as you do the work, the paychecks come. Rentals produce checks with minimal work. See Mikes old posts where he discusses how much time he spends dealing with his rentals. Certainly not as passive as investing in stocks and bonds, but much less work than wholesaling or fix and flipping.

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