Is my first deal outline for my business plan and checklist suitable?

[Nicholas Brandenburg]

Hello Bigger Pockets!  I am relatively new here and I have been soaking up knowledge since I joined!  This is a great website and has a great community.  I am a 15 year old male from LA, CA who has always loved Real Estate and other investments.  Now, I assure you, I am very intelligent, dedicated on the subjects of investing, and dedicated to learning and spending time.  Many of my peers are simply not interested in these subjects or simply are too lazy to even research it! I assure you, I am not one of those people, seeing as I am here typing this now!   I have decided recently to make a business plan and outline/checklist for my future real estate investments.  Now I know I possibly could invest now with family help but to be honest, I would like to start at 18. Now, I have written up an outline which is almost a checklist for me when I turn 18 and also an outline for my business plan.  I would like some input from the community on if this check list covers all the needed topics and if it is suitable to be turned into a business plan.  I would also posts my goals, but they are private and so I shall just say, yes they are fine and not needing constructive criticism.  I am sorry if this is in the wrong section by the way, I did not know if it should be here or in the business plan forum.  Now with out further ado, here is my Outline/Checklist!! 

This outline below is for my first deal, which the purpose of is to provide housing for me and have rental income from 1-2 other units while I am in college until I graduate in which I will continue renting and move on to other real estate deals.  This is my outline and checklist for the property and its areas.  Although most of the outline can be simply applied to future deals, this outline is for my first property while in college.

Real estate Niche/Strategy

Area Filter Strategy

Find middle class areas with a drive maximum of 1.5 hours driving time from my college. The area must have a median school rating of 5 or above from at least 2 reliable school rating sources. The area must have an average income of at least 45000 and have a low crime rating. Crime rating on a scale from one to 10(1 being Compton(bad) and 10 being Beverly Hills(nice)) must be 5+.  Property Taxes must not exceed 1.5percent.  More than 50% of the area must be renters, and have an approximate appreciation rate of at least 7% in the next year.  The area must have at least 3 companies that are medium sized (employs 250). Find an area in which deals go by very fast to medium fast.  Make sure the occupancy rates are high in the city.  Make sure rents are generally increasing in the area. 

Look where the growth is headed and if it is sustainable.  Also look for areas with population growth 

Where to find your data

In terms of the input data we discussed above, here is where you should be looking for each of these:

• Property Details: This information should be available from the seller, but more comprehensive and detailed information can also be obtained from your local County Records Office
• Purchase Information: Obviously the seller is going to name a purchase price (which will likely be negotiable, of course), but the more important information here will be any upfront maintenance or improvement work that needs to be completed to ensure that the property can (or continue to) meet its income potential. While there may be no extra cost here for properties in good condition, it’s worth having the property inspected by a professional building inspector to ensure that there are no hidden issues or problems
• Financing Details: You’ll want to talk to your lender or mortgage broker to get an idea (or better yet a letter of approval) about the cost of the loan and the necessary downpayment
• Income: Details about income should come directly from the seller, but as mentioned above, don’t rely on pro-forma data for final analysis. You can also talk to the property management company currently running the property (if there is one) to get this information
• Expenses: Similar to income, details about expenses should come directly from the seller (last warning not to trust pro-forma data!) or the property management company currently running the property. This is another place where a building inspector could help warn you about any major repairs that may be coming due in the near future (new roof, new heating/AC, etc)

Property Filter strategy

Property must be in price ranges of 25000 to 675,000 with the maximum including repairs.

Must be maximum 25 years old

Must NOT have nearby UN-clean properties

Ex/ non maintained lawn, crumbling roof/structure, torn gates, abandoned cars and possible current crime related houses

Must not have major issues or structure issues,examples include an unstable foundation, and big holes in the roof or walls.

Seller must be willing to pay 50 percent closing costs

Must not have taxes that go over 8250 annually

Must have at least 25% in equity

Must have the potential rent value of at least 500

Must not have more than 2 mortgages on the property

Documentation to ask the seller for:Leases/rents for the past year, Tenant applications and screening procedures, tax returns for the past 2 years, also income and expenses for the past year, current rent roll (including unoccupied units, unpaid rents, and concession losses), List of improvements on property in the last 10 years.Documentation of all loans against property

Avoid all illegal conversions or constructions.

Avoid houses with no electrical wiring or AC or plumbing or if these criteria are severely damaged.

Property must have cash flow of at least a total of 100 dollars.

Plan for Financing

At 18 years of age I will start investing in Multi homes with a loan called 203b mortgage (an FHA loan).This will allow me to only put up 3.5 % as a down payment and have a very low interest rate of around 3.5-3.9%.This loan requires me to live in the property for 1 year + though and have mortgage insurance, and so I will live in one unit while my other 1 or 2 units are rented out while I attend college.My down payment and closing costs will be from saved money from jobs in fast food and other work areas from beforehand.I will use 30 year fixed rates.

Steps to take in the whole process:

Have my attorney write up my contracts beforehand which include ways to exit before closing, financing terms, closing costs being 50/50 split , make sure the sellers future property info is accurate and reliable or else he is accountable and everything else he/she recommends

Have my loan prequalified beforehand

Make a lowball offer

Negotiate until an offer is accepted or you have hit the buying price limit, or the 70% rule

Once an offer is accepted inspect the house thoroughly by an appraiser and an inspector and take lots of pictures and videos

request these forms:Leases/rents for the past year, Tenant applications and screening procedures, tax returns for the past 2 years, also income and expenses for the past year, current rent roll (including unoccupied units, unpaid rents, and concession losses), List of improvements on property in the last 10 years.Documentation of all loans against property

If the deal is still sweet, go ahead and continue with closing and finalize the deal

• Hire a property manager with at least 3 recommendations and question him about      these areas of work, also ask for a complete list of all past clients contact numbers.
• Are they really experts?
• Do they interact well with everyone?
• Are they a pain to contact?
• Do they return calls/emails quickly?
• Do they hit deadlines?
• Do they produce as promised, when promised?
• Can they communicate clearly and efficiently?

Place rental ads around the neighborhood and online

Find renters while continuing college

Screen renters and have them fill out deposit agreements, and other contracts

Make renters pay the first of every month and make them pay for electricity.

After college rent all units out

Refinance after moving out

Each 5 years try to refinance

Move on to other properties

After 30 years start the selling process

Plans for turning a profit on first deal

Have 10% worth of reserve funds

Buy using an FHA 203b Loan with 3.5 % down

Rent other units not occupied by me

Refinance whenever possible for positive outcomes of loan terms

Refinance for cash out for other deals.

Move out of unit and rent that after 4+ years of college

Move on to other deals while this continues to thrive

Wait 10+ years until home is free and clear and appreciation is high unless the local area turns below my requirements before 10 + years and then sell

Sell

In summary of profit plans, the main way for my gains is through appreciation and cash flow and taking out equity if possible.

Team Components

Your Mentor - Every successful entrepreneur needs a good mentor - a guide. By training under the watchful eye of one smarter then us, we can only get smarter. For more information on mentors, see chapter four.

Mortgage Broker/Loan Officer - A mortgage broker is the person responsible for getting you loans – especially if you are going “conventional” (not hard or private money). You want someone who has the experience of working with other investors and you want that person to be creative and smart. Many loan officers have a pipeline of buyers (or future buyers); real estate investors can use the help of local loan officers to build a list of buyers and lease purchasers for their properties.

Real Estate Attorney - It is important to have someone on the team who can go through contracts, and who knows the legalities of all your moves. Don't try to pinch pennies by ignoring this valuable member of your team. You don't need to meet for hours with your attorney each week, but want someone to be available when you need them. Having an attorney who is skilled with real estate investing is highly important for the success of your career. Keep in mind, attorneys can also be compensated through fees collected at acquisition or disposition of a property.

Escrow Officer or Title Rep - If you live in a state that uses Title & Escrow companies, your escrow officer or title rep is the person responsible for closing the deal - taking you from "the offer" to "the keys." Having a good one on the team helps to close deals that much quicker. You always want people looking out for YOUR interests.

Accountant - As you acquire properties, doing your own taxes and bookkeeping becomes increasingly difficult. As soon as possible, hire an accountant (preferably a Certified Public Accountant). Your numbers guy should also be well aware of the ins and outs of real estate and preferably own rental properties of their own. Come tax time, this is the man to help you through the write-offs. A good tax accountant will save you more than they cost.

Insurance Agent - Insurance is a must, and as in investor you will probably be dealing with a lot of insurance policies. Be sure to shop around for both the best rates and the best service. Do not skimp out on getting insurance, as you never know when you'll need that policy.

Contractor - A good contractor seems like the hardest team member to find, but can often make or break your profit margin. You want someone who gets things done on time and under budget! Be sure that your contractor is licensed/bonded/insured to protect you. Don't simply hire the cheap guy.

Realtor - An exceptional real estate agent is fundamental in your investing career. You or your spouse may even choose to become a real estate agent yourself to gain access to the incredible tools that agents have. Either way- having an agent that is punctual, a go-getter, and eager, is important. Real estate agents are paid from the commission when a property is sold. In other words – for the buyer, an agent is FREE. They can be an excellent resource for contract real estate work which may include the following activities: birddogging, referring buyers, showing properties, open houses, broker price opinions, etc.

Property Manager - If you don't want to actively manage your properties, a good property manager is important to have. A good property manager can be hard to find – but finding one that can efficiently manage your rentals will make your life significantly easier.

Great Handyman - Someone to take care of the little things that come up on a daily basis is imperative to have on board. Ask for referrals from other landlords for the best handymen; they typically don't need to advertise but work almost entirely on referrals from a small group of investors and homeowners.

Building Inspector

Every month check if the team is doing the following

• Are they really experts?
• Do they interact well with everyone?
• Are they a pain to contact?
• Do they return calls/emails quickly.
• Do they hit deadlines?
• Do they produce as promised, when promised?
• Can they communicate clearly and efficiently?

If not, narrow down which team members are defective and needs to be replaced