What's Your Business Model?

Question

We talk a lot in the forums about deals, business plans, and other aspects of real estate investing. However, I don't recall ever having a thread on business models (in other words, what we do). Therefore, I'd like to use this thread to ask specifically about everyone's business model.

Please try to keep your model to a few sentences. This is not your business plan, but rather just a simple statement of how you make money in real estate. Please include pertinent details, like cash flow targets; profit margins; minimum purchase discount, target sales audience, advertising method if appropriate, etc. In other words, how do you make money in real estate.

I'll start:

My business model is to buy rentals at a big discount to market value (30% minimum in normal times, 50% minimum starting in January 2008 due to the economy) AND with a minimum positive cash flow of $100 per unit per month with 100% financing, assuming expenses at 50% of the gross rents (50% Rule). In addition to the $100 per unit per month cash flow, I do all the management and maintenance myself, which generates an additional $100 per unit per month.

Mike

Diane Menke · Answer

Hi Mike,

Thanks for this thread! I agree a clearly articulated biz model is a must.

We used to do fixes and flips for cash - about 4-5 years ago.

After we hit our cash needs with flips, we started buying and holding, renting the props out. We shopped for cash flow and equity growth. We have managed to get all our "in money" out to date with refis, and we still have decent cash flow and equity growth with our rental props.

Currently, we are looking to cash out so as to form an LLC which will buy for short holds (1-5 years) and do flips. I personally want to be invisible to tenants for example. I want to be be able to hire my remodeling company to do all maintenance, repairs and renos. Spec GREEN in fill new construction is a consideration.

Our current planning targets are 20-30% ROI for active partners/members. Returns to passve members still TBD but sounds like 10-12% would attract them.

Our target housing market is artsy yuppy and NY transplants.

Thanks Diane Menke

Douglas Christian · Answer

Steve, thank you and they are houses. Some need 5k in rehab and others need 25k in rehab, but what I do is the one's that need more rehab I will let them sit for a month or two until I wholesale several and then I will go back and get the rehab work done.

I do not invest in trailers. Now I have sold some trailer parks to clients.

Now, the last 4 properties that I did this with need about 5k-15k max rehab work. Light to modest rehabs, nothing heavy. The heavey rehabs are usually put in a package deal or I will have the owner finance the deal for me for a while.

But think about it this way, you buy a house for $5k and you put $25-$30k into it and now you have $35k invested and the renters are people just like us, hard workers that maybe feel and need a helping hand to get back up and that is what I help them to do.

So, I screen them and then once the screening process is over, if they pass they are in and I set the parameters based up on the market, but if that family is in financial hardship, I will work with them.

For example if the market says rent should be $600 and they are trying to get back up on there feet for 3mths I will charge them $400 to allow them that extra to work on getting themselves together.

Hope I was able to help.

SUCCESS BREEDS SUCCESS

Steve Flemming · Answer

Douglas, good concept. I'm only curious as to what you can buy for 5K-20K.Are we talking mobile homes ? Is there a lot of Rehab and what kind of renter are you getting? Always willing to learn!

Douglas Christian · Answer

I'll enter Mike. My business model is to buy and hold properties using the FREE AND CLEAR rule. I pay CASH and then I rent them out.

They are SELF MANAGED because of my leases and how I structure everything. I buy $5k-$20k homes and rent them out getting $250-$350 CASH FLOW.

How I am able to PAY CASH is by wholesaling and using funds from the wholesale deals to pay cash. This gives me a GREAT CASH ON CASH return.

Owning properties free and clear allows for me to make the rules and have fun with the real estate investing.

If you do what everyone else does, you will get what everyone else gets.

NOT ME.

SUCCESS BREEDS SUCCESS

Jonathan Rexford · Answer

Business Model:

Cash to buy 50%: Hold and retail Short Sale Flip: Retail or Wholesale

John Chan · Answer

My business model currently is to buy foreclosure properties, rehab them, rent them out, AND they have to have a ROI of 50% or more from rents. I will try to sell for a decent profit when I can and repeat the process. In November I acquired a 3 unit house for $17,800, put $2,500 in rehab, and now its fully rented out for $1,500 a month. I believe I will have my full investment back in 1.5 years. I had to pay cash for that one.

Steve Flemming · Answer

Great Thread Mike, I 'd like to see more BP members participate in this one and then turn it in to a discussion of what they think is the best model in this economy, of course all things being relative to your goals.

Me personally, I've done OK on the Rehab side, Usually with my focus on % of ROI . Cap gains and other expenses are all relative if the margin is good and you don't tie up your money for more than 6 months. At least when things were constantly going north all the time 06-07. Now I'm looking more at wholesaling. I think the market will be flooded with good deals in 09 if you know what to look for.

Mike C · Answer

Good thread Mike

My business model is pretty much the opposite of MikeOH and many others. I say this only to make the point that there are many ways to succeed in this business. I am a pretty house specialist. I buy single-family homes in subdivisions around the median of the market, usually in the 150-250k range and under 15 years old. I usually buy via a subject to or lease option. I am a terms buyer more than a cash buyer. Good terms are more important than the price in my world (within reason obviously). I generally require a minimum of 200mo in cash flow with an average back end of 20-30k. I then lease option the home to a tenant buyer. I am very good at setting up systems to minimize my involvement in some of the steps in this process.

This type of market is good for my style of investing. It was quite painful to limit my model to one paragraph though. The key to my success has been good systems and just paying attention. You never know where you will pick up some great advice. Remember, you will never know everything you want to know. Get out there and talk to sellers. The rest will come with time.

Good luck

Mike

Heather Pelletier · Answer

My business model is to purchase single or multifamily homes at a discount creating $100 cash flow/unit. I'd like to buy/hold these units and sell a few when the market turns and use profit to invest in a large apt complex.

Franklin Lee · Answer

Great thread!

My business model, as a starter, is to buy townhouses(3br) at 30% equity or more. Total Cash flow must average approximately 100 per door. 100% commercial financing with the bank - a retired bank president is my aunt's father. My aunt's father goes to church with my family weekly.

My primary goal is to reach 75 units before 10 years of my real estate investment career. After that, I'm looking at commercial properties.

Basically, I have the same type of business model that Mike has...lol. Why? Because he has a business I can understand and follow.

I choose townhouses mostly because I believe better tenants would tend to rent townhouses. All that my family owns, in their twenty year of renting, are townhouses and we never had a single eviction or tenant damages. Vacancies were pretty low as well.

What's Your Business Model?

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