All Forum Posts by: Jared Foster

@Steve L. No worries I prefer the blunt facts. All your points are valid and things I have thought about while playing this over in my head. I think the biggest issue you brought up is what I can bring to the table. Its a big question I struggle with. I do plan to bring some capital to the deal, I just can't put up the entire amount. I do appreciate your inputs. Are you suggesting that with my experience (none) I would need to offer a larger return on investment to offset the higher risk? Also I don't have any property rental experience, but I feel I have transferable skills. How much weight do you put on experience related to property rentals?

@Jason P. I have thought about the owner occupy concept, but not sure if that is a good fit with my current phase in life. Sounds like I may need to down scale my initial plans here.

I will keep thinking about this.

Thanks,

Jared

Steve - Thanks. I thought about starting out with a single unit place, but seemed like a multi-family unit would provide lower risk due to vacancy etc....After some thinking I settled on properties with multiple units. Is a property with say 5 + units that much more challenging than a single unit place. I don't intend to manage the property and have included that expense in my proforma.

Thanks,

JAred

@Steve - Thanks. I was thinking I would need to cover costs like setting up an LLC for the business, insurance??, office supplies (small number), legal fees to set-up. Regarding the down payment. I have been assuming 20% down in my proforma and assumed some private money to help cover the downpayment and then assumed they would received some return on their investment. I realize this can get sticky with SEC stuff, so still need to address that. I still need to figure out what a private money lender/investor would be looking for in a return. As you can tell I am new to this and don't have a ton of capital and hoping to attract outside investors to help cover the upfront costs. Do you have any suggestions about the 6 month of OpEx expenses. I assume I would need to include this in my proforma to help understand the rate of return since this cash would be cash that I could invest elsewhere. How critical is the 6 month reserve?

jared

All - I have been working on a business plan for investing in 5-20 unit apartment complex. I am doing this partly for to map out a plan, but mostly as an education process. At some point I would like to have it reviewed. Below is my outline so far.
1. Executive Summary
2. Company Overview
3. Product Services
4. Marketing Plan
-Key Market Indicators
-Market Data Sources
-Competition
-Case Study
5. Operational Plan and Organization
-Roles and Responsibilities
6. Peronal Financial Statement
7. Start-up Expenses and Capitalization
8. Financial Plan

Does anybody have some good go by documents for start-up expenses. I don't know where to begin here.

Thanks,

Jared

My BP matches this pretty well. Question on the Market stuff. I have a "Marketing Plan" but honestly I don't want to presuppose what markets I will be in, so I did a case study as an example of how I would perform market research. Does the group think this is acceptable? Thanks, Jared

Lane - Hopefully you didn't mind my follow-up question, but seemed like you got what you needed. And thanks for your response to my question. I think where I missed that mark was that I was using the below formual
Cash = Cashflow - 8% Preferred Equity - 50% X Cashflow

Your formula
Cash = (Cashflow - 8% Preffered Equity)X50%

I guess I need to read up on this stuff. Can you speak to which cashflow should be used, I assume earnings after D&A but before taxes.

Thanks, again.

Jared

Hopefully the question has been answered to Lane's satisfaction. I would like to ask a follow-up question which is probably a novice question. Assuming the above. 8% return on equity paid quarterly and 50% of cashflow and sale paid to investors. I ran some quick estimates with some rough numbers and would like to see if I am thinking about this correctly.

If we assume a 5 year horizon (sell at year 5) and $6,000/month cash flow before taxes but after depreciation and interest.

Assume a total equity of 60K is required and there are (3) other investors, so each puts in 15K including the business.

If I pay out 8% quarterly to the three investors and pay them 50% of cashflow there isn't anything left over. The business is in the red. The only way I can get something to pencil is by removing the quartly equity return of 8% equity return and only paying the % of cashflow and sales to the investors, say 50-60% on cashflow and sale. Even with that the investors would be making a very healthy return on equity. I think I have missed something big here since it seems common place for the 8% preferred return.

Thanks,

Jared

Lynn - Thanks, I don't mind long posts. Right now I am just trying to build a model based on my criteria your 3rd paragraph above. I feel I need a plan of what I think my business will look like in the next year and after. Then once I get my funding in order will start looking hard at property that hopefully meet my criteria.

Slightly related to this topic. When building my projection based on my investment criteria should I estimate conservative rents based on the market, assume 50% OpEx, use 8% Cap Rate and calcualte a purchase price? Or is there a different way to go about this? All this is a precursor to a specific property model. At least that has been my plan.

Thanks,

Jared

Joel - Honestly I don't have a great solution for this. I am trying to limit my equity to about 20K and would need to find private funding. So I have been thinking about how I would model an investors return etc. Maybe model it as a high interest rate loan with a balloon payment once the property is sold. I am still sorting this out. Open to thoughts an suggestions.

As I have mentioned in other posts I am developing a business plan and have been doing some market research for an area I am interested in. I have looked at HUD market studies for the area, private reports, and census data to make a conclusion about the market rental rates, vacancy, and growth. I have started looking at properties on-line and finding some pretty low cap properties that quote fairly low expenses, which generally look like proforma data. Based on the asking price, NOI, and other data shown in the postings the returns are not looking like something I would like. If they have been playing games with expenses the renturns look even worse. So does this mean the market isn't what I thought it was or are property owners just being too opptimistic? How would people recommend building up the inputs for my proforma? 1. For asking price, should I use a price based on an assumed cap rate. 2. Assume rental rates/vacancy rates that I am seeing in the area. 3. Hold to the 50% operating expenses? I would like to purchase 2 properties a year and wanted to build a proforma to estimate cashflows for 5 years in my business plan and then build a property specific model for properties I want to look at in more detail. While I am building my plan should I contact agents and ask questions about properties? Thanks, JaredF