Recently I was contracted to create a business outline for an REO Default Management Company. I am please to say that after two months of research and writing I have successfully completed the vast majority of this assignment!
Now I find myself in a difficult position. I have these clients who say they are interested in moving forward with the creation of a DMC, but they have no sense of urgency. I believe they simply have too much on their plate right now and that they would not be able to provide the attention needed to make this project successful.
What’s more, they have hinted in our last couple of meetings that they would like to start the company with only ONE ASSET MANAGER! The plan I created calls for 5 in the beginning, which I believe to be the bare minimum number to start with. I’ve tried explaining this to them, but I just don’t think they get it. I think those other distractions are clouding their vision here, OR they don’t have the capital available for start up. I’m starting to lean toward the later.
So here is my question. Where would I look to find others who have the interest and financial capability to start a DMC? I am completely stumped one how to go about this. I think I’m just not asking myself the right questions. But I do know that I am not looking for ‘Angel Investors’ or Hard Money. I’m looking for private people/company who want to start their own DMC.
After spending two months working on this I see how profitable one can be. Not to mention I don’t want to see all my hard work go to waist. This is the perfect time to start a DMC and the longer it takes to get going, the more of this great REO Boom we will miss out on.
Thanks for any suggestions!
I am not sure what a DMC is or does, but I do understand business plan writing. I have a couple of questions. Why do you need to start with five? Is that the only way to be profitable from the start? Is there no way to set-up the plan in phases? Perhaps you could start with one and then quickly add people as business takes off. A business plan starts off as a blueprint for the company but they can quickly change as the market calls for it. Would it not be best to at least give your investors input some thought and try to make it work? As it is right now you sound like the kid who threatens to take his ball and go home if other kids dont want to play his game. Not too mention the fact that if you were compensated for your contract work technically you may not own it or have the right to implement it.
When I took on the project I made sure that I would not be limited in ownership. I have full legal rights to all aspects of the business plan so I am free to work with whomever I wish. Part of the reason I’m looking is because one of the stipulations was, upon my completion of the plan we were to move forward within a specified time frame if my information was acceptable. It was agreed that it was acceptable and we moved into the time frame for which they had to decide. :deal
That time frame has passed, but they continue to express interest. I can only guess that they are trying to get their financials in order so they can do the project. They have rescheduled twice with me now, so I’m looking for other interested parties. They received the information they paid for, now they have to decide if they are to do something with it or not. :bobble
My plan is designed to start with the lowest overhead possible and to still be affective in the service we provide. When we obtain a new client they will have hundreds of properties for us to manage at one time, it’s called a ‘dump’ when they give them to a DMC. The reason the plan calls for 5 AM’s is because the average AM will manage no more than 200 properties each. 5 x 200 = 1,000. Being able to take 1,000 properties right from the start is enticing to the lenders much more than only being able to take 200. With the influx of supply these lenders won’t be interested in a DMC who can only handle 200 properties. :evil
The primary reason for a DMC to fail is because they overload their AM’s with too many properties, thus they are not able to provide an appropriate service that produces top dollar for each of their clients REO’s. The clients then look for other DMC’s to manage their portfolios. Ameri…something…had over 400 properties per AM. :banghead
On average each AM will make for the DMC a minimum average of $20k to $30k each. 5 AM’s is $100k gross per month for the company. One of the DMC’s I researched started 7 months ago with 11 AM’s and are scheduled to have over 100 by the end of this year. That pencils out to be a minimum average of $2 million per month. :smile
I have conveyed all of this to my clients. They know the situation, including that I am looking for someone else to make this happen…I told them I was. They are trying to convince me that they are really wanting to do this…but they sound like tenants trying to convince me to give them another week… I don’t doubt that these people want to do it, or even that they have money, I just doubt they have it readily available. I understand your point of view about this sounding like ‘the kid who threatens to take his ball home’, but this kid did what he was supposed to do and is ready to move on…if not with this team, with another. It’s just business, that’s all. :cool
Thanks for the response! I’m glad you helped me be a little more specific. :banana
Smiley Faces are fun! ;D
Matt,
It sure sounds like you have your ducks in a row. What is the capital investment per AM? If you are not actually taking the properties into your name their cannot be much overhead. Why are they stalling?
I like keeping my ducks in a row, it makes it easier to shoot them. :biggrin
That’s the thing, I think they are stalling because they are trying to get the funds together for the project. I really don’t doubt that they want to do it, I want to do it too. But, if it’s going to take the next six months for them to pull their funds together we will be way behind the curve. Plus there are some key points to this plan that are on a strict time line. If I am able to find another party to do the project then why wait? I want to start making money now.
When I wrote the plan it called for enough funding to cover the first year with no profits made, even though profits will start coming in during month 4. This number can be broke down to a monthly expense of around $200k. There are lots of variables that will make this number fluctuate, primarily depending on the conditions of the properties assigned. There are other factors that will offset this expense as well, so the entire $200k is rarely used. This number consists of 100% operational expenses including payroll.
Each AM is an IC paid $25k per year base salary with a smoking bonus structure that will put them at a minimum of $60k per year. Because of this structure, the AM’s I have already presented this to with other DMC’s are ready to come work for me as soon as possible. They calculated what my bonus structure would pay them using the number of properties they are currently managing and each of them were easily over $95k per year. Plus, the bonus structure doesn’t affect the DMC’s expenses…which obviously means increased profits.
:bobble
But it all comes down to the same thing. I have to find the people/company interested and capable of funding. I am still completely stumped on where to look. Everything that I have found so far is some sort of lending institution and/or various brokers/middlemen. I’m having a painful brain fart, so I was helping someone could pull my finger. :rolleyes