okay biz plan

General Real Estate Investing
1

i want to put together a biz plan. something relatively “simple” to accompany a financial package that i can present to senior loan consultant, banker, lender, investor.

i’m having trouble with the expense projections etc. how do i make projections on expenses when i do not have any property-specific info?

i can do percentages like “expenses will not exceed X% of gross income”

i’m using Inc’s business plan pro - it’s a demo CD that someone sent me that i can use to do an entire biz plan.

reason i’m tackling this is because of the lack of financial-backing. certain properties, whether they’re a REO or a prop on ebay - sellers want proof of financing. i talked with a biz loan specialist at WaMu and they told me the usual “u have to have 2 years of financials blah blah blah to get a loan.”
i explained to her that i wanted to hold title to any property with the LLC, but that i would personally guarantee mortgages, as long as title and amortization credit would go to LLC. she said she’d get back to me - still waiting for her call back.

so - i want to do what the books say. put together a financial package that i can show a bank, lender. this financial package is not property-specific - meaning it is not meant to get me financing for a specific property, but rather a “pre-approval” if you will, for financing.

does this make sense? help.

2

lender doesn’t want a plan; they want to know how your’re going to repay them. that’s rental income vs expenses and debt service. that requires property-specific info.

If you can personally support the mortgage, then what you need is a personal financial statement.

3

Since I have an MBA when I got started I did a business plan. It details the strategy I use for real estate investing. In order to be successful you have to have goals and write them down. That is all a business plan is…your goals written down. The amount of detail is up to your comfort level and ability. The only people interested in my business plan are my wife and me. Any partners are interested in the finances. But the strategy dictates the finances. For example I buy single family houses. They are 3 to 4 bedroom, 2 bath with 2 car garage. These houses were built between 1975 and 1990 and are from 1100 to 1500 square feet in working class neighborhoods. The purchase prices are between $75,000 and $110,000 and rent between $850/month to $1200/month. The acquisition must deliver $200/month positive cash flow with a 10% or less vacancy. I take that strategy and multiply it by as many houses as I think I can acquire in the 2 years that the plan covers. At the end of that 2 year period I amend my plan and go on from there.

From that strategy I can tell that if I buy 20 houses, my total dollar value of houses will be between $1.5 million and $2.2 million. My annual cash flow will be about $43k on income of about $250k.

That is the plan. What investors and banks want to see are projects delivered and financing achieved. Remember nobody saves up a billion dollars and buys the Mandalay Bay, they finance it. If you can finance a deal, you can do that deal. You can buy the Luxor in Las Vegas or even General Motors, if you can get the financing. You can’t buy a donut without the funds to buy it. The key is financing. Get the mortgage for your target deal locked down and then you can start. Remember you are not a real estate investor until you have bought some real estate.

4

"Get the mortgage for your target deal locked down and then you can start. "

okay, so i have to shop for lenders. WaMu, at my first try, told me that my business, which is brand new, would not be able to secure a loan due to not having any financials. i have another call into them, to see if the banker (who told the loan consultant that i couldn’t obtain financing) will consider a finance package - deal-specific, or at least “review it” for pointers, as I am a customer at WaMu.

So, i know this question has been asked A MILLION TIMES, but what banks will lend to a LLC -

I’m in the process of obtaining a Biz CC from Wells Fargo.

I now need the banks to loan me money.

Also - i asked about using my personal credit as a means for LLC to gain mortgage financing, but WaMu said no…so far.

i know they’re the HML’s out there, but i just think that’s too obscure for me right now, as a beginner.

5

What is your business model? Are you buying single family houses, fixing them up and renting them out? Are you buying single family houses fixing them up and selling them? Are you buying multi-family and renting them out?

6

blue,

my “plan” keeps changing as i keep “analyzing” every little detail about REI, every damn day.

But the absolute Short Range Objective for purchasing is to:

Purchase and Rent the following targets:

  1. Invest in a 3 br, 1 - 2 bath home where the purchase price is no more than 50,000.

or

  1. Invest in a multi-unit complex/home where the purchase price is no more than 65,000.

The above targets must not have more than cosmetic needs for rehabbing, which can include a roof and siding - but NO gutting insides or structural issues.

If the property is located in another state - as long as it has property management in place and after thorough analysis - has cash flow of over 250 (single-family) a month or 350 (multi-unit) a month - this is acceptable risk to me.

Lastly, (3)

Rehabs and Sell:
A rehab in my market (long island) that offers over AT LEAST a 70% ROI, is acceptable. A rehab in another state must be REO and not exceed a purchase price of 45,000 - and must have at least a 80% ROI.

Tear it up! :slight_smile:

7

That is a good plan. I would then look at the available inventory in my market. What is there the most of. That should be the easiest to get into. I would then go to may local real estate investors club. Attend a meeting. Find out which mortgage brokers advertise with them. Those guys know what you are trying to do. The guy at WaMu is trying to loan money to everybody from laundromats to manufacturing plants. You need someone that understands want you are trying to do. You don’t want the mortgage broker from the yellow pages, because he only understands personal home purchases and refinances. The guys you meet at the local real estate investors club will be able to tell you what they will need to get you in your first deal. All else is noise.

8

I agree with blue. banks are only good for “fill in the blank” loans. They absolutely cannot think out of the box and certainly cannot loan outside of whatever rule book they have on their desk. knowledgable lenders will loan to an LLC (usually with a personal guarantee). email me offline if you can’t find one at the local meet & greet.

9

appreciate it, much.

funny, i am in contact with an investor who is a member of the local REI club here on LI. he keeps telling me to join. i will probably next week.

thanks for the assistance - truly.

10

TMCG,
I use to be in the lending business and I can tell you first hand, the only thing the banks are conerned with is RISK. if you can show them that you have minimized the risk and have a well thought out plan. they will lend to you.

My suggestion is to use a Savings and Loan because they typically are not in the conforming mortgage business. they are usually “portfolio” lenders and they don’t have to follow the same guidelines that Freddiemac or Fanniemae stipulate to the conforming industry banks like wamu or bank of america.

treat every transaction like a commercial transaction. present it to them that way with your business plan and specific financials for the project. they will respect you and understand lending in that way. They are mostly concerned with debt-coverage ratio. if it is greater than1.0 that is typically a good sign that you have done the math on the purchase correctly and you have minimized their RISK!

lenders would feel more secure and more at ease to lend you money if you show them your plan. But remember it should be realistic. don’t tell them your plan is to buy 12 houses this year and you haven’t purchased your first one yet with six months to go. they will see right through that.

Stick to your plan. you can do it. and they will loan you the money!

11

thanks for the encouragement. well, it seems that my thinking has changed somewhat…AGAIN!

well here is an email i sent a SCORE counselor who asked me about by business model:

Bill,

start up capital:
Member Equity - $500.00 (two members - $250.00 each contribution)

Borrowed funds as of this date: $3500 - Loan from myself to business - promissary note - payable in 5 years at 5% interest.

Future Borrowed funds as of July 15, 2006 - $30,000 (Each Member (2) will initiate promissary note with LLC for $15,000 each).

LLC is still not yet published (NYS requirement), so we have not yet fully funded company.

Reason for loans was recommended by a CPA for protection against law suits. If the funds are Liabilities, it is tied up and therefore not accessable by law suits (rubbernecks).

Question: In this scenario, balance sheet financials would look like:
Equity - $500.00 Asset - $34,000 Liability - $33,500

Is this right? Thoughts?

Also, $950 of this will be given back to me, as I have incurred all of the start up costs: LLC filing 500, Quick Books 250, stationary 100, marketing (business cards) 100.

For specifics on business model:
Members (the two of us) will manage the company. I am the contract/negotiation/financials/marketing manager. Other member (my brother) is the handyman/project manager. We both will analyze properties. I am running much of the overall operation, especially now.

I will learn quick books to manage our financials.

My brother knows many people in the field of construction which we will use as contractors for things like electric, siding, and roofing (if needed).

We have a CPA.

We have two Lawyers for closings.

We are in the process of forming a relationship with a mortgage broker/real estate investor.

We are in the process of forming a relationship with Creditors.

We plan to hold title to any property with LLC.

Investment strategy includes:
Single Family Homes to be purchased below market value with enough After Repair Value to sell for a minimum Return On Investment of 70%, locally. For properties out of our area, which we will have to fly/travel to for a few weeks, must offer no less than a 100% ROI AND should be bank-owned properties or distressed properties in suitable areas.

This will be focus for 18 months in order to put together a cash reserve of over $70,000 in the business.

Total Projected Gross Income for 18 months - $130,000

70,000 business cash reserves
60,000 Expenses for travel, rehab costs, real estate fees/costs, member expenses

With the use of creditors for materials, travel and other costs - these will be paid back per sale closing.

After 18 months, Projected Financials:

Equity $500.00 Assets $103,500 Liabilities $103,000

(members will split net income and again, loan business $35,000 each, thus keeping equities LOW and CASH RESERVE high).

Cash Reserve will be used to take business to the next level…yet to be determined, but most likely - we would move into the holding phase, focusing primarily on single unit and multi unit rentals - residential mostly. As well as land purchases for inventory items to be used as needed.)

These numbers are based on following projections:
18 months - every 3 month period, we will purchase, rehab and sell a property. That’s 6 projects - each costing around $10,000 in expenses total and yielding on an average slightly higher than 100% ROI.

Basic equation for determing profit:
After Repair Value X .70 - Projected Total Expenses = Price we pay to get the projected profits wanted

If we can’t buy it for that price, we do not buy it, period, unless the seller offers creative terms that are beneficial to us.

Bill, clearly there are many holes with this plan. Also I didn’t mention the use of a 1031 exchange to defer taxes which I’m not sure if we will utilize. Also, this does not factor any other investor funds that we may obtain along the way. My Expenses seem low, even to me. But I guess this gives you an idea of where I’m at at least, in my head.

Oh, and this could all change tomorrow…

Sorry for the length of this email, but it actually helped me visualize numbers a little more - these are my first projections - it probably shows.

Thank you very much for your help. I will call to speak to you as well.

-------that was the email…thoughts?

12

Gee Zoowie…all this time I’ve been buying properties without a Business Plan…where did my mother go wrong?? More over my lenders must be screwed up, too…all they want is my credit report, the contract, and a copy or the rental agreement showing income aginst the property…

I’ve got hudreds of thousands of dollars in total properties…this is either:

(1) Overkill

(2) A paper drill

(3) Analysis paralysis in it’s purest form…

Just do it!

I used to work for a really old carpenter…he used to say…“Stop f-ing with it, Sonny and just nail it up there…you’re framing, not building a piano case…”

I gotta stop reading this stuff, it’s giving me an “ice cream headache”!

Keith

13

Keith,

My vote is for #3 – analysis paralysis. Overkill is quite polite.

Da Wiz

14

There is also another…

(4) A lender that likes to see his clients do “stupid animal tricks” for small orts…

Keith

15

Primary business plan:

  1. Buy House

  2. Fix House

  3. Sell House

Hopefully, I can do #1 and #2 cheaper than I can do #3, and thus will make a profit. The bigger #3, the better!

Secondary business plan:

a) Buy House

b) Fix House

c) Rent House

Hopfully, I can make enough off of “C” that it will be the same, or better, more than the monthly loan commitment caused by “A” and “B” After enough time, I can then do #3 above and collect BIG BUCKS!!!

Raj

16

Steve Cook sells a business plan for $40. Get it and modify it to fit your needs.

17

thanks fadiz.

I think this site is actually hurting me more than helping me. I think it’s lending to my “stupid animal tricks”.

Since I’ve started reading this stuff, I’ve learned alot, but overall, it has just laid before me, more opinions about sh*t and ways to do this or that and it basically has SLOWED ME DOWN.

For example, I was so enthused by Land Trusts and its “asset protection”, but that stuff is so absolutely over the top, in terms of COMPLEXITY, it’s mind boggling. There are so many numerous legal issues involved that it just seems quite frankly…ridiculous…and quite possibly, not all that “bullet proof” afterall.

Sorry Mtn, no pun intended whatsoever - I respect your success and help.

My business plan that many have taken the liberty of making fun of, is a symptom of analysising real estate investing TO DEATH.

I just want to run a successful business in real estate. but I’m a guy who two months ago, didn’t even know what a fu**kin Balance Sheet was or P & L sheet was. So I want to learn about business as well as real estate.

I do not care if you own hundred’s of thousands of properties -

just give your opinion and be helpful.

I need a break from this forum, this useless talk is just that - useless.

I’ll post when I’ve closed a deal MY WAY.

18

I use the KISS principle and keep it simple! I buy, rehab, put in a renter, and then do a cash-out refi…

I get:

(1) The property

(2) All (or most) of my money back (the most cash I actually have in a property is about $2600 or $2700)

(3) A rental stream of positive cashflow (average PCF = $293 a month)

(4) At least 20% equity position in each property.

(5) Annual cash-on-cash return of over 80%…

No land trusts, no non-sense, no "stupid animal tricks with my lender…keep it simple!

Keith