We feel Alton is an ideal location in looking at housing trends, demographic statistics, and future potential. Properties can be purchased at unusually low prices while maintaining market values consistent with the area. The unusually low cost to acquire properties, taking into consideration the material cost to rehab them, will allow our company to generate fairly large profit margins. These fairly high profit margins are a result of leasing our properties at slightly below market rental rates; facilitating generous cap rates, to be discussed later.
Our company seeks to acquire at least two properties a year beginning January 2010, for the next ten years. We anticipate average cost of acquisition to range between $10,000 and $25,000 beginning in 2010, with approximately a 4% increase each year following to allow for inflation and appreciation. The current turn-around time to rehab the properties has been approximately 3 months and we expect this to be consistent for each additional property that is acquired. We anticipate a rental turn-around time of two to four weeks from the time the property becomes available on the market.
At present, because our properties have been purchased with cash, we have not been pressured with upcoming mortgage payments. Therefore, time has not been an issue other than the desire to make the properties productive assets. In the event future acquisitions are financed, we will adjust assumptions to account for time that the property may be unproductive. This effort will specifically address any concerns with turn-around time and will vary pending project.
Ferventure Realty has considered offering our services to property owner’s looking for management. However, after further consideration we do not see this as a profitable alternative. Market rate for these services is approximately 10% and the quantity of time and effort required to provide effective services would greatly exceed what we could earn per a property. To put this in context we would generate approximately $50 per a property, per a month, and we would be on-call for that property 24 hours a day, we would be doing accounting for all financial transactions, and we would be responsible for rent collection, evictions, and notices; this would be a significant quantity of work for $50 per a month.
While we don’t anticipate a need for hiring additional labor assistance, there are numerous short-term alternatives. In the event a property needs maintenance attention greater than our current capability we can either; 1) subcontract, 2) hire specific professionals (i.e. Barrett heating and cooling, Roto-Rooter, etc), or 3) hire a maintenance handy-man that will work with our specific needs. The costs for these external service providers will be variable and at this point it is difficult to project anticipated expenses.
At present, our company is a family owned and operated LLC run by Jarrod Snow and Elisha Bierman. We see managing a household as synonymous with managing a business; requiring each of us to share in the responsibilities, effectively complementing one another in our strengths and weaknesses, and evaluating each opportunity by communicating one another’s objective and subjective perspective.
Jarrod is currently in his final semester in pursuit of a Business Administration degree with an emphasis on entrepreneurship and Elisha is currently pursuing a Business Administration degree with and emphasis on computer management information systems. Our education is providing a well-rounded general understanding of all business aspects. While Jarrod’s strengths rest with the managerial and entrepreneurial aspects of the business, Elisha possesses a strong ability to organize the necessary information required to operate the business. Elisha and Jarrod also possess strong interpersonal communication skills as a result of their military experience. This is vital in both screening and assessing prospective tenants, and maintaining a positive communication link with selected tenants.
Please refer to EXHIBIT A for Jarrod’s resume. It should be noted that while his resume doesn’t reflect specific experience within this industry, it does indirectly reflect key characteristic traits necessary to build a business. Elisha’s resume is still a work in progress. However, it should be noted that she has 4 years experience with the Navy in a managerial role coordinating maintenance transactions between several work center’s and numerous personnel.
Initially, this business will be secondary to other occupational pursuits. As a result of earning external salaries and wages, all income generated from this business will be applied to a business account and used to purchase additional properties. It is anticipated that by year 10, Elisha will primarily focus on this business and resign from external occupational pursuits.
Due to the limited functional needs of our company; we do not anticipate a need to seek external professional services. However, we do anticipate keeping a close relationship with our realtor, Don Hellrung, and we foresee the need to build a positive relationship with the bank.
Schedule of Activities
The scope of activities required to operate our business is fairly narrow and simple. At the point we are prepared to make our next property acquisition, the activities occur as follows:
- Research all available resources to find properties of interest
o Communicate with our realtor to see if he knows of any available properties that may interest us
- View the property, assess material requirements, the area, potential market value, and potential rental value
- Make an offer on the property- negotiate
- Once property closes escrow, begin rehab process
o Rehab process will take approximately 3 months
- Place property on the market
o Screen prospective tenants
o Negotiate a lease
- Once rented, collect rent