A Ripe Cash Flow Rental Real Estate Investment Plan – Buy Now! Earn Now! Avoid Risk Now!
The real estate implosion that caused the financial crisis has created superb opportunities for investors. This article focuses on the very hard hit condominium and townhome markets. These markets enjoyed extreme appreciation during the boom that have been met with equally extreme devaluations post that period. Coincidentally, these are often the best rental assets. Because of the devaluation and rental quality of these homes, equity investment in these assets offer very good cash flow value. This article describes a plan to accomplish this for very small investors.
Before jumping into the plan, why will condominiums and townhomes be strong properties? There are several demographic factors that support this conclusion:
Baby Boomers are entering their senior years where rentership rates are greater.
Baby Boomers families are leaving home creating demand pressure for smaller home floor plans.
Echo Boomers are entering their prime renting years.
Demographically 72% of new households for the next decade will be minority led creating additional renter demand over past periods.
Increased credit requirements for homebuying will add to future renter demand.
The financial crisis has undermined consumer confidence in homes as a wealth repository further increasing renter demand.
With the demand factors established, what is the plan?
Working with an investment club developing ongoing rental real estate opportunity for participating members can provide a structured investment platform. The operating elements of the plan will be:
Professional management and leasing at approximately 8% of revenues,
A general partner / managing partner equity share,
Low leverage to no leverage initial purchase,
Low leverage through the life of the investment,
Strong operating and capital reserves,
Long term hold,
Immediate cash flow distribution,
Full tax and account reporting to investors quarterly,
A quarterly investors call to review the assets
The investment entities can invest $100,000 to $500,000 per asset based on a 10% expected immediate cash on cash performance (in the form of equity pay down and cash flow). Capital reserves and asset management fee will erode the return about 2% to 4% initially. Through shortsale and owner distressed sales, opportunities of this nature are available on the market now. Additionally, with the federal government incentives to complete and changes to the short sale regulations the number of opportunities is likely to increase.
The process for this investment will be:
Post the detailed business plan.
Post an investor subscription document.
Provide a brief investor qualification document.
Provide a funds release agreement.
Provide the management agreement.
Establish conference call standard agenda.
Hold investor conference calls as opportunities are identified and placed under contract.
Hold pre closing conference calls.
Hold post closing conference calls.
Hold quarterly portfolio investor conference calls.
Distribute quarterly financial reports.
Provide quarterly distributions (unless unforeseen expenses dip into reserve. Reserve maintenance will be the first priority.)
Hold other calls as needed by the investors.
File year end reports and taxes.
Provide year end K1s to all members.
With these items in place, investors can feel secure about the safety of their investment, clear on the operation of their assets, and informed on the financial progress of the assets. Start building your portfolio now by acquiring in partnership with other investors residential real estate.