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Thank you for responding to our ad seeking serious investors.
The Product:
It is our intention to acquire newer bank owned homes on the west coast of Florida. We look for homes that are in substantially completed neighborhoods or subdivisions. The homes that we select are less than seven years old so that we can avoid having to make any major repairs. We do not look to purchase homes that are on spot lots in areas such as Ft. Myers, Lehigh Acres, or Northport Florida, where there has been and an abundance of foreclosures on newer homes. These areas suffered from local builders and developers preying upon uneducated investors, thereby creating a large surplus of newer homes in a market that will not support rental income. Presently, banks are dumping these properties at dramatic reductions from the original price levels. The reason we are not actively pursuing these properties is that there are no qualified tenants available to pay rents that will even cover basic carrying expenses, and because of the excessive surplus we believe it will take too many years for this market to come back.
What we are looking at are homes in newer subdivisions that were predominantly completed and have the potential to reach their original selling price within three to five years. These homes originally sold from the high $200,000 range to the low $400,000 range. We're looking to purchase these types of properties from banks after the foreclosure for about 60% of the original sales price. We believe these types of homes will attract better tenants enabling us to rent them for enough money to cover taxes, insurance, maintenance, management fees, association dues, and still leave a small return for cash on cash to our investors. We believe that by sitting on these properties for three to five years we will be able to sell them at gains of 100% or better, which will ultimately give our investors exceptional returns on their original investment. By doing this we do not have to worry about losing these properties through foreclosure, because we will be purchasing the properties using investor funds for all cash.
One problem that is being faced by speculators in South Florida is that the presence of qualified renters is still lacking. A tenant can find a home that had an original value of $400,000, and rent it for as little as $1000 per month. That is why we are selecting properties in the $125,000-$200,000 range, because we know we will not be able to achieve more than about $1200 in monthly income on any property.
Occasionally, we might consider a smaller property in an older neighborhood that we can acquire for less than $75,000, which can be supported by an $800 monthly income. Although these properties will not return as significant a gain when the market comes back, they are still worth considering as solid rental investment properties for long-term investors if the neighborhoods that they are in are solid. We will offer those properties to our investors on a case-by-case basis.
We also come upon some properties that require serious repairs and upgrades, but they can be purchased for as little as $35,000. Assuming that the repairs can be made for less than $15,000, and rents can be brought in at $9,000 per year, these properties can be owned free and clear in seven years or less. Although these properties are usually in areas that can be major headaches from the perspective of management and maintenance, they do have the potential to become cash cows in a reasonably short period of time. There may be an occasion when we will offer a situation like this to one of our investors, however it will not be the norm.
Each property we acquire will be placed in a newly formed Florida Limited Liability Company. By doing this each investor will be fully protected, and each deal will stand on its own. If a single investor wishes to acquire more than one property, a master limited partnership can be set up and the individual limited liability companies can be placed into a master partnership. However by keeping a separate LLC for each property it will be easier to liquidate the asset at the appropriate time. The other advantage to keeping each property in an individual LLC is the basic concept of asset protection, limiting liability exposure to the investor.
Tax ramifications:
Assuming each property will be held for at least a year and most likely three to five years, the liquidation of the asset will result in a capital gain and therefore be subject to capital gains tax. This tax is currently the lowest tax assessed, and although there is talk of raising this tax, it should almost always be a lower tax than ordinary income.
Additionally, the properties will provide an annual depreciation expense to shelter a portion, if not all, of the annual revenue stream from rental income.
Liquidation of the Asset:
When the market conditions indicate that it is time to sell the property, we will market the property by placing it with a multiple listing service for sale. The net proceeds will be disbursed in accordance with the terms of the operating agreement of the LLC.
The Bottom Line:
We will find properties that have the best possible potential to meet our investment criteria. After presenting you with the terms of the deal, and assuming you move forward, an LLC will be formed to acquire the property. You, the investor will provide the capital required to acquire the property. You will receive a predetermined annual return on your capital investment. We will be responsible for finding a tenant for the property, managing the property, maintaining the property and overseeing any repairs that may be required, as well as keeping the property taxes current and any applicable HOA fees. Although we are buying newer homes there are occasions when a major repair might be required. The cost of such a repair will be addressed on a case-by-case basis, but may cause the investor to put in some additional capitol. We will take a small monthly fee for our services as long as there is a positive monthly cash flow and our fee does not affect the predetermined annual return to the investor.
We all make our money at the time the property is sold.
The purpose of this program is to be able to acquire select properties for future upside gains. We will be your eyes and ears on the ground here in Florida. We will find the deals, set up the entities, and manage the assets until it is time to cash out. Our fees will be minimal as it is our intention to make our money when we cash out by selling the property. It has always been my contention that you make your money when you buy, but you collect your money when you sell. Based on that principal, it is extremely important that we buy right. Putting us in that position is what we bring to the table. Providing the capital to do so is what we look to you to provide.
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