Executive Summary
This is my evolving personal strategy, or business plan, for investing in real estate. I am a buy and hold investor of small multi-family homes in the Milwaukee, WI area.
Organizational Structure
Nantz Industries is a LLC (Limited Liability Company) in the state of WI
Target Market
Small multi family homes including 2 family Duplex or Townhouses up[to 4 plex homes. State law require an on-site paid tenant manager for larger rental buildings (Turner). This gives flexibility to use a management company or allow a tenant to provide lawn care and snow removal.
The houses should be originally designed as multi-family houses including multiple furnaces, a garage spot for each tenant. Separate washers and driers. Ideally separated basement.
The house should be in the following zip codes: 53051, 53022,53046,53007,53097, 53092, 53217, 53211, 53132, 53154, 53005, 53186, 53089, 53037, 53095, 53090, 53007, 53210, 53213, 53222, 53225, 53226, 53263.
| Median List Price | $549,900 |
| Median Days on Market | 68 |
| Median Home Size (sq ft) | 2,491 |
| Median $/sqft | 218 |
| Median Rent | $1000 |
| Median Age | 43.7% |
| Bachelors degree or higher | 44.3% |
| Unemployment | 2.4% |
Finance
Houses will be purchased using a traditional mortgage and at least 20% down to avoid PMI. That would mean a Loan to Value ratio of around 80%.
Owning several of these homes long term will supply cash flow, appreciation on the houses as well as tax benefits.
Cash on Cash Return = Annual Cash Flow / Total Investment = target of 12%
“2 Percent Test” (Turner; Dorkin)
If a property rents for $ 2,000 per month, and the value is $ 200,000, then: $ 2,000 / $ 200,000 = 1%
For example, we know that most properties that fall short of 1 percent will likely never produce positive cash flow. If it’s between 1 and 2 percent, they probably will. And if it is above 2 percent, we’re almost positive they will.
Targeted cash flow to debt ratio = total annual cash flow / total debt around .27.
An emergency fund of 25% of total value of the properties will be maintained. All other net profit will be invested back into the properties until all loans are paid off.
Exit Strategy
Pass to the family legacy
1031 exchange into another property
Cash out and pay capital gains tax and invest in a ROTH IRA
Marketing / Communications
Communication will be via a property management application like buildium. This application will do tenant screening, listings and track expenses for the properties.
Roles
Bibliography
How to Invest in Real Estate: The Ultimate Beginner’s Guide to Getting Started
Turner, Brandon; Dorkin, Joshua
The Book on MANAGING RENTAL PROPERTIES Find, Screen, and Manage Tenants with Fewer Headaches and Maximum Profits
Turner, Brandon
https://www.apartments.com/rental-manager/resources/state-laws/wisconsin