"Financial Plan
The company's goal is to increase its net worth through real estate investing by following a carefully planned set of guidelines. Real estate investing is a volatile, risky business. We lower our risk by analyzing data on properties, allowing us to make informed business decisions.
We've set a goal of acquiring four properties in the first year; eight in the second year;
and twelve in the third year. We expect to loan the company a total of $43,000 in seed money to use as working capital to purchase the first properties.
To generate working capital, we intend to resell most of the properties we acquire in the first few years and use the net profits to purchase an increasing number of long-term rentals. We believe that to create long-term growth and stability, we need to buy and hold a portion of the properties as rentals.
The financial goal of the company is to leverage this seed money into a substantial company with a Balance Sheet in excess of $1 million in assets after the first three years of operations. To achieve this goal, we intend to buy twenty-four properties by the end of our third year, generating net profits of $532,000 from the sale of nineteen properties and equity of
$150,000 from holding five rental properties. After the third year, we plan to continue increasing our acquisition and sales volume each year, using the working capital to buy long- term rental properties in addition to buying and selling properties.
Primarily, revenue is forecast from two streams of income:
•  Net Profits from Buying and Selling Property
•  Rent from Long-Term Rental Property
At the end of the first year of operations, after having purchased and resold four properties with $43,000 in seed money from the owners, the company's Cash Balance is $186,018. In the second year, our Cash Balance falls to $117,529 due to repayment of the owners seed money loan, and decreases to $35,600 in the third year. This decrease is due primarily to an increase in the number of properties acquired for holding as long-term rentals. Without payback of our investments through the sale of these properties, we do not realize the same rate of cash infusion as in our first two years of operations.
The company's revenue for the first twelve months is $112,000, consisting of net sales from the sale of four of four properties acquired in that year. Revenue increases to $242,292 in the second year based on acquiring an additional eight properties, selling six of the properties and retaining two as long-term rental properties. Revenue rises only moderately in the third year to $296,822 based on acquiring an additional twelve properties, selling nine of the properties and retaining three as long-term rental properties.
The company's net profit in the first year is $94,680 in the first year, decreasing to $44,792 in the second year due to payroll and benefit costs and decreasing slightly again in the third year to $11,692.
The company's Total Liabilities and Cap                 perations are $138,018,
$517,529, and $1,107,697 respectively."

"Important Assumptions
We expect to loan the company a total of $43,000 in seed money to purchase the first properties. These loans can be repaid when the company no longer needs that amount for working capital.
Although it's difficult to predict the exact number of properties the company will buy and sell, for the purpose of business planning we've set a goal of acquiring twenty-four properties in the next three years: four in the first year; eight in the second year; and twelve in the third year.
We recognize the volatility inherent in the real estate market. Current market indicators show a falling market with prices decreasing, inventories increasing, and interest rates rising. As the market falls, properties owned by the company may not continue to have strong equity positions that might have been tapped for down payments on future acquisitions. We also recognize that real estate is an illiquid market and selling our inventory of properties may be difficult in a buyer's market.
The company may purchase more or less than this number of properties depending on market conditions, the availability of profitable properties, and the availability of working capital required to purchase each property. We always seek guidance from a qualified CPA to review each property's profit potential based on future market conditions and the company's profit, risk, and tax situation.
Tax Issues"
"As an LLC, we're subject to ""pass-through"" taxation, meaning that the income of the LLC is passed through to the owners and taxed at our personal income tax rates. As the owner’s individual tax situations are different, we defer to our accountants for taxation guidance on all properties we buy and sell.
Short-Term Capital Gains: Property held for one year or less is considered to be held on a short-term basis. If we sell a short-term capital asset, any related gains will 'flow through' to the individual owners, which are taxed at our individual tax rate.
Self-Employment Tax: All business income generated by the LLC is subject to self- employment tax for the owners.
We use a Cash Basis accounting method with a fiscal year of January through December.
Exit Strategy
Exit Strategies for Properties"
"The owners have designed this business plan to allow for specific exit strategies for all properties acquired. We may sell each property as market conditions allow and will seek guidance from our accountants to review each property's profit based on future market conditions and our personal tax situations. If market conditions continue downward, we may not be able to sell a property for our required net profits. In this case, we'll attempt to hold the property as a long-term rental, assuming our cash flow situation allows. As a last resort, we'll sell the property as a net loss and attempt to manage the loss through
tax benefits for capital gains and losses."

"Exit Strategies for the Company"
"We're aware that many small business fail. Although we hope for the best, we've planned for the worst in creating an Operating Agreement that dictates how the
company's assets will be divided, in addition to planning for how debts are to be paid, should the company be dissolved. The Operating Agreement is a legally binding contract between the owners, written by a real estate attorney well versed in what can happen should the company need to close.
Sales Forecast
Revenue is forecast from two primary streams of income:
•  Net Profits from Buying and Selling Property
•  Rent from Long-Term Rental Property
Net profits from the acquisition and sale of property allows us to create working capital.
However, only buying and selling property limits our long-term growth as that activity only provides for a one-time cash infusion. To create long-term growth and
stability, we plan to use the working capital generated from buying and selling properties to buy and hold a portion of the properties as long-term rentals. Holding long-term rentals provides the company with a means of building equity and cash flow for the future.
Net Profits from Buying and Selling Properties
Net Profits from Buying and Selling Property"
"For forecasting purposes, we're assuming that we'll buy each property for a wholesale price of $240,000, spend $32,000 on escrow fees and rehab costs, and sell each property for a retail price of $300,000 for an average net profit goal of $28,000 per property. The net profit from the sale of each property is used as working capital to acquire the next sequential properties.
To generate working capital, we intend to resell all properties acquired in the first two years. In the first year, our goal is to create $112,000 in working capital from buying and reselling four properties at a net profit of $28,000 each (4 x $28,000 =
$112,000). In the second year, our goal is to buy and sell eight more properties and sell six, generating $168,000 in working capital from net profits for that year (6 x $28,000 = $168,000). In the third year, our goal is to buy twelve properties and sell nine of these properties while holding the remaining three properties as long-term rentals. Selling nine properties in our third year will generate $252,000 in net profit from sales for that year (9 x $28,000 = $252,000).
In this manner, our goal is to buy twenty-four properties by the end of our third year, generating net profits of $532,000 from the sale of nineteen properties and equity of $150,000 from holding five rental properties. After the third year, we plan to continue increasing our acquisition and sales volume each year, using the working capital to buy long-term rental properties in addition to buying and selling properties."
"Net Profits from Rental Income
Beginning in our second year, we'll have generated sufficient working capital to begin funneling cash toward buying and holding long-term rental properties. In the second year, our goal is to acquire eight properties, keeping two as long-term rentals. In the third year, our goal is to acquire twelve properties, keeping three as long-term rentals. As we anticipate providing 10%-20% down payments for each of the properties, we expect to have $150,000 in equity for properties held as rentals. We plan to increase the percentage of properties we acquire each
year, as cash flow and available working capital allow.
Average rent in our region for a three-bedroom house is $1,076, which results in total rental income of $18,292 in the second year four our two rental properties and $44,822 for the third year for five rental properties. We expect to increase rents annually for all rental properties by 5% and allow for a one-month per year vacancy of each unit. We assume that each property is rented within sixty days of acquiring the property.
The following table represents our Sales goals for the first three years including revenue from buying and selling properties and rental income. A 12-month detail is provided in the Appendix."
"Sales Forecast"    
"Sales"    "Year 1"    "Year 2"    "Year 3"    
"Sale of Property #1"    28000    0    0    
"Sale of Property #2"    28000    0    0    
"Sale of Property #3"    28000    0    0    
"Sale of Property #4"    28000    0    0    
"Property Sales Year Two"    0    224000    0    
"Property Sales Year Three"    0    0    252000    
"Rental Income"    0    18292    44822    
"Other"    0    0    0    
"Total Sales"    112000    242292    296822    
       
"Rental Property Income
The following tables represent how rental revenue is received in the second and third years."
"Rental"    "Mo.
13"    "Mo.
14"    "Mo.
15"    "Mo.
16"    "Mo.
17"    "Mo.
18"    "Mo.
19"    "Mo.
20"    "Mo.
21"    "Mo.
22"    "Mo.
23"    "Mo.
24"    "Subtotal"    
1    1076    1076    1076    1076    1076    1076    1076    1076    1076    1076    1076    1076    11836    
2                            1076    1076    1076    1076    1076    1076    6456    
   18292    
                                                       
"Rental"    "Mo. 25"    "Mo. 26"    "Mo. 27"    "Mo. 28"    "Mo. 29"    "Mo. 30"    "Mo. 31"    "Mo. 32"    "Mo. 33"    "Mo. 34"    "Mo. 35"    "Mo. 36"    
1    "x"    1130    1130    1130    1130    1130    1130    1130    1130    1130    1130    1130    12430    
2    1076    1076    1076    1076    1076    1076    1076    "x"    1130    1130    1130    1130    12052    
                                                   24482    
3            1130    1130    1130    1130    1130    1130    1130    1130    1130    1130    11300    
4                            1130    1130    1130    1130    1130    1130    6780    
5                                            1130    1130    2260    
"Subtotal"    20340    
"Personnel Plan
For the first year, the owners plan to manage the day-to-day operations of the company. Administrative functions, such as accounting, are outsourced and listed as line items in the Profit and Loss forecast. The owners waive their salaries in the first year in order to funnel all available cash into property acquisitions. They begin taking a salary with benefits in the second year, along with an annual dividend distribution of the net profits.
We anticipate sufficient sales activity and positive cash flow to hire an Office Manager and an Acquisition Manager in the second year. Each position is noted in the following Personnel table as starting at $35,000 per year, with 5% annual increases. Payroll Burden (payroll taxes, and employee benefits) are accounted for in the Profit and Loss table under General and Administrative Expenses at 15% of the total Payroll Expense. Additionally, we plan to create a Defined Benefits retirement plan for the primary employees in the second year of operations, or as the company's cash flow allows.
Total Payroll in the second year is $140,000, increasing to $147,000 in the third year.
The following table represents our Payroll forecast for the first three years. A 12-month detail is provided in the Appendix."
   "Personnel Plan"    
       "Year 1"    "Year 2"    "Year 3"    
   "Office Manager"    0    35000    36750    
   "Acquisition Manager"    0    35000    36750    
   "Owner #1"    0    35000    36750    
   "Owner #2"    0    35000    36750    
   "Total Payroll"    0    140000    147000    
"Projected Profit and Loss
The company's Profit & Loss forecast provides a detail of expenses for the company.
The following is a discussion of each line item listed in the Profit & Loss table. The table immediately follows this section.
Sales: The company's sales revenue for the first twelve months is $112,000, consisting of net sales from the sale of four properties acquired in that year. Revenue increases to
$242,292 in the second year based on acquiring an additional eight properties, selling six of the properties and retaining two as long-term rental properties. Revenue rises only moderately in the third year to $296,822 based on acquiring an additional twelve properties, selling nine of the properties and retaining three as long-term rental properties.
Direct Cost of Sales: All expenses associated with sales are accounted for as line items in the Profit and Loss forecast as operating expenses and in the Cash Flow table as capital expenditures, resulting in no direct costs of sales.
Advertising and Promotion: In the first two months of operations, we allocate $700 toward initial marketing for items detailed in the marketing plan. These items include website development; business cards; signs; joining a regional foreclosure finder service; creating a property database; and postage for direct mailings. After this initial funding, we allocate $200 per month for marketing, increasing to $10,000 per year for each subsequent year.
General and Administrative Payroll: Payroll is based on salaried positions listed in the Personnel table. In the first year, we maintain no employees. We bring on employees in the second year, including an Office Manager and Acquisitions Manager, along with providing payroll for the owners. In the second year, payroll totals
$140,000, increasing to $147,000 in the third year. The company's Payroll Burden (payroll taxes and employee benefits) begin in the second year at 15% of payroll. We additionally plan to fund a Defined Benefit Retirement plan beginning in the second year.
Depreciation: As the company intends to hold properties only for a short duration in the first few years, we do not include depreciation for any of the properties. After the second year we'll begin to depreciate our long-term assets. The company does not own any other depreciable assets other than its rentals during the first three years.
Corporate Office Rent and Utilities: The company does not anticipate requiring corporate office space until its second year of operations. Rent is allocated at $400 per month, totaling $4,800 per year. Utilities are estimated at $100 per month, totaling
$1,200.
Corporate Liability Insurance: Costs for an umbrella liability insurance policy are allocated at $50 per month. We plan to increase our insurance coverage as we increase our revenue.
Auto Expense: A portion of the owner's auto expenses are paid by the company as reimbursement for mileage accumulated during the course of company business.
Total Operating Expenses: For the first year, the company's Total Operating Expenses are $5,800, increasing to $178,000 in the second year primarily due to employee payroll costs and benefits. In the third year, the company's Total Operating Expenses increase to $224,650."

"Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA): In the first year, the company's EBITDA is forecast at $106,200, decreasing to $63,692 in the second year primarily due to payroll costs. EBITDA rises again in the third year
to $72,172 because of the large increase in sold properties in that year.
Interest Expense: Consisting entirely of interest payments for mortgages held on all properties, the company's interest expense is $11,520 for the first year, $18,720 in the second year and $60,480 in the third year.
Taxes Incurred: As an LLC, the company's profits and losses pass directly to the owners. The LLC does not pay taxes directly; therefore the tax rate is set at 0%.
Net Profit and Net Profit/Sales: The company's net profit in the first year is $94,680 in the first year, decreasing to $44,792 in the second year due to payroll and benefit
costs and decreasing again in the third year to $11,692.
The following table represents our Profit and Loss forecast for the first three years. A 12- month detail is provided in the Appendix."
"Pro Forma Profit and Loss"    
   "Year 1"    "Year 2"    "Year 3"    
"Sales"    112000    242292    296822    
"Direct Cost of Sales"    0    0    0    
"Other Sales"    0    0    0    
"Total Cost of Sales"    0    0    0    
"Gross Margin"    112000    242292    296822    
"Gross Margin %"    1.000000    1.000000    1.000000    
"Expenses"                
"Payroll"    0    140000    147000    
"Marketing/Promotion"    3400    10000    10000    
"Depreciation"    0    0    0    
"Corporation Office Rent"    0    0    4800    
"Corporation Office Utilities"    0    0    1200    
"Liability Insurance"    600    1200    1200    
"Payroll Taxes and Benefits"    0    15000    22050    
"Retirement Benefit"    0    0    25000    
"Key Emp. Life Insurance"    0    1200    2400    
"Legal and Accounting"    1000    5000    5000    
"Incorporation Fees"    100    100    0    
"Bank Opening Balance"    100    100    0    
"Auto Expense"    600    3600    3600    
"Telephones"    0    1200    1200    
"Other Gen. and Admin. Expenses"    0    1200    1200    
"Total Operating Expenses"    5800    178600    224650    
"Profit Before Interest and Taxes"    106200    63692    72172    
"EBITDA"    106200    63692    72172    
"Interest Expense"    11520    18720    60480    
"Taxes Incurred"    0    0    0    
"Net Profit"    94680    44972    11692    
"Net Profit/Sales"    0.845400    0.185600    0.039400    
"Projected Cash Flow
The company's Cash Flow forecast shows how cash flows in and out of the
company. This cash flow includes down payments for properties purchased; acquiring and paying off loans for all properties as they're purchased and resold; escrow fees for properties purchased and resold; rehab costs for each property; and net profits for properties sold. All costs associated with acquiring properties are shown here in the Cash Flow (specifically under Purchase Other Current Assets) because these costs are treated as capital expenditures and not considered a general company expense in the Profit and Loss table.
At the end of the first year of operations, after having purchased and resold four properties with $43,000 in seed money from the owners, the company's Cash Balance is
$186,018. In the second year, our Cash Balance falls to $117,529 due to repayment of the owners seed money loan, and decreases again to $35,600 in the third year. This decrease is due primarily to an increase in the number of properties acquired for holding as long-term rentals. Without payback of our out-of-pocket expenses through the sale of these properties, we do not realize the same rate of cash infusion as in our first two years of operations.
The following sections provide a detailed discussion of each line item in the Cash Flow table:
Cash from Operations: These figures are taken directly from the Sales Forecast, representing net revenue from the sale of nineteen properties and rental income from five properties at the end of three years.
New Current Borrowing: Represents new property loans for each property purchased. Assumes a $300,000 property purchased at 20% off (for a total purchase price of $240,000) with 10% down payment of $24,000. After subtracting the down payment, each loan is $216,000 ($240,000-$24,000=$216,000). New Current Borrowing is forecast at $864,000 for the first year, based on purchasing four properties ($216,000x4=$864,000). New Current Borrowing increases in the second year to
$1,728,000 for the purchase of eight properties ($216,000x8=$1,728,000) and increases again in the third year to $2,592,000 for the purchase of twelve properties ($216,000x12=$2,592,000).
Sale of Other Current Assets: Represents the sale of each property that we've acquired. We are basing our projections on an average property retail price of
$300,000, less broker fees and closing costs, for an average sale price of $272,000. In the first year, Sales of Other Current Assets are $1,088,000 based on sales of four properties (4x$272,000=$1,088,000). In the second year, Sales of Other Current Assets are $1,632,000 based on sales of six properties (6x$272,000=$1,632,000). In the third year, Sales of Other Assets are $2,448,000 based on sales of nine properties (9x$272,000=$2,448,000).
New Investment Received: The owners are funding the company with a seed loan of
$43,000. The loan is scheduled to be repaid during the second year.
Total Cash Received: Reflects the combined cash from Cash Sales; New Current Borrowing; Sales of Other Current Assets; and New Investment Received. In the first year, Cash Received totals $2,107,000, increasing to $3,602,292 in the second year and
$5,336,822 in the third year."

"Expenditures from Operations: This amount is taken directly from the Profit & Loss table and represents the company's total operating expenses. In the first year, Expenditures from Operations totals $16,982, increasing to $191,781 in the second year and $279,751 in the third year.
Principal Repayment of Current Borrowing: Represents the cumulative principal payments for all outstanding mortgages. The interest portion of all cumulative mortgages is noted in the Profit and Loss as an Interest Expense, as this is a tax expense. As each property is sold, the accompanying mortgage is paid off. In the first year, Principal Repayment of Current Borrowing totals $864,000, which is equal to the same amount we borrowed in New Current Borrowing.
In the second year, Principal Repayment of Current Borrowing increases to $1,296,000 to reflect pay off of mortgages on the six properties we acquired and sold in that year. We plan to keep two properties as long-term rentals, resulting in a difference of
$432,000 between the total amount we pay off in Principal Repayment of Current Borrowing and the amount we still owe in New Current Borrowing during the year (we keep two properties with mortgages of $216,000, totaling $432,000).
In the third year, Principal Repayment of Current Borrowing increases to $1,944,000 to reflect pay off of mortgages on the nine properties we acquired and sold in that year. We plan to keep three properties as long-term rentals, resulting in a difference of $648,000 between the total amount we pay off in Principal Repayment of Current Borrowing and the amount we still owe in New Current Borrowing during the year (we keep three properties with mortgages of $216,000 = $648,000).
Other Liabilities Principal Repayment: Reflects repayment of the owner's $43,000 in seed money in the second year and principal payments on the properties we hold as rentals. In the second year, we hold two properties for an estimated annual principal payment of $12,000. In the third year, we hold five rental properties for an estimated annual principal payment of $25,000.
Purchase Other Current Assets: Represents the company's cash outlay for the purchase of each property. The premise of the forecasts is to locate properties that retail in the $300,000 range and pay 20% less than that price, resulting in a purchase price of about $240,000. We pay 10% down ($24,000), which requires financing of $216,000 for each property with interest rates of 8%. We also assume $10,000 in rehab costs. This requires a cash outlay of $34,000 to acquire each property. The amounts noted in Purchase Other Current Assets for each property are $250,000 for the initial purchase ($240,000 purchase price + $10,000 in escrow and closing costs = $250,000) plus an additional $10,000 for rehab costs. Rehab costs are distributed over a two-month period in the first two years, resulting in two entries of $5,000 each.
Net Cash Flow: Represents the actual amount of net cash flowing in and out of the company. A negative cash flow at any given time is acceptable as long as the Cash Balance, which is the amount of money left in the bank, does not become negative.
The following table represents our Cash Flow forecast for the first three years. A 12- month detail is provided in the Appendix."

"Pro Forma Cash Flow"
"Cash Received"    "Year 1"    "Year 2"    "Year 3"
"Cash from Operations"            
"Cash Sales"    112000    242292    296822
"Subtotal Cash from Operations"    112000    242292    296822
"Additional Cash Received"            
"Sales Tax, VAT, HST/GST Received"    0    0    0
"New Current Borrowing"    864000    1728000    2592000
"New Other Liabilities (interest-free)"    0    0    0
"New Long-term Liabilities"    0    0    0
"Sales of Other Current Assets"    1088000    1632000    2448000
"Sales of Long-term Assets"    0    0    0
"New Investment Received"    43000    0    0
"Subtotal Cash Received"    2107000    3602292    5336822
"Expenditures"    "Year 1"    "Year 2"    "Year 3"
"Expenditures from Operations"            
"Cash Spending"    0    140000    147000
"Bill Payments"    16982    51781    132654
"Subtotal Spent on Operations"    16982    191781    279654
"Additional Cash Spent"            
"Sales Tax, VAT, HST/GST Paid Out"    0    0    0
"Principal Repayment of Current Borrowing"    864000    1296000    1944000
"Other Liabilities Principal Repayment"    0    53000    25000
"Long-term Liabilities Principal Repayment"    0    0    0
"Purchase Other Current Assets"    1040000    2080000    3120000
"Purchase Long-term Assets"    0    0    0
"Dividends"    0    50000    50000
"Subtotal Cash Spent"    1920982    3670781    5418654
"Net Cash Flow"    186018    -68489    -81832
"Cash Balance"    186018    117529    35697
"Projected Balance Sheet
The company's projected Balance Sheet reflects assets of $138,018 after the first twelve months of operations, derived primarily from buying and selling four properties. Total assets increase to $517,529 in the second year from acquiring eight more properties, two of which are held as long-term rentals. Total assets increase in the third year to
$1,107,697 from acquiring twelve additional properties, three of which are held as long- term rentals for a total of five rental units.
Total Liabilities is forecast at $338 for the first year, as we assume to have paid all of our obligations for properties purchased by reselling the properties. Total Liabilities increases in the second year to $384,877, based primarily on loan obligations for six properties. In the third year, the company's Total Liabilities increase to $1,013,353 with the addition of five long-term properties.
The company's Total Liabilities and Capital for its first three years of operations are
$138,018, $517,529, and $1,107,697 respectively.
The following table represents our Balance Sheet forecast for the first three years. A 12- month detail is provided in the Appendix."
   "Pro Forma Balance Sheet"    
   "Assets"    "Year 1"    "Year 2"    "Year 3"    
   "Current Assets"                
   "Cash"    186018    117529    35697    
   "Other Current Assets"    -48000    400000    1072000    
   "Total Current Assets"    138018    517529    1107697    
   "Long-term Assets"                
   "Long-term Assets"    0    0    0    
   "Accumulated Depreciation"    0    0    0    
   "Total Long-term Assets"    0    0    0    
   "Total Assets"    138018    517529    1107697    
   "Liabilities and Capital"    "Year 1"    "Year 2"    "Year 3"    
   "Current Liabilities"                
   "Accounts Payable"    338    5877    11353    
   "Current Borrowing"    0    432000    1080000    
   "Other Current Liabilities"    0    -53000    -78000    
   "Subtotal Current Liabilities"    338    384877    1013353    
   "Long-term Liabilities"    0    0    0    
   "Total Liabilities"    338    384877    1013353    
   "Paid-in Capital"    43000    43000    43000    
   "Retained Earnings"    0    44680    39652    
   "Earnings"    94680    44972    11692    
   "Total Capital"    137680    132652    94344    
   "Total Liabilities and Capital"    138018    517529    1107697    
   "Net Worth"    137680    132652    94344    
"Real Estate Investor Sample
Business Plan"

"Table of Contents"
"Table of Contents
1.  Executive Summary                                        1
1.1.   Corporate Status and Ownership                              2
2.  Business Model and Value Proposition                             3
2.1.   Parameters and Guidelines                                 3
3.  Buying, Holding and Selling Properties                             5
3.1.   Lead Generation                                        5
3.2.   Researching Properties                                    5
3.3.   The Maximum Purchase Price Worksheet                         5
3.4.   Making Offers                                         11
3.5.   Financing                                            12
3.5.1.   Managing Cash Flow                                 13
3.5.2.   Turnaround Time                                    14
3.6.   Rehabbing Properties                                    14
3.7.   Selling Properties                                       15
4.  Marketing Plan                                           16
4.1.   Competition                                          17
5.  Industry Review                                          17
5.1.   Key Industry Benefits                                    18
6.  Implementation                                          20
6.1.   Future Services                                        20
7.  Financial Plan                                           22
7.1.   Important Assumptions                                   23
7.2.   Exit Strategy                                          23
7.3.   Sales Forecast                                        24
7.3.1.   Net Profits from Buying and Selling Properties                  24
7.3.2.   Net Profits from Rental Property                           25
7.3.3.   Rental Property Income                                26
7.4.   Personnel Plan                                        27
7.5.   Projected Profit and Loss                                  28
7.6.   Projected Cash Flow                                     31
7.7.   Projected Balance Sheet                                  34
Appendix:
Projected Personnel Forecast: 12-Month Detail Projected Sales Forecast: 12-Month Detail Projected Profit and Loss Forecast: 12-Month Detail Projected Cash Flow Forecast: 12-Month Detail
Projected Balance Sheet Forecast: 12-Month Detail"

"1. Executive Summary
The company is a start-up business venture developed by two individuals for the sole
purpose of investing in residential real estate. This business plan lays out a simple strategy for developing a long-term real estate investment company by leveraging an initial investment
of $43,000.
Our business model is to market the company to a consistent stream of motivated sellers that are willing to accept discounted wholesale prices for their property. The properties are
primarily resold at retail prices to generate working capital for the company. We pay all closing costs and do not use real estate agents to execute the transaction, thus eliminating agent's fees.
Often, there is not a substantial difference between our offer and the net cash an owner would receive by listing their property with an agent. When listing with an agent, the owner will pay 6% of the sales price in agent’s fees and 4% in closing costs. We can close on a property in as little as seven days, while the average days on the market for a house listed with an agent is fifty to sixty in our region, in addition to a thirty-day escrow. Our value proposition of an all-cash offer with a fast escrow close is often a good option for the owner/seller who recognizes the benefit of speed to cure their financial situation.
As home prices rose dramatically in the past several years, individuals who were only marginally qualified to purchase increasingly expensive homes resorted to zero-down and low-down mortgages, along with adjustable rate mortgages made available by the mortgage industry. The result was an affordable, low monthly payment on properties that had little or no equity. As interest rates rise and balloon payments come due, marginally qualified property owners are less able to meet their mortgage obligations. It's these property owners that become motivated sellers and the primary focus of our marketing efforts.
The financial goal is to leverage $43,000 in seed money into a stable company with a Balance Sheet in excess of $1 million in assets after the first three years of operations. To achieve this goal, we intend to buy twenty-four properties by the end of our third year, generating net revenue of $532,000 from the sale of nineteen properties and equity of
$150,000 from holding five rental properties. Primarily, revenue is forecast from two streams of income:
•  Net Profits from Buying and Selling Property
•  Rent from Long-Term Rental Property
The company's revenue for the first twelve months is $112,000, consisting of net sales from the sale of four of four properties acquired in that year. Revenue increases to $242,292 in the second year based on acquiring an additional eight properties, selling six of the properties and retaining two as long-term rental properties. Revenue rises only moderately in the third year to $296,822 based on acquiring an additional twelve properties, selling nine of the properties and retaining three as long-term rental properties.
The company's net profit in the first year is $94,680 in the first year, decreasing to $44,792 in the second year due to payroll and benefit costs and decreasing slightly again in the third year to $11,692.
The company's Total Liabilities and Capital for its first three years of operations are $138,018,
$517,529, and $1,107,697 respectively."

"1.1.  Corporate Status and Ownership
The company consists of two partners, with each partner owning 50% of all outstanding shares of the company. Each partner is investing 50% of the cash needed to operate the company and fund our initial property acquisitions. To limit liability and optimize tax benefits, the company is formed as a Limited Liability Corporation
As an LLC, the company passes on its profits or losses to each shareholder. At the end of each tax year, each partner receives a tax form from the corporation listing their individual share of the profit or loss for the company. Each shareholder is responsible for reporting the profit or loss on their personal taxes. As part of our team of professionals, we always seek the guidance of an accountant well-versed in real estate accounting and tax matters.
We’ve established corporate Operating Procedures detailing how the company functions, which can be modified to adopt or revise procedures as the company grows.
The Operating Procedures specify the company's tax year and method of accounting; membership provisions; voting procedures; member percentage interest; tax classification; annual income tax returns and reports; bank accounts; title to assets; capital contributions; allocation of profit, losses, and cash; and general provisions for the
company including exit procedures for the transfer or liquidation of the company."
"2. Business Model and Value Proposition
The business model of the company is to buy residential properties at discounted prices and resell the properties at retail prices. We market our services to property owners who are highly motivated to sell their property. When a property owner contacts us, we evaluate their property and determine whether to make an offer to purchase the property. Our offers are based on wholesale pricing with a fast escrow closing. The value proposition to the owner is that they be willing to accept less net profit for their property in exchange for a fast escrow to quickly relieve their financial situation.
Because we pay all closing costs and don’t charge an agent's commission, we’re able to demonstrate to the owner that they’re not giving up a substantial amount of net profit in the end. We often buy properties ‘as-is’, further relieving the owner from the burden of properly staging the property. If the owner were to pursue a more traditional sales path and engage a real estate agent to represent the property, the owner would pay a substantial commission of up to 6% plus closing costs, generally totaling 10% of the property's sales price. Often, the net cash difference to the owner is not dramatically different from our offer.
Additionally, if the property is listed with an agent, the owner must wait for the property to sell and close escrow. In our region, we are currently experiencing fifty to sixty days on the market for properties listed on the regional Multiple Listing Service. In conjunction with a standard thirty-day escrow, the owner may not relieve their financial distress for as much as ninety days. We can often close escrow in seven to fourteen days. Our value proposition of an all-cash offer with a fast escrow close is often a good option for the owner who recognizes the benefit of speed to cure their financial situation.
2.1.  Parameters and Guidelines
This business plan defines a long-term strategy for development of a real estate
investment company. We recognize that investing in real estate is an opportunity to build substantial company wealth over the long-term and have set the following parameters to achieve our goals.
•  Buy properties only from highly motivated sellers
•  Buy properties at wholesale prices; resell properties at retail prices
•  Make purchase offers based on a Maximum Purchase Price worksheet
•  Maintain adequate cash reserves within the company
•  Establish and follow a goal-based timeline
•  Build and rely on a team of professionals
•  Develop and follow exit strategies for each property and for the company
Buy properties only from highly motivated sellers: Through the company's marketing efforts, we actively seek out motivated sellers with an identifiable,
distressing problem that forces them to sell their property at discounted prices. Common types of distress are personal financial pressures; unemployment; relocation; divorce;
health problems; and inheritance of unwanted property."

"Buy properties at wholesale prices; resell properties at retail prices: The key to the company's investment strategy is in purchasing properties at wholesale prices. At the heart of the company's strategy is the ability to identify and secure good deals, targeting properties that can be purchased for at least 20-25% less than retail value. If targeted correctly, purchasing discounted, below-market properties can immediately provide positive returns. We can either assign the sales contract to another investor (for a profit) without taking possession of the property; rehab and resell the property at a retail price; or hold the property as a long-term rental investment.
Make offers based on our Maximum Purchase Price worksheet: To consistently achieve positive net profits, the company has developed a spreadsheet to forecast each property's net cash profit opportunity. The formula is based on determining the bottom line amount of net profit the company can expect from purchasing a property. Every offer to buy is based solely on whether the investment is a sound business decision. Simply, if the numbers suggest the property may prove to be a successful investment, then an offer is made for the property. The offer price is determined by the formula – which limits our risk in estimating the properties net worth to the company. We limit the number of offers on the table at any given time to the amount of liquid cash accessible; any investor or partnering opportunities present; and the amount of credit we have available.
Maintain adequate cash reserves within the company: Debt management and cash flow is of paramount concern for the company. We carefully manage the company's cash flow situation, never allowing our cash reserves to fall below a predetermined level.
Establish and follow a goal-based timeline: Setting goals and then following through with each goal is imperative for planning our business. We recognize that investing in real estate cannot be entirely planned, as the actual speed at which properties are purchased and resold is not something we can accurately predict. Nor can we predict market conditions. Following a goal-based timeline keeps us moving forward in achieving our objectives.
Build and rely on a team of professionals: We actively build and proactively use a team of professionals with deep experience in real estate investing. The team includes an attorney skilled in real estate; an accountant; several contractors that work consistently with real estate investors; several mortgage brokers and private money lenders; a title company; and a network of like-minded real estate investors. We enthusiastically participate in our local real estate investment association, taking advantage of the educational opportunities as well as the opportunity to meet other investors.
Develop and follow exit strategies for each property and for the company: We have a clear strategy for the intent of each property before we make an offer to buy. Just as importantly, we've developed an internal Operating Agreement that clearly defines how the company functions, including specific methods regarding how to cease all
company operations, close the company, pay all debts and divide the company's assets
between the owners."

"3. Buying, Holding and Selling Properties
We follow a straight-forward process for identifying, buying, holding, and selling property. The process includes:
•  Lead Generation
•  Researching Properties
•  Determining the Maximum Purchase Price
•  Making Offers
•  Financing
•  Rehabbing
•  Holding Properties as Rentals
•  Selling Properties
3.1.  Lead Generation
Key to the company's strategy is a marketing plan designed to attract motivated sellers into our lead generation program. The plan is based primarily on generating leads from regional Internet advertising; maintaining a property database; developing a letter-writing campaign targeting preforeclosure property owners; displaying signs prominently in our targeted neighborhoods; and networking within our local real estate investment
community. We've included a detailed marketing plan within this business plan.
3.2.  Researching Properties
Once leads are established, we research the properties to determine whether we should present an offer to the owner. We use two primary means of researching properties.
First, we use a proprietary Maximum Purchase Price worksheet to help us determine whether to pursue a property. The worksheet is a vital component in deciding to make offers on properties, as it helps determine several important factors: the retail value of the property; the maximum wholesale price we can offer for the property; the amount of cash required for buying, rehabbing, and reselling the property; and the likely net profit for the company when we resell the property. We review the worksheet in detail in the following section.
Additionally, we research the property by accessing the County Assessor and Treasurer's records. Specifically, we're looking for how much equity the owner has in the property and if any liens are recorded against the property.
3.3.  The Maximum Purchase Price Worksheet
The decision to buy and sell any property is based on an evaluation using the company's Maximum Purchase Price worksheet. Using the worksheet for each property allows the company to apply a formula-like approach in our effort to consistently generate positive
net profits. The worksheet breaks down the decision-making process into a simple"

"formula. Applying this formula to each property we consider purchasing provides a framework for the company to make its real estate investing decisions. In this section,
we'll break down the worksheet and explain how each part functions. Of course, as with all of our forecasts, this example is based on ballpark estimates. Actual numbers always vary for each property.
How the Worksheet Works"
"The worksheet is a formula-based MS Excel file consisting of thirteen simple areas, labeled as Sections A through L. The premise of the worksheet is straightforward. First, we estimate the price at which we realistically could resell the property. We refer to this as the retail value of the property. After estimating the retail value, we then forecast
the property's net profit potential by subtracting all costs associated with acquiring, rehabbing, reselling, and profiting from the resale of the property. The number we come up with is the maximum amount we would pay for a property, which we refer to as the wholesale price. Again, the business model of the company is to only buy properties for wholesale prices, then either resell the properties at retail prices or hold the properties as long-term rentals."
"Section A: Property Address"
"In the first section, we simply note the address of the property:"
           
"Section B: Comparable Property"
"The next section notes the best comparable property that's sold in the neighborhood in the last few months. This information is generally found in the regional Multiple Listing Service (MLS), which can be accessed by a Realtor. The information includes the
comparable property’s address; the square footage; the price for which the property sold; and the subsequent cost per square foot. The cost per square foot is the price the property sold for divided by the square footage of the property."
   "Section B: Comparable Property"        
   "Best Comparable Sold Property:"    "5381 Any Street 00000"    
   "Comp Sq. Ftg."    2200    
   "Sold Price"    330000    
   "Cost/Sq. Ft."    150.00    
"Section C: Estimated Retail Price
The Estimated Retail Price is the price at which we expect to resell the property. We multiply the target property's square footage by the cost per square foot of the
comparable property to find our target property's cost per square foot and likely retail price. In this example, we multiply the target property's square footage of 2,000 by the comparable property's cost per square foot to find the target property's likely retail value of $300,000."
   "Section C: Estimated Retail Price"        
   "Target Property Square Footage"    2000    
   "Target Property's Cost per Square Foot"    150.00    
   "Current Est. Retail Value Based On Comparable Cost per Sq. Ft."    300000    
"Section D: Costs to Purchase"
"We then estimate the costs to purchase the property. We do not include the actual down payment or earnest money deposit. We'll include that later in our out-of-pocket expense. Again, these numbers are estimates and will vary for each property."
   "Section D: Escrow Cost to Purchase"    "Cost"    
   "Loan Points"    1500    
   "Application Fee"    100    
   "Closing Costs (Title Abstract, Title Ins., Credit Report)"    700    
   "Appraisal"    450    
   "Insurance (Impound Account)"    100    
   "Taxes (Impound Account)"    200    
   "Termite Inspection Report"    100    
   "Processing Fee"    800    
   "Inspection"    300    
   "Interest Fee"    400    
   "Recording Fee"    50    
   "Escrow Company Fee"    300    
   "Seller's Closing Costs"    1000    
   "Subtotal"    6000    
"Section E: Rehab Costs
In the next section we estimate rehab costs, based on our initial walk-through of the property."
   "Section E: Rehab Costs"    "Cost"    
   "Cleaning"    500    
   "Landscaping"    600    
   "Roof"    0    
   "Flooring"    300    
   "Kitchen"    500    
   "Bath #1"    0    
   "Bath #2"    0    
   "Bath #3"    0    
   "Bedroom #1"    250    
   "Bedroom #2"    250    
   "Bedroom #3"    0    
   "Bedroom #4"    0    
   "Living Room"    50    
   "Dining Room"    50    
   "Office"    0    
   "A/C & Evaporative Cooler"    100    
   "Furnace"    0    
   "Electrical"    400    
   "Plumbing"    0    
   "Water Heater"    0    
   "Pool"    0    
   "Hot Tub"    0    
   "Windows"    0    
   "Fixtures & Hardware"    400    
   "Interior Doors"    0    
   "Entry"    0    
   "Laundry Room"    0    
   "Appliances"    0    
   "Other"    0    
   "Subtotal"    3400    
"Section F: Holding Costs
We then estimate the holding costs for the amount of time we'll own the property."
   "Section F: Holding Costs"    "Cost"    "Months"    "Total"        
   "Mortgage (Principal and Interest)"    1200    2    2400        
   "Utilities"    25    2    50        
   "Insurance"    50    2    100        
   "Taxes"    100    2    200        
   "Subtotal"            2750        
"Section G: Resale Costs"
"Then we include the costs associated with reselling the property."
   "Section G: Resale Costs"    "%"    "Expected Sales Price"    "Cost"        
   "Buyer’s Agent"    0.030000    300000    9000        
   "Seller's Agent"    0.000000    0    0        
   "Closing Costs"            1000        
   "Subtotal"            10000        
"Section H: Contingency"
"We always plan a contingency to help cover unexpected expenses. The contingency becomes part of the net profit if it isn't used."
                               
"Section I: Profit Requirement"
"Most importantly, we include the amount of net profit we require to make pursuing the property worthwhile."
   "Section I: Profit Requirement"            
   "% Profit"    "Expected Sales Price"    "Cost"    
   0.093000    300000    28000    
"Section J: Maximum Purchase Price
We refer to the Maximum Purchase Price as the wholesale price of a property. After subtracting each cost from the expected retail value, we arrive at our maximum purchase price. This is the amount we offer to the seller and never more."
   "Section J: Maximum Purchase Price"        
   "Section C: Estimated Retail Price"    300000    
   "Section D: Escrow Costs To Purchase"    -6000    
   "Section E: Rehab Costs"    -3400    
   "Section F: Holding Costs"    -2750    
   "Section G: Resale Costs"    -10000    
   "Section H: Contingency"    -300    
   "Section I: Profit Requirement"    -28000    
   "Maximum Purchase Price"    252300    
"Section K: Out-of-Pocket Costs"
"We estimate the Out-of-Pocket costs to acquire the property."
   "Out-Of-Pocket Expenses"    "%"        
   "Down Payment"    0.100000    25230    
   "Earnest Money Deposit"        500    
   "Escrow Costs To Purchase The Property"        6000    
   "Rehab"        3400    
   "Contingency"        300    
   "Holding Costs"        2750    
   "Subtotal"        38180    
"Section L: Investor Payback and Company Net Profit"
"We then determine the investor’s payback and the Company’s net profit. Until the company has a positive cash flow, we provide the out-of-pocket expenses for each
property acquisition through loans from the owners to the company. We repay the loans when the property is resold for a profit. The money left over after we pay ourselves back remains in the company to be used toward the next acquisitions."
   "Section L: Investor Payback and Company Net Profit"        
   "Sales Price"    300000    
   "less Resale Cost"    -10000    
   "less Payback #1"    -19090    
   "less Payback #2"    -19090    
   "less Mortgage Payoff"    -227070    
   "Company Net Profit"    24750