Blackout Day was amazing, and I can't wait for the next one. I spent most of the time thinking and writing stuff. Because I couldn’t use computers, I just wrote random thoughts on paper and expanded on them later on. For a very long time, I’ve wanted to put my business model on this blog. I wanted to give a general idea of where this business is headed and how I plan to balance property acquisition with property management. How can I do this all by myself? Well, I used a part of Blackout Day to write out all the ideas that I’ve had in the back of my head for a few years now. I’m finally gonna to post it here and hope that it still makes sense. As one might guess, this should be one hell of a long post. Okay, here it goes…
Retirement
My goal for retirement is to be making $5000 per month of pure profit. That means after the mortgages, property taxes, and property bills are paid, I should have $5000. Right now, I make around $1800 per month from all three properties: $400 from property Alpha, $400-$450 from property Beta, and a little over $1000 from property Charlie. In order for me to make retirement a reality, my next property must be a commercial property—that means it must have more than 4 units. Prospective property Delta #1 (PPD #1) has six units and it almost on the same lot as property Charlie, so that would be my obvious first choice. In order to get the right profits out of that place, the mortgage must be under $1000 a month, which means the max I can pay for that place is 110k. It’ll most likely have to be a rehab loan, as PPD #1 looks as if it will need a ton of work. There’s also the Beautiful Valley property that I can get, as well as other commercial properties. The point is that it must make at least $2000 every month. After Delta comes Echo. I want property Echo to also make $2000 a month, but I can accept a little less if I must. The point is to go above the 5k quota, and then kiss the menial jobs goodbye.
Property Foxtrot
Once I retire, I plan to save money for a little under two years in order to have enough down payment money to buy property Foxtrot. Foxtrot will be my first major purchase, costing anywhere between 200k and 300k. This one shouldn’t need repair work, and should be one of those apartment complexes that’s all-brick with a parking lot. I’m looking for something that’ll make anywhere from $3500 to $4000 per month. That, combined with the other properties, will give me an annual income of 100k, and that means I can finally open my first office in Smalltown. My heart skipped a beat when I wrote that last sentence. And now I’m having trouble forming my next thought because I’m thinking of how all this will feel. Wow.
The Assistant
In the process of purchasing the next property, I’m going to hire an assistant. The assistant will start off showing apartments, processing work orders, and organizing the paperwork like any other assistant. Now, if I can clearly do all this by myself as I’ve been doing, why would I waste my money on an assistant? The answer to this is in the story of Rufus.
When I first came to Smalltown, Sha was doing business with an old biker named Rufus. Rufus had some properties that Sha was interested in buying. He would always complain constantly about how he hated tenants and he wanted to get out of the landlord business. I saw how beat up he looked and how dealing with tenants made him seem so bitter—not only towards the tenants he’s had but towards life in general. When Sha told him that I was thinking about becoming a landlord, Rufus scoffed and said “good luck”. He said the tenants are what really made him sell his properties and that it’s a tough job. I’ve also noticed how Sha is slowly resembling Rufus. The bitterness isn’t there yet, but I can see that beaten look on his face sometimes (although I’m not sure if that’s the tenants or the marriage).
I don’t want to turn into these guys. Even though I have a slight advantage over Rufus and Sha with my sociological afflictions, I’d rather someone else get ravaged by the day-to-day dealings with tenants. The assistant will do that work and I’ll pay her accordingly. Start off with $30,000 annually for the first two years, and then a $5000 raise every year afterwards. The business will grow with every property purchase, and the assistant’s responsibilities will grow as well… hence the raises. By the time she gets to $50,000 a year (which is like 100k in Smalltown), the assistant should have enough experience to care of the business without the training wheels. That means I’ll have time for those month long vacations that I’ve always wanted to do. Every entrepreneur dreams of building a business and then having someone manage it while they go off to have fun. My dream is no different.
Managing the Units
Now, how the fuck am I gonna manage all these units? Even with an assistant, managing 40+ apartments sounds like too much for one or two people. Well it’s not. One aspect of my business philosophy is to have the resources of the town I’m in handle the repairs of the apartments. That means having 6 or 7 numbers for a plumbing problem. 6 or 7 numbers for electrical problems. 6 or 7 numbers for construction problems and so on. The key here is to be able to have companies handle the repairs instead of hiring a handyman to work directly for me. That’s the way Sha and other landlords like to do it and there’s nothing wrong with that. If it works for them, so be it. But I don’t want a handyman working for me full-time every day. Having a list of independent contractors ready for every situation is the key to managing the units. It keeps the tenants happy and our reputation gets to the point where, when a tenant leaves, we can rent it out to quality tenants faster thanks to that reputation.
So… there it is. I know there are insane amounts of variables in my business model. How much will the attic apartment cost that I want to build in Delta, and how will that affect my chances of getting Echo before the end of 2015? How can a first time boss be able to keep a long term employee? Can I master turnovers in time, so that I can get steady flow of rents and maintain a near 100% occupancy rate? All those questions can wait. This post is to see how my business model looks overall. Consensus? It looks good. The business model looks as if it’s on solid ground, and that’s the most important thing. I'll deal with the specifics when I get there.
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