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1.0 Executive Summary
Real Estate Developer, LLC (“the Company”) is an Arlington, Virginia based company that intends to develop affordable housing units within this market as well as the greater Washington DC metropolitan area. The business was founded by Howard Michaels. The Company is seeking to secure $15 million via both debt and equity. The Company will generate income from property sales as well as long-term rentals.
1.1 The Operations
Real Estate Developer, LLC will specialize in the construction of single-family homes as well as townhouses. There is an immense demand for affordable residential real estate in the Arlington market, and Management sees a substantial opportunity to develop properties that can be sold or rented to the general public. In regards to single family homes, these properties will typically feature three bedrooms and three bathrooms. Townhouse properties will feature two bedrooms and two bathrooms.
In most instances, the Company will work with regional real estate brokerages in order to divest the properties to home buyers. It should be noted that the business will not sell properties to real estate investment firms as the ultimate goal of the business is to provide affordable housing. Approximately 75% of the Company’s developed properties will be sold and the remaining 25% will be held for income generation purposes.
Chapter three of this document will further discuss the operations of the business.
1.2 Financing
At this time, the Company is seeking $5,000,000 from a private investor or group of private investors in order to commence operations. Real Estate Developer, LLC will also acquire a $10,000,000 revolving line of credit so that the business can tap this credit facility when needed during the course of developments. Management anticipates that the Company will sell a 50% interest in the business in exchange for the capital sought in this document. The credit line is expected to carry a 7% interest rate on the drawn down principal balance.
As time progresses, the Real Estate Developer would be a strong candidate for expansion capital given the economically secure nature of income coupled with the fact that these funds will be used to develop tangible assets.
1.3 Mission Statement
Management’s mission is to provide outstanding homes that are affordably priced for the Arlington and greater Washington DC area communities. The Company will strive to create multiple forms of income through its operations.
1.4 Management Team
Howard Michaels is a veteran real estate developer that has constructed hundreds of units over the past fourteen years. Mr. Michaels will be able to provide affordable housing opportunities for the Arlington market.
1.5 Sales Forecasts
1.6 Expansion Plan
The Company will primarily develop two to three properties at a time, with an average development time of three to four months. In regards to townhouses, these developments will usually feature six units. Over the next three years, the Company will expand its development capabilities by acquiring additional equipment, hiring additional construction staff, and acquiring larger parcels of land. The Company may also expand its scope to include other markets in the Mid-Atlantic United States.
2.0 Company and Financing Summary
2.1 Registered Name and Corporate Structure
Real Estate Developer, LLC.
2.2 Required Funds
A $5,000,000 investment as well as a $10,000,000 line of credit is needed to commence real estate development.
2.3 Investor Equity
This matter will be discussed during negotiation. Mr. Michaels tentatively intends to sell a 50% ownership interest for the $5,000,000 of equity capital required.
2.4 Management Equity
Howard Michaels and key members of the Real Estate Developer’s staff will retain a 50% ownership stake.
2.5 Exit Strategy
Real Estate Developer, LLC is seeking to become one of the premier affordable housing developers in the Arlington market. Once this brand name is established, the Company could be sold to a third-party real estate development or real estate investment firm. This sale would also include any units that have been held for income generation purposes. A real estate focused investment bank would be hired to help manage the sale.
3.0 Real Estate Operations
The Company will specialize in the development of affordable housing units that will produce substantial income from sales. Typically, these units will have a price of $350,000 to $600,000 depending on the size of the unit and the market area where it is developed. In regards to gross margins, the Company will typically generate gross profits equal to 50% of the sales price. At all times, the Company will use ecologically friendly materials that are designed to last several decades. This will provide homeowners with properties that will stay current as time progresses. The business will also integrate state-of-the-art home automation technology into each unit.
Real Estate Developer, LLC has a number of real estate brokerages and agents within its database. These entities will work showcase the completed properties to prospective homebuyers. The business will also use a number of direct marketing strategies that will ensure that the time between property completion and sale lasts no more than three months.
A portion of the Company’s townhouse and single-family homes will be retained in order to generate rental income as well as capital appreciation. This passive stream of income will allow the business to cover a portion of its underlying operating costs while other developments are in progress. Once a property appreciates 50% to 60% of its cost, the Company will divest the unit for a substantial profit.
As discussed earlier, the Company will only sell its properties to homebuyers that will live in the unit. This will be one of the main selling points that will be shown in the Company’s marketing campaign.
4.0 Strategic and Market Analysis
4.1 Economic Outlook
The demand for affordable housing has remained incredibly resilient over the past four years. Even as interest rates have increased, this demand has not slowed down. Real Estate Developer, LLC is in an outstanding position to generate substantial profits from property sales, rental income, and capital appreciation throughout the life of the business.
One of the primary issues that the business may face is issues related to the high interest environment. In turn, this may cause issues among homebuyers to acquire affordable rates of capital to purchase units offered by the business. This risk is abate by the fact that the Company intends to develop its units in the population dense markets of Arlington and the greater Washington DC metropolitan area.
4.2 Industry Analysis
Real estate development and construction is one of the largest industries in terms of both revenue and employment. The net fees generated by these entities currently exceeds $250 billion. There are over 60,000 companies that operate in this field. National employment in the field of real estate development is over 500,000 people.
One of the major trends within this industry is to integrate specialized technologies into each new unit. This includes fiber optic cabling for high speed interest, home automation, and climate control technologies. At all times, Real Estate Developer, LLC will integrate these components during the course of construction.
4.3 Customer Profile
The demand for affordable housing, via both single family and townhouse units, within the Arlington market is ubiquitous. The Company, in tandem with its retained real estate brokerage, will target the following demographics when marketing new units for sale/rent:
• Annual household income ranging from $75,000 to $125,000
• Has a down payment of at least 10% to acquire a unit or has access to downpayment assistance
• Can afford a mortgage of $1,500 to $2,500 per month
• Is seeking to acquire a property valued at $350,000 to $600,000
Given the immense population of this market, the Company will be able to easily source homebuyers that will quickly acquire units as they are completed. In order to further reduce operational risks, the Company will aggressively promote the properties as they are developed. As the Company expands, the business will create new demographic profiles when entering different markets.
4.4 Competition
As mentioned above, there are over 60,000 companies that are actively involved with the development of new residential housing units. One of the ways that Real Estate Developer, LLC will differentiate itself from competition is by exclusively focusing on affordable housing developments. The Company will integrate numerous amenities into each property, which are not commonly found among entities that focus on reasonably priced real estate. Additionally, the Company will have strict controls on its operating costs so that the business can continue to offer its units affordably as rates of inflation and rates of interest fluctuate.
Here, you can discuss the many ways in which you will ensure that your real estate development firm stands out against competition in your market. You can also examine each competitor that you will face, their strengths and weaknesses, and the pricing of their respective units. For major metropolitan areas, you can focus on the most well-established companies.
5.0 Marketing Plan
As has been one of the central points throughout this plan, the demand for high quality affordable real estate in the Arlington and greater Washington DC markets is substantial. The ongoing marketing required by the Real Estate Developer will be completed internally as well as with the Company’s retained real estate brokerage.
5.1 Marketing Objectives
- Development exclusive relationships with real estate brokers throughout Washington DC that will market the affordable housing units.
- Develop video walkthrough tours that will be completed for each property and posted online.
- Aggressively market the properties as they undergo development in order to ensure a quick turnover between completion and sale.
5.2 Marketing Strategies
Most importantly, the Company’s ongoing relationships with real estate brokerages and agents will ensure that properties are quickly sold. The Company’s retained brokerage will given immense amounts of sales literature to showcase to their clients who are seeking a reasonably priced property in the Arlington market. In order to properly incentivize agents, the Company will develop exclusive relationships. The secondary reason as to why this is important is that these entities will represent Real Estate Developer, LLC in subsequent property development projects.
Through the course of each development, videos and walkthroughs will be completed and uploaded to all major social media platforms. This will help facilitate interest in each property so that bids and offers can be accepted as the development period comes to a close. This type of marketing will be conducted for each property developed by the Company. These videos will also be posted to the Company’s website.
As it relates to property rentals, the Company will engage in non-exclusive brokerage relationships. Management anticipates that it will take two months to find a suitable renter for these units. Primarily, renters will be placed in townhouse properties. The Company will foster ongoing relationships with corporate relocation specialists that operate within the greater Washington DC metropolitan area. Many people live in this market on an intermediate-term basis, and Management feels that by having ongoing relationships with relocation companies – the business will be able to maintain 100% occupancy for its rental units.
Real Estate Developer’s website will be continually updated in order to showcase properties that have been completed, properties that are in development, and other relevant news regarding the business.
5.3 Revenue Overview
6.0 Organizational Plan and Personnel Summary
6.1 Corporate Organization
6.2 Payroll
7.0 Financial Plan
7.1 Underlying Assumptions
• Real Estate Developer, LLC will have an equity capitalization of $500,000.
• A real estate backed line of credit ($10,000,000) will be acquired to leverage the Company’s equity position.
• 25% of the produced units will be held for passive income generation.
• Held properties will appreciate at a rate of 4% per year.
7.2 Sensitivity Analysis
The value and demand for real estate fluctuates based on the overall interest rate as well as the rate of inflation. Despite these matters, affordable housing remains in high demand among population dense markets. The Company will be able to revise its pricing strategies in all economic climates while maintaining its profitability through controlled operating expenditures.
7.3 Source of Funds
7.4 Profit and Loss Statement
7.6 Cash Flow Analysis
7.7 Balance Sheet
7.7 Breakeven Analysis
7.8 Business Ratios
