How to invest in Real Estate. Above is the link to our Investor Packet and below are the contents of the package. HasuZwei Homes is a real estate investment company that operates primarily in Decatur GA. We buy, sell, rehab and rent homes in Decatur.
If you are interested in investing for retirement, profit or income we can help you.
For more information call Kevin Polite, 404-299-7100, [email protected]
Corporate Strategies
HausZwei will utilize an array of strategies to achieve both its short- and long-term financial goals. This includes a variety of property acquisition strategies, a variety of renovation strategies and a variety of disposition/selling strategies, all dependent on the specific target property.
Acquisition Strategies
HausZwei intends to purchase distressed properties at or below 50% of fair market value. By purchasing properties at this far below market value, generating consistent and substantial profits will be achievable. Leveraging the depressed local real estate market, HausZwei will focus on acquiring distressed single family homes using a variety of means:
§ Foreclosure Auctions: With proper due diligence and investigation, purchasing foreclosed property at auction is an excellent way to acquire property at far below market value.
§ Bank REO: These are more difficult to obtain, however, still a viable source.
§ Local Marketing: By using inexpensive local marketing techniques, HausZwei hopes to bring distressed property owners forward to generate lead.
§ Neighborhood “Farming”: Still one of the most effective ways to locate and acquire investment real estate is to spend time learning a specific area inside and out. This includes driving around the area, speaking with local real estate agents, speaking with local property owners, and inquiring about available real estate marked as for sale or for rent. It is expected that HausZwei will focus its attention on a small number of local areas to get familiar with real estate value and trends in those specific areas.
§ Internet Research: Not much of the MLS, but sites such as “Craigslist.org,” “ForSaleByOwner.com,” “FSBO.com” and many others are used to list property for sale by owner. We are able to leverage the Internet to find and acquire local properties at substantial discounts.
Rehabilitation Strategy
Because it is likely that a high percentage of properties that HausZwei acquires will require some degree of rehabilitation prior to resale, HausZwei will have to build a core competency in evaluating the condition of a purchased home and improving it appropriately. The level of rehab work for each property will be highly dependent on the expected exit strategy for the property, ranging from minor cosmetic improvements to major structural overhaul and remodeling.
HausZwei will utilize the following resources to ensure that all renovation is evaluated and completed appropriately, on-budget, and on-schedule:
§ Inspections: All properties will have a thorough pre-purchase inspection by a licensed inspector. Inspections will provide a comprehensive checklist of property defects to be repaired during the renovation process. The cost of a full pre-purchase inspection will be factored into each project, as part of the renovation costs.
§ Budget Estimation: HausZwei will work with a licensed General Contractor (GC) to review the Inspection Checklist provided by the property inspector; based on the Inspection Checklist, the GC will provide a total rehab budget estimate that will be used to analyze the viability of the project.
§ Renovation Management: Each rehab will be managed and overseen either by the GC. For substantial renovation efforts that require permits and structural redesign, the GC will be hired to manage all aspects of the project, as well as to provide the sub-contractors necessary to complete the project. For smaller renovation projects, HausZwei will hire, manage, and oversee the individual sub-contractors necessary to complete the project.
Performing on-budget and on-schedule rehab will be a large component of HausZwei’s success, and as such, it will implement processes, procedures, and controls that will allow it to continually improve its ability to estimate and execute on property rehab.
Exit Strategy
In order to stay flexible and profitable in today’s fast-changing real estate market, HausZwei will employ several different exit strategies, as necessary to complete our deals. By having multiple available exit strategies, HausZwei hopes to avoid holding properties longer than necessary, which would in-turn tie up valuable capital.
The three specific exit strategies HausZwei will consider for each property are:
§ Resale: In most cases, HausZwei expects to turn-around a newly acquired property for quick sale after rehab (this is commonly referred to as a “flip”). In some cases, the resale may be to another investor who plans to hold the property as a long-term investment, and in other cases, the resale will be to an owner-occupant who will purchase the property as their primary residence. While rehabbing and reselling will be the preferred strategy for each property, HausZwei will certainly consider other back-up strategies as necessary to ensure a smooth exit from each project.
§ Lease-Option: An increasingly more popular mechanism for exiting a property investment in this difficult market is to lease-option the property to potentially qualified buyers. In a lease-option, the property is leased to a tenant (just like a rental), but the tenant is contractually offered the right to purchase the property for a pre-determined price at some future point in time. In return for receiving the option to purchase, the tenant pays an option fee and an increased monthly rent. Should the tenant choose to execute the option, the option fee and a portion of the increased rent are credited against the sale price; should the tenant choose not to execute the option, the option fee and the rent differential are forfeited.
§ Long Term Hold (Rental): Today’s current real estate climate may make it difficult to resell or to lease-option all houses quickly and/or at market value. As such, HausZwei expects that occasionally a property it acquires will be held for greater than one year and rented to qualified tenants. By holding property for at least one year, HausZwei also ensures that investors will receive the tax benefit of long-term capital gains, thereby increase long-term returns. All houses considered for long-term hold will be evaluated prior to acquisition to ensure that they will produce adequate cash flow to support all property expenses, plus provide a return on the investment. Properties held as rentals will continually be evaluated against market conditions to determine an appropriate time to sell
Market Trends
HausZwei understands that local and regional trends – as well as economic and demographic changes – have contributed to a major slow-down in the real estate market. While this might present serious problems to those investors who purchased during the real estate “bubble,” it provides a unique opportunity to those investors who are just starting to acquire investment property.
Specifically, HausZwei believes that the Atlanta metro area is experiencing an increase in real estate transaction volume that will lead to fewer but potential much higher profit opportunities for investors positioned to acquire property quickly and in volume. With the right product it is quite easy to market and sell property. It is quickly becoming a very good market for which to sell property, if acquired at the right price point.
The key to success in this market is to buy at greatly reduced prices – more than 70% below fair market value – that it is possible to be able to rehab and resell the properties at 10-20% below market value – and still make a considerable profit. It is no longer possible to buy property at $.30 or $.40 on the dollar, though, it possible to rehab and resell these same properties to other investors and homeowners for $.80 to $.90 on the dollar, presenting a win/win situation for both HausZwei and the end-buyer.
Here are
Much like other economic markets, real estate tends to be cyclical, with cycles lasting anywhere from two to ten years. Periods of increased value and transaction velocity are followed by price and market recession, which is then followed again by market appreciation. Atlanta (and much of the country) is currently seeing an increase in real estate prices and transaction velocity, allowing astute investors who obtain discounted properties and rehabbed within a good margin, the opportunity succeed in the next part of the cycle.
Sales & Marketing Strategy
Because selling real estate in today’s market can be a tremendous challenge, HausZwei has done comprehensive research on sales and marketing strategies that will work in HausZwei’s local market. Research has been compiled via local government websites, the local Multiple Listing Service (MLS), and data compiled by a number of real estate brokerage houses throughout the Atlanta metro area.
Sales Strategy
In DeKalb County, GA – HausZwei’s target market – there are clear trends that can be identified for local property sales. Houses in specific areas, neighborhoods and subdivisions, as well as houses in specific selling price ranges are seeing relatively high transaction velocity and relatively stable prices.
Specifically, houses in very good condition in the $90,000 – $140,000 price range are continuing to sell quickly. The relaxation of rules in FHA funding has created a return of first-time homebuyers.
The previous rehab and resales completed by HausZwei focused on the home-buyer market in Decatur in the $210,000-$300,000 price point with tremendous success. Average days-on-market (DOM) for these properties was under 45 days. This resulted in an average profit of $35,000 per property for HausZwei.
Marketing Strategy
HausZwei uses an in-house real estate agent and staging consultant who provides all real estate and marketing services to HausZwei. Because of the strong reputation HausZwei has achieved during its rehabs, resales and rentals, there continues to be a demand for our properties. This demand has been achieved via a number of marketing strategies implemented by HausZwei and our real estate agent, including:
§ Providing the Best Product. HausZwei brings a unique perspective to the real estate market due to our modern design flair designed to appeal to Millennials, the most abundant home buyers in this area. We stay abreast of design trends that appeal to these buyers, but execute them in an affordable and profitable manner. When HausZwei undertakes a project, we complete a survey of surrounding homes currently on the market. By walking through these homes with our agent, HausZwei can get a sense of the market competition in the specific neighborhood and the rehab can be targeted at creating a product that is superior to its nearby competition. In addition to producing resale homes that are in better condition than its local competitors, HausZwei aims to produce homes that are also lower-priced than competing homes in the area. Because HausZwei is purchasing distressed property at prices far below what local home-owners have paid, we have the ability to sell renovated homes that are both nicer and lower priced than the competition.
§ Data Mining. By using the MLS to mine historical sales data, we are able to target those agents who are actively selling homes in the local area and price-range we are selling in. Because buyers are a precious commodity in today’s market, we are going to them (and their agents) instead of waiting for them to come to us.
§ Marketing Early and Often. In today’s market, the key to selling homes is to generate traffic. This is done by renovating and reselling homes in areas that will receive both foot-traffic from neighbors and drive-by traffic. By placing signs on the property before the rehab begins, we have the ability to generate interest from the outset of the project. By sending marketing letters to all our neighbors inviting them to stop by the renovation, we generate interest by those neighbors who may be current renting, but would love to buy. By holding multiple Open Houses, we are able to get many potential buyers through the door. By the time the rehab is complete, we generally have several leads for potential buyers and are able to get the property under contract within a week or two of listing it for sale.
§ Move-In Ready. We ensure that every one of our properties is move-in ready for a first-time home-buyer. This includes providing a brand new full set of appliances with every house (refrigerator, dishwasher, range, and microwave), a brand new washer/dryer, and all necessary window treatments, shower curtains and bathroom utilities that are necessary.
Staging
The most effective marketing strategy HausZwei has utilized is home staging. By working with a full time staging consultant and home stager, we are able to separate our houses from the pack by customizing them to our prototypical buyer. Additionally, home staging allows our buyers to visualize what the home will look like fully furnished, providing them an emotional connection the property they’re viewing.
To help reduce the long-term costs of marketing our properties, HausZwei has invested in the purchase of several sets of the staging furniture and accessories for our homes. And, an added marketing benefit to home staging is that many buyers can be incented to purchase a home by agreeing to include some or all of the staging furniture in the price of the home.
Equity & Financing Strategy
HausZwei aims to maintain a balanced investment strategy that uses a reasonable level of built-in equity (i.e., property purchased below market value) and purchased equity (i.e., down-payment) to protect against decreases in property values. At the same time, HausZwei will use the leverage made available through traditional and creative real estate lending vehicles to maximize the asset acquisition and income production of HausZwei overall.
Equity Strategy
In order to maintain a relatively low-risk financial profile across our entire set of properties, it is the goal of HausZwei to maintain at least 25% equity in each property at all times (though some exceptions may be made for short-term sale properties where highly-leveraged bridge loans may be used strategically for short periods of time).
HausZwei will attempt to accomplish this goal of maintaining equity using the following core investing principles around equity management:
§ All original financing and refinancing will be made for a maximum of 75% LTV, based on both appraised and bank assumed values of the property (assuming both are available). This will be accomplished by either purchasing a property at below market value (i.e., with built-in equity) and/or ensuring that at least a 25% down-payment is made on the property at acquisition.
§ For rehab costs that are provided by a lender, HausZwei will ensure that a maximum of 65% of the rehab costs are financed. By ensuring that at least 20% of the purchase price and 35% of the rehab costs are paid out-of-pocket, HausZwei can be reasonably sure of not over-leveraging and not risking future problems with liquidity or equity.
§ For properties being held long-term, it will be the goal of HausZwei to ensure that at least 25% equity is retained in the property at all times. This should protect the property equity in the case of a market downturn, except in those situations where the downturn immediately follows asset acquisition; even in this case, HausZwei expects that maintaining at least a 25% equity position in every properties will protect against even large negative market trends.
Financing Strategy
Because HausZwei will be purchasing distressed properties, the ability to close quickly will be of utmost benefit to HausZwei. Therefore, HausZwei will do everything possible to ensure that its financing methods provide for a quick and easy closing process.
HausZwei plans to use the following financing methods:
Rehab Loans
HausZwei is working with two local banks that provide “rehab loans” to investors. These rehab loans will satisfy all of the short-term financing needs of HausZwei, and are subject to the following terms:
§ Rehab loans will provide financing for both the acquisition and the rehab costs of each project.
§ Rehab loans require 35% down-payment on the total loan amount.
§ Rehab loans are short-term (12 month) loans, and are interest-only during that 12-month period.
§ The interest rate provided is Prime + 1.75%, with a minimum of 6.75%, paid monthly.
Cash Purchases
When HausZwei has accumulated enough cash that is possible to purchase properties without financing, it will do so.
Long-Term Investments
For those properties that are held long-term, it will be necessary to refinance out of the short-term rehab loan or to regain liquidity by pulling out invested cash. In these cases, HausZwei will employ the following refinancing strategy for long-term investments:
§ HausZwei will use traditional financing mechanisms to refinance the property, and pull out a portion of the invested cash and/or repay the short-term “rehab loan.” We have developed a relationship with a local lender.
§ In some cases, seasoning requirements may require HausZwei to pursue other short-term financing mechanisms, such as hard money lenders, however, this will always be a last resort.
§ Except in special situations, all acquired financing will be in the form of fixed-rate loans with an amortization period of between 15 and 30 years. Situations that might warrant non-fixed rate loans would include: financing intended to cover short-term hold/rehab that will ultimately be refinanced/sold and non-traditional financing necessary to satisfy seller requirements
Investment Strategy
Property Analysis Techniques
When purchasing a property with the goal of turning it around for a short-term sale, HausZwei will take special care to ensure that there is sufficient margin to rehab the property and still sell for a reasonable profit. Too often, properties are purchased for short-term sale with the intent to make a small profit; in many of these cases, if the rehab expenses are under-estimated or the rehab schedule is missed (thereby increasing holding costs), the small profit goes away and can even result in a loss.
HausZwei will ensure that any short-term sales are adequately buffered for rehab overages, schedule slips, and other “surprises,” and that the profit margins are still sufficient based on these buffered estimates. In general, the formula used by HausZwei to analyze a flip is as follows:
Maximum Purchase Price = Sales Price – Fixed Costs – Desired Profit – Rehab Costs, where
Sales Price equals the conservative estimate of what we can sell the property for.
Fixed Costs equal all the costs, fees, and commissions that I can expect to pay during the project.
Desired Profit is the minimum amount of money I want to make off the project when it’s complete.
Rehab Costs are the material and labor costs required to rehab the property into resale condition.
Rehab and Resale Example
Based on our previous experience in this market, here is a realistic example of what a typical acquisition will look like for HausZwei:
HausZwei looks at a bank owned property in Decatur, GA, listed for sale at $55,000. Based on local comps, the ARV of the property is approximately $120,000 after a full cosmetic rehab. HausZwei makes an initial offer of $40,000, and after multiple rounds of negotiation, a purchase price of $48,000 is agreed upon with the bank. HausZwei estimates the rehab costs be $32,000, including labor and materials.
HausZwei purchases the property using a rehab loan to provide 80% of the total acquisition and rehab price ($64,000) and pays the additional 20% out of HausZwei’s cash reserves ($16,000). Over the next 45 days, HausZwei hires sub-contractors to perform rehab and remodeling work. The total remodeling costs $32,000, as planned, and is paid for from the rehab escrow. Purchase costs ($3000) and holding costs ($2000) total $5000. The finished house has required a total investment of $85,000.
The house is listed for sale at $130,000, and within weeks we receive an offer of $120,000, with the buyer asking us to pay 6% for his closing costs. Between closing costs (6% of $120,000) and realtor commissions (6% of $120,000), the total revenue from the property sale is $105,600. 3% of the commission is returned to our in-house real estate agent.
Total profit after all acquisition, holding, and sales costs is $20,600 for HausZwei. Based on the initial investment of $16,000, that is a 128% ROI on the investment.
Long-Term Hold Example
Let’s say that in the example above, we are not able to resell the property due to a change in market conditions. The backup exit strategy would constitute refinancing into a long-term loan and renting the property for a profit.
Again, here is the likely scenario, given our previous experience in this real estate market:
After rehab of the property above, our total costs are $85,000, and the house will now appraise for $120,000, creating $35,000 in total equity.
Over the following 90 days, HausZwei works with traditional property lenders to refinance the property at 70% of the appraised value ($84,000) at a long-term rate of 7%, ensuring that the resulting loan balance is low enough to allow the property to sufficiently cash flow, and to ensure enough equity remains to mitigate any risk of over-leveraging.
Based on the following realistic assumptions:
-Market Rents: $1100
-Average Vacancy Rate: 8.3% (one month per year)
-Total Expenses: 40% of Net Income
This property should provide the following financial benefits in Year 1:
– Cash flow: $1134
–Equity Accrual: $853 (not including equity generated by rehab)
–Cash-on-Cash Return: 45.01% (not including equity generated by rehab)
–Total Return: 78.87% (not incl. rehab equity or tax benefits, which are investor dependent)
Financial Plan
Initial Investment
The initial capital investment into HausZwei will be , made by HausZwei. This seed capital will be used to finance the first property, and upon completion of that that first project, should generate enough profit to keep HausZwei on-track to meet its long-term goals.
The acquisition plan use that initial investment and all resulting profits is as follows…
1-Year Acquisition Plan
In the first year, HausZwei expects to acquire, rehab and resell four properties. The first property will be purchased using a combination of the secured rehab loan and the initial investment made to HausZwei. Given the property example above, HausZwei cost to acquire and hold the first property will be approximately $21,000 ($16,000 for the down-payment and $5000 in acquisition and holding costs).
That leaves $4000 to use as cash reserves and a buffer during the first project. Upon completion of the first project, HausZwei should have access to the initial $25,000 in investment, plus about $20,000 in profit from the first project. During the first year, HausZwei will only pursue a single project at a time, thus never requiring additional capital injection.
5-Year Acquisition Plan
Starting in year two, as HausZwei is able to put systems and processes in place to optimize our acquisition and rehab efforts, and as profits provide additional capital, it is expected that additional houses could be purchased each year. Further, HausZwei believes that if it can acquire equity investment through additional partnership with outside investors, it could scale acquisition much more quickly than is laid out above. In this case, HausZwei would likely hire another full-time employee to manage acquisition consulting, project management, and contractor hiring.
The 5-year goal for HausZwei will be to acquire, rehab and resell 40 properties in total, for an overall profit of $1M – $1.2M.
Assuming additional capital injection by other investors, the hiring of additional employees and/or the turn-around of the real estate market, it is possible that these assumptions are highly conservative, and the potential financial upside for HausZwei is much greater.
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