Using the same business you started in Assignment 1 (Real estate Investing). Facts and Figures are to be generated from the purchase of one rental property.

1. Prepare a pro forma balance sheet for the first twelve (12) months of your business. Include the assumptions on which it is based. Justify your balance sheet.
2. Prepare a pro forma income statement for the first twelve (12) months of your business. Include the assumptions on which it is based. Justify your income statement.
3. Prepare a pro forma cash budget for the first twelve (12) months of your business. Include the assumptions that you have made when creating the budget. Justify your budget.
4. Scrutinize the costs (both tangible and intangible costs) of obtaining financial capital for your business start-up to determine whether the costs justify implementation of the funding source.

Your business is five (5) years old and running profitably. You are now ready to look outward five (5) more years to take the business to the next level.

1. Determine the specific details that would make the equity approach to valuing your business worthwhile. Provide a rationale with your response.

Assignment info

As of 6 April 2020, I started a real estate investing company. Real estate investing consists of individuals that devote cash, credit, or debt financing for multifamily homes, real estate development, buy, rehab, and the resell of homes, or to own rental property for residual income, among more options. The location of my company operations will be from my home office in Maryland, U.S.A. My target market varies based on the different options for a property. Still, it will generally consist of couples with children, college students, other real estate investors, and men and women over the age of 18 with a credit score of 700 or more, a steady source of income, and enough capital to secure a rental property or down payment to own outright.

The competition amounts to hundreds of other real estate investors searching for deals on a property to buy and make a return on investment. Different strategies are necessary to avoid stagnation in oversaturated markets within real estate, in addition to a focus on specializing in one specific aspect of investing to be a subject matter expert (Wendt, P. F., 1).

This type of business interests me because of the possibility of passive income. Im interested in lowering my taxable income by starting my limited liability company to write off expenses and build wealth.

Most importantly, I believe my business will be successful because of the idea of money growing interest. Having a steady cash flow and making profits from returns on investments gives me drive and passion for enduring and overcome hardships and continually learning to maintain growth.

I have an excellent credit score to secure loans with the best interest rates to offer, and my tax returns show income that can warrant substantial amounts of money to borrow. I mention this regarding being able to purchase homes in need of rehab that I can invest capital into for a more significant return on investment because of the increased home value. Other options I will pursue will be purchasing homes through loans and making large down payments to minimize monthly mortgage payments that I can then charge renters double my obligations. My goal is the residual income of the excess in cash flow. Lastly, I plan to purchase foreclosed homes to resell and property/land that auctions through unpaid taxes.

I'm a new owner of a real estate investment business called "T.Sangster REALiTY, LLC." I officially filed my Articles of Organization with the state of Maryland and paid $190. Also, I completed a request to establish an employer identification number (EIN) with the Internal Revenue Service (IRS) to make my company formally recognized as a legal entity to conduct business. I'm opening a business checking account for free and performing business operations from my home office. In total, I spent $192.00 to start my business.

Tax and business licenses are not always necessary, but contingent on local city requirements, in cities, I would choose to invest.

Financial needs to start generating revenue in real estate investing are cash, conventional financing, seller financing, and or a partner.

Cash is an option and a necessity to purchase a real estate investment property outright. This option is feasible when considering a property to have a substantial return on investment, time-sensitive to buy, and free of financial obligations.

Conventional finance through banks averages between 20% to 30% down payment on investment properties. An example would be a property a real estate investor wants to buy equaling $200,000 and is required to pay an upfront cost of $40,000 to secure a loan for $160,000.

Seller financing is a creative real estate practice and not commonly agreed to between sellers and potential buyers. This consideration essentially makes the current owner the financier. Generally, this is people that inherited property or moved from a property but do not want to commit to selling. The idea is the current owners are landlords you can rent to buy from by offering a 2% to 5% down payment and agreed terms to sublease, manage, or sell the property (PR Newswire. (2020, April 7).

Lastly, using a partner is the idea of using another investor to solely provide capital and rely on the originating investor to accomplish the sweat equity. In this situation, a partner is considered a private bank with unconventional terms and conditions.

The best financing options to obtain the needed capital and how I would approach securing capital would be through a bank loan. This option minimizes the burden of personal money to invest and preferably allows investors to allocate funds to services or amenities to increase equity or property portfolios.

The first step in my approach to secure a loan would be having a deal to present to bank lenders as a feasible investment to earn proceeds.

Next will be identifying if the lender lends on my specific property. Different banks lend on different types of properties such as single-family, multifamily, some only owner-occupied, investments, or properties in need of renovation (Roulac, S. E., & King, D. A. (1978).

Having the experience to justify my plan is a necessity in that without income, background, or credit, lenders would not have any references to justify deciding to supply funding. Bank's premise for lending is to give to applicants with the highest probability to fulfill debt obligations. Without bank approval, partners or a financial backer can assist for a percentage of cash flow or profit margins.

Meeting standard requirements of banks such as debt to income, credit score, lend to value, property location is essential. Lastly, making an impression of professionalism through appearance, organization, and understanding will maximize the probability of getting approved for financing.

Return on investment is the most important and preferred method to asses a property investment. This option gives a clear percentage return that is comparable to the concept of a savings account that earns interest. A basic formula would be annual profits from rent divided by the cash investment at the beginning of purchase. An example would be an initial investment of $30,000 to secure a property divided by $300 charged for rent. $300 times 12 months and divided by $30,000 would equal a 12 percent annual return on investment.

Secondly, a gross yield is an option. Gross yield is achieved through the amount of annual rent divided by a property's overall price. Percentages would be lower using this more straightforward method to return on investment methods and should only be compared to other home values using the same financial ratio.

The health of the business is gauged by having these preconceived expectations and meeting the goals throughout 12 months.