ENT 650

Harvesting – Exit Strategy: Blog Week 6 – ENT 650

 

The exit strategy of my business for harvesting is through liquidation. Since my business is my own house, I would sell my house hopefully for more than I paid for it. The current housing market appears to be growing with the economy on the rise. My goal is to sell the house before the market starts to go down, so that way I can maximize my profit on the house. If I cannot sell the house during that time, I would try to either pay off the house or pay as much off as I can before selling in order to get the most back on the sale. Then I would be able to take the money from the sale to either buy another property for less than I would make on the current house in order to retain profit from liquidation or I would put the money into starting a completely different business. This way I can provide funding for   myself and not have to worry about investors or how to get backing if I want to start a different type of business.

In this situation the negotiations would be with the realtors and buyers. Everything would come to an end easily and I would walk away with the money made from selling the house for more than I bought it for. I would not have to worry about transferring control or clients or anything like that. Most of the minuses don’t apply to me because I would be making money on selling my property not on selling a business. Also I would not “lose” my client base because my client base would just be people that would rent from me, and I could find that again through buying a different house. The only minus is really having to pay realtor fees, costs of listing the house, and maintaining the properties.

In this situation the pluses way outweigh the minuses and this would be the best exit plan for my business and how to walk away with the most money. My personal goal would be to cash out and make as much profit as possible by listing the house way above what I bought for it. I will be making renovations and increasing the value of the house through that, so it will be worth more by the time I do go to sell it, as long as the market will allow it. According to my valuation report, “my company” is worth $200,000, I included my loan amount in the debt section of the equation which contributed to the value of my company.

The stakeholders that would be effected upon the sale of the house would be whoever my tenants are at the time. Ideally I would put the house up for sale at the end of their lease, to make the house vacant for remodeling or showing.  If I had to list the house while the house is still being occupied, I would allow them at least a one month notice before putting it on the market and give them time to find another place and move out. From research, I know the house would sell fast, while it was put on the market this time it sold within the first week and it wasn’t even advertised much. The other stakeholders I would have to notify would be the bank, realtor, lawyer, and possibly the HOA. I would get the house re-appraised by the bank before putting it on the market because I will be doing a lot of renovations to improve the value of the house which in turn will only improve the value of the community and be helpful for the community stakeholders.

My pro-forma financials for three years shows that my income will stay consistent and that all the rooms will stay rented out for those three years helping me to have an income/profit that is consistent which will help pay for bills, renovations, and most importantly go towards paying off the debt of my loan on the house. I don’t think any of the rooms will be vacant and if they are it won’t be for long. The house is in a prime location to attract renters in this area. My competitive advantage is that it is a house, not an apartment, in a quiet neighborhood away from a local college, but close enough that it is easy to get to campus. This is the perfect location for graduate or doctoral students who don’t want to be amongst the undergraduate students. It is also perfect for staff members or faculty members that have just moved here and don’t know exactly where they want to live yet, so they can rent for a year or six months while they look around and get used to the area. My rates are priced a little less than the surrounding places to rent around in the area. I feel my rates are fair and they won’t find a better value around here. Prime location combined with great price and in between campus and town for easy access to everything makes this a great place to rent.

For the people who end up buying this house when I sell it, I don’t know if they will use it as a rental property as I have, or if they would rather use it as their personal family home. Even though I will be turning the downstairs into a separate apartment, future owners could turn that into a mother-in-law suite or for an older child that wants to have their own space, apartment. Or they could even rent out the downstairs while living in the upstairs. There are many options for future homeowners to use the downstairs one bedroom apartment. I think it will even end up being a selling point. I have created a timetable to show when each thing would happen in the month leading up to selling the house.

Timetable:

Weeks Sunday Monday Tuesday Wednesday Thursday Friday Saturday
Week 1 Tell renters about putting the house up for sale in one month. Talk to bank and get appraiser to get the value of the house. Talk to HOA about putting the house on the market.
Week 2
Week 3 Appraiser comes out to value the house. Tenants move out. Talk to lawyer and relator about putting the house on the market.
Week 4
Week 5 Put the house on the market. Offer made – deal with realtors and banks for offers and counter offers.

 

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