Action Control: Let’s Talk About Our Business Plan…

Last week we received an email from one of our loyal followers: 

“I really enjoy all of your blog posts.  They have been very informative, and I am fascinated by your firm’s philosophy and process, which is why I am reaching out to you guys.  It appears that your business plan is one of the key components to your ‘secret sauce.’  What is the business plan?  Could you tell us readers a bit more about it?”

These are the types of emails we love -- we are both grateful and appreciative.  We are also happy that our audience is finding value in our transparency.

So today we will address our reader’s request.  Let’s walk through examples of how we formulate CF Capital’s business plans.

At the basic level, a business plan is created for each acquisition opportunity in order for us to organize our thoughts and formulate how we will implement our value add strategy.

An exceptional business plan is a function of the hard work done in underwriting and due diligence.  You can kind of think of it as “the cherry on top” of the investment process sundae.  The business plan wouldn’t be any good without the necessary and rich base.

Our deep work allows us to see what is happening with current operations at the property.  This enables us to identify where opportunities can be maximized and where there is room for improvement.  We then think about the desired outcomes from an income perspective as well as an expense perspective.

From this point on is where we have the most fun (or at least we think it’s fun).

The next steps are all about how creative and prudent we can be in our approach to adding value.  Ultimately, we are trying to find ways to increase our cash flow and maximize the returns for our investors.

Each property is different and is essentially it’s own independent business.  Therefore, every business plan will be unique and different.  Some properties may have more problems on the income side, which would mean constructing a plan to capture the benefits from increasing the property’s income.  Other properties have major expense problems, which create an opportunity for us to add value in reducing certain expense areas.

In one property we might plan to reduce expenses by streamlining the plumbing, heating, and cooling.  Additionally, we might be able to reduce maintenance costs by making improvements to the property (i.e. capital expenditures).

With that same property, we would also aim to add value on the income side by improving utilities as well as adding other fees, services, and different rental options.

What do we mean by this?  By adding pet fees, clubhouse rental fees, appliance rental fees, gym membership fees, concierge services, laundry services, and cleaning services, our investment property will be able to increase its total income.

Introspection and thoughtfulness are essential to crafting a sound business plan.  If we aren’t doing things like looking out at reference points in the marketplace, we won’t be able to tell that our business plan is relevant.  

We take into account things like our competitor’s rent, rent comps, or other rental prices in the same submarket.  Maybe a submarket suggests that a higher value type of property would be compensated from a higher rent perspective.  Figuring out the appropriate rental price level and tenant demands is our objective.

We also think about the type of tenant base we want.  Then we want to attract them.

“Get closer than ever to your customers. So close, in fact, that you tell them what they need well before they realize it themselves.” - Steve Jobs

To implement that Steve Jobs philosophy, we believe it takes deep research and thought into their wants, needs, and desires.  If the ideal tenant enjoys amenities like laundry service, we have to figure out how much they enjoy it.  Also, how much are they willing to pay for it?

With all that said, our business plan does factor in many variables.  In each unique case, we take a creative approach to identify the income and expense opportunities, and create a plan to capture any monetary benefits from adding value in those specific areas.

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