Profit Calculation for Rental Home Business

Keep in mind that we are still in the Rental Home business in Texas. You found an existing building or land and can grow faster than the Industry average. Porter’s Generic Model of Competition has helped you pin point an entry wedge with unique customers.
Purpose

The purpose of this assignment is to test the money aspect of the business. This will determine if we have a business, a pipe dream, or a hobby. This assignment will explain the differences between 1) cost and price, and 2) customer vs target market. Remember that each box above has a unique cost structure, pricing, target market, brand image, supply chain, and customer expectations. Once again, we shop at Walmart for painting clothes for a reason.

Mechanics

Use the Google Sheets spreadsheet I provided in an attachment. You will need to change the numbers to fit your situation. I have also inserted the typical averages for certain categories (in the cells) as per the industry report. The numbers in the cells should change as you change the revenue number. There is no need for you to find these on your own.
Next, you must determine the average sale per customer ( i.e. Avg Rent per month) for your rental home concept. i.e. Do you have variable pricing due to seasonal fluctuations if you are in a college town?

Assignment

Now, explain to me in a Word document where and how the numbers were derived. Also, share if you will be above industry averages or below and how/ why. i.e. Assume you are able to put 20% down for a loan. Then finance the rest. Think about what money will be coming in vs what you will have in expenses. The point here is to make you aware of what it takes to run a successful rental business.
● Typed, minimum two pages of Financial Explaination
● Excel Financials, either as a separate file, or added to your Word Document
● Mandatory Works Cited Page for all sources used
● Use 12 point Ariel font, 1/4 inch indentions, use page numbers, headings (1-2-3), and single line and character spacing.
● I am expecting a professional report that (a) demonstrates a command and understanding of the topic, (b) uses sound presentation logic and well thought through justifications, and (c) displays use of appropriate graphs, charts, and tables.

Financial Feasibility Analysis (title)

Capital Requirements (7-10 sentences)
How much do you need to get started? You can find average pricing for your single family homes, apartment complexes, or other rental types on realtor.com or other similar sites. Are you going to then use additional money to renovate a purchase?

Assume you will bring 20% of needed cash for the loan, what are you loan options as a small business? Use the internet to find your options

Estimated Earnings ( 20- 30 sentences)
Revenue Estimates (7-10 sentences)
● What is your yearly estimated revenue? ( This can simply be monthly rent * 12 ).
● Explain your revenue types and number of sales? (You did some of this already in your Product/Service FS) Did you take into consideration periods of your units not being rentable? For example if you rent to college students who only need a place August to May.
Cost Estimates (7 – 10 sentences)
● Explain your costs, what are fixed what are variable (A fixed cost does not change based on number of sales, i.e. Mortgage. A Variable cost changes based on need. Lawn service is more expensive in summer than winter)
● Do you have the same expenses as the example file, or did you modify your expenses to meet your business structure?
● Did you keep the same estimated costs values, or did you modify based on your business?
Operating Income (5-7 sentences)
● Subtract your costs from revenue
● Are you happy with this number in your first year? ( remember most businesses do not make money their first year)
● Is there anything you plan to do differently in upcoming year to cut costs or boost sales?

Return on Investment (5-7 sentences)
● Simple ROI is calculated as Income / Initial Investment *100. ( A 100,000 yearly income from a 1,000,000 investment would net 10% ROI)
● What is your Return on Investment? Show how you calculated ROI (First Years Net Income / Initial Investment) Are you happy with this number for your first year? Do you think you can do better in your next couple of years? Did you beat the Industry average?

Rubric

General Grading Guidelines Missing section: – 4 pts
Missing Excel Spreadsheet: -10 pts Missing References page: -3 pts Reference not in APA format: -1 pt
Section does not meet length expectations: -2 pts Overall written paper is less than 2 full pages: – 3pts
Proper Sentence structure and grammar: 2-6 pts depending on severity

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