I am looking to form an LLC down the road to possibly build a Poconos Mountain getaway retreat corporation which will expand over the years to handsomely reward partners and shareholders alike in many ways.

I’m seeking some partners in the PA/NJ/NY region to then work with investors using 506c. Meaning – ALL of the information I’m providing publicly is in compliance with 506c.

So – hit me up if you are interested as a partner to set up all of this, and I’ll send you my 23 page business plan and a pitch video I did based on if we are a good match. Tell me about your background and I can see if you are a fit for what I’m looking for. For example, “I live in New Jersey, I vacation every year in the Poconos, I’m a Real Estate Attorney (or own 5 units…or used other peoples’ money to build projects). If you are a local realtor, you might be my new friend 🙂

In this piece, I want to discuss the model I want to use for this, as perhaps innovative for real estate investors. I go far more into the model and examples in my pitch video, but the idea with this piece is to give you a model – on paper – which I think has a really, really high probability of serving me well down the road. I am not giving away ALL of my secret sauce here, as I’m trying to build a team and not trying to create 500 competitors. I’ll give you the overview here and why I think it will work. The business plan is pretty solid, and once the initial house is built, even with no revenues, investors are making 20-70% per year in compensation.

Background – I own some residential real estate, and have for nearly 2 decades. I have a property management run this, and have strong cash flows so I am never really involved. It’s been a bumpy ride, but I’m in a pretty good place overall. Many have flooded the sector the last few years, and I have no real appetite to compete with these people. I’m not a flipper. One of the properties I semi-inherited, and the other I lived in and now rent out, so I didn’t really get into this the way many of you did. My first real dream of rents and real estate came when I visited my brother in St. Augustine, Florida in 2000 when he was graduating college there. I was hit with the bug, as I rented out a condo with my cousins for $685 that week, and found local listings for that condo complex at $80,000. Suddenly, I was spending hours at a time with Excel and chomping at the bit to get started. Alas, it didn’t happen.

But I have ALWAYS had interest in buying assets, then getting some form of yield from the assets. Consider a typical way most think. “I’m going to save up $40,000 to build a deck on my house”. To me, I’d rather save up $15,000, then get partners in a venture, so 5-10 years down the line that venture can yield me $25,000 per year dividends. I see throwing money at my home, vacations, cars – a waste of capital. I see investing money and living off of the yields of that investment as the way I WANT to live. This type of thinking then can free you from the 8-5 job life.

With 6 years of graduate school – 4 of which to get my MBA, I focused a LOT in digesting complex material, researching it, then writing 25 page papers taking someone else’s research and coming to my own theories on how to apply it. One thing that I’ve come to learn later in life is that a lot of things in business is clay, or play doh, and you can form it to how you want it to be. This is FAR different than my understanding of business during my first business class shortly thereafter at Villanova in 2001.

Model

Without further ado, here we go. I don’t have a name for this yet, but perhaps Business Schools 50 years from now call this “The Fisher Recreational Real Estate purchasing model”. Like I said – all of the secret sauce isn’t given here, but I’m giving you a taste. If you don’t have the secret sauce, may God have mercy on your soul 🙂

Concept is – AirBnB meets timeshare meets dividend stock meets share appreciation meets franchising. That’s a mouth full. As I mentioned, I spent many years in grad school writing research papers and developing my own and original ideas. I’m a math nerd. I’m an investment nerd. In fact, I’m a nerd in probably 35 disciplines – hence the name of the website and why my diverse background might have something here.

The overall strategy has 8 core items

  1. A partner class who likes to vacation in a specific place or rental type that are aligned. The partner class needs to have specific roles. They will each put in cash into the LLC, but they each will have their own areas of sweat equity. This makes up 30% of the ownership of the company, or about 7.5% for each partner. If you want to know about the roles, well, that’s what the video is for 🙂
  2. A shareholder class who likes to vacation at a specific location and rental type. These people have zero sweat equity, and make up 70% of the company. Or, each has about 7% ownership of the company. This capital is raised using a 506c and all are accredited investors.
  3. A user class who likes to use AirBnB or the like to travel to specific areas.
  4. Little to no leverage at the start
  5. Cash flows then have a ratio which go into the retained earnings (equity of the company) versus dividends.
  6. Shareholder value is returned with usage of the property, dividends, and growth in equity of the business.
  7. As time goes on, more properties are built and partners/shareholders get – more usage from the property, more dividends, and more equity. I have models that show that a partner can get 17,000% return in 20 years (mixed on a combination of usage, dividends, and shareholder equity) at the high end with 300% yearly dividends on their initial investments. While these are fantasy numbers on paper, the upside here is crazy.
  8. IF the model works well with a single property, the model can be rolled out to other properties to franchise this, of sorts. You are then talking many, many multiples of the silly numbers in item 7.

Now – with this, I took all of these items and built models in Excel, to determine there is a VERY low (I have bookings % in my models – secret sauce!) needed to keep the lights on each year. While this stagnates growth, shareholder return is STILL provided by compensation with USAGE of the property.

For example, if you were a shareholder that put in $30,000 – you are guaranteed ONE week per year at the place (timeshare). If you have a certain % of bookings, you can then have DIVIDENDS paid to them. Higher numbers of bookings % increases the dividend – but it also increases the retained earnings on the property (shareholder equity increase). As profits are booked, another house is built. This then increases the guaranteed weeks of stay to TWO. And, you have higher dividends and higher retained earnings. Assume you then want to mimic this success in other areas of the region, or further out, you can FRANCHISE this by using retained earnings to buy more properties. The AirBNB portion of this is the users who book these properties in the weeks not reserved by owners/shareholders. IF bookings are light, dividends are lower/non existent and retained earnings may be lower, but MORE WEEKS can then be given out to shareholders to compensate them.

Meaning – as long as you hit a certain threshold of bookings, the lights stay on and shareholders are rewarded in several different ways.

Variations to the model

If you are a realtor in the poconos area and find this interesting, let me know. One way to really build out this model is by making hybrid partner models with existing land owners. Maybe someone has 50 acres, doesn’t really use it, but also doesn’t really want to sell it either. The corporation can make them an equity partner and 10 years in, this person can be making $30,000 per year dividends and be a partner in an expanding business. They have VERY little sweat equity, but have an asset to bring into the corporation. This variation to me is very exciting to consider – but would need a strong team and favorable terms for everyone.

Risks to the model

Part of my job, and has been for 28 years, is risk management. I’ve done a lot of risk assessments in my career, and my PMP combined with this has helped me navigate hundreds of projects over my career.

The biggest risk is….what if nobody rents it? Well, in the unlikely even NO ONE EVER rents it through AirBnB, you have operating costs that need to be met. You’d ideally want to start this endeavor with 1-2 years of operating costs as a buffer or for your emergency fund. IF, somehow, there’s a problem where operating costs can not be met, they can be dispersed amongst the partners and shareholders. Meaning, the downside risk here is minimal – perhaps $100 per month to each of the 14 people. That means as a partner, I would be paying $1200 per year. However, as a partner in that situation, with ZERO rents, I’m also able to use that property 4x in a year. Yeah. Let that sink in, YOUR DOWNSIDE IS BEING FORCED TO VACATION AT A PROPERTY FOR 10% OF THE COST IF YOU WOULD DO THIS ELSEWHERE.

I mean, really, let that sink in. And, if you are FORCED at gunpoint to take these weeks, you can take other couples. Ask them each for $60 per couple for the week and you just broke even for the year.

Now, REALLY let that sink in.

The absolute WORST case scenario I can think of is that the partners all fight. Shareholders hate you. Hasn’t been rented in years. Costs of repairs might be piling up. Real estate market is TERRIBLE. The downside, 4-5 years from now, is all of the properties are sold at a 40% haircut. In that 5 years, you put in $30,000. You have gotten to stay at this place 15 times ($3,000 avg stay). That is $45,000 in stays, and many times you let your friends use it and they chipped in to get you some money back. The property (or properties) are liquidated, and your 7% of the sale of everything gets you a 40% haircut from your $30,000 investment. That is, you get $18,000 back. Plus, you got the equivalent of $45,000 in stays. Your total compensation on a $30,000 investment is $63,000.

Yeah. YOUR WORST CASE SCENARIO IN A FIVE YEAR WINDOW IS A DOUBLE in TOTAL COMPENSATION.

Remember – investors and partners would want to USE the property.

Partners – well, they have more risk, all the work, but also have a disproportionate size of the upside gains. A partner would put in money ONLY after the business plan and numbers were all agreed upon. The partners here would then have to coordinate land, test, subdivide, create an LLC, issue shares, advertise, setup everything. The main risk you have is this is never built out, and investment costs for all of the items above drained the treasury. Their investment COULD go to zero, but there would also be protections with this to probably minimize it at 50% loss. That’s why the team makeup is important. If you try to do this yourself, you can’t. And – doing it yourself also has you facing all of the risks yourself. You NEED to work with other experts.

Why the model works

The risk is distributed between partners, and between shareholders that should be savvy. A downside risk to this is having to use the property more, and small amounts of cash out of your pocket if a small number of bookings aren’t met. With an AirBnB, high numbers of bookings at high rates might be needed just to make monthly mortgage/taxes. With this model due to all of the people chipping in, there’s no leverage and comfortable padding. With a timeshare, you get 1 week a year and have to PAY a lot to use it. With this model, as the company expands, you get many, many more weeks of usage plus dividends PLUS share appreciation.

In a mortgage scenario with a bank, you might be paying 8% today and have to come up with 40% down. That uses A LOT of cash and the leverage hurts your ability to grow – or even keep the lights on.

Shareholder equity is returned with:

  1. Usage
  2. Dividends
  3. Shareholder appreciation and growth

I believe this model is VERY interesting for the next generation of RE investing. Hit me up if you have a background in RE investing and want to be part of an exploratory team. I will want to screen you a little to see if you’re a fit for what I’m looking for.

Moving forward

Part of what I want to do now if build out a detailed business plan. I’ve never done one of these or a prospectus, but writing isn’t much of an issue for me for anyone who has spent 5 mins on my site. With my years of investing in mining stocks, I have read so many shareholder presentations it’s silly. What I started to do was train myself to see what they were hiding. To me, it’s shady. For example, you go to one site and they talk about “high grade silver” everywhere. But it’s a US-based company, and with this, they don’t mention they have a far higher cost to mine silver than Mexico. So a noob looks at this and assumes the company will be highly profitable and invests. I then got better at reading financials and it helped me explain some things. STILL – I subscribe to newsletters so experts can advise me on what I DON’T know. And – I think when you dabble in business your whole life, you want to then partner with people who are experts in certain fields.

What I WANT to do with this company is build trust from the start. I WANT to identify the known risks. I WANT to make plans to AATM them (Accept, Avoid, Transfer, Mitigate) so investors are confident, UP FRONT about the ethics and integrity of the firm. One of the core jobs I have had in my IT world is
“metrics”. So depending on the customer, you’d have deliverables and you then provide monthly numbers on how you do. I do NOT want these numbers questioned – and with this, I am VERY stringent with reporting. I WANT to show the pain, and what we are doing to improve it. Hopefully, there’s no pain, but IF there is, I report it, take my lumps, and improve it. THIS is how I would form a company. This doesn’t mean you can share every nugget with a shareholder real time, for a variety of reasons, but you must live your life balanced FAR to the ethical side. No one is perfect. Bad things happen every day. But if you trust your partners are doing everything in their power to bring you shareholder value, then you are very happy with your investment.

With this model it’s not “I’m going to pay $1,000 and get 3% returns”. Or, “share is going to double in 3 years!!”. Nothing like that. This model is an investor/user model, where shareholders love the place they are going to, and are rewarded with weeks there. Over a 20 year window, this model can return absolutely silly numbers back. I’d prefer shareholders would be in their 30s/40s and have a 5 year window. A 20-30 year window with an investment like this can prove to be like buying Apple in 1991. Or Amazon in 1999. I’m not saying it will get that high, but it would take years to then cook and deliver monster cash returns – meanwhile the entire time you are getting MASSIVE usage out of the properties.

I’m 47, and I’m now looking at putting some final pieces together to get out of the rat race inside of 8 years. Both of my parents died of cancer before they got to enjoy retirement. I don’t want to be like that, and my skin in the game is to build a decent sized empire inside of those 8 years to get strong cash flows for everyone involved – which leads to high dividends, lots of usage of properties, and massive shareholder appreciation.