Appendix C | BUSINESS PLAN FOR PROJECT DEVELOPMENT | 253-7-Sales Price
The sales price of the 2246½ Hamilton Street house, after remodeling, is forecast
to be $120,000, with a 6% real estate commission paid in cash from the proceeds
of the sale. We expect to carry back a new second mortgage in favor of the buyer
of approximately $12,000, which means the seller will pay a cash down payment
of $12,000 and obtain a new first mortgage of $96,000 from a bank or savings and
loan. The new first mortgage will pay off the existing first and second loans on the
property. Thus, at the conclusion of the transaction, I expect to receive the cash
difference between the total of all outstanding loan balances, sales commissions, and
other cash expenses. In addition, I shall have a second mortgage on the property in
the amount of $12,000.
Cash Flow
As seen on the attached cash flow for this project, there are only three infusions
of cash into the project. The first one is the money from my savings account with
which I made the down payment on the property and with which I obtained the
engineering studies that convinced me that the project will make money. The second
infusion will be the proceeds from the loan being applied for here. The third and final
infusion will be from the sale of the property, and that will be sufficient to pay off the
other loans on the project and leave a cash profit of $12,445. The difference between
the cash profit and the book profit shown earlier is accounted for by the $12,000
second mortgage I’ll carry in favor of the buyer.
Based on demand for housing in the subject area, I believe that the house will
probably sell far more quickly than I have forecast; in fact, I have already had two
inquiries about selling it. Based on my experience with remodeling houses of this age
and location, I am sure that the $30,000 requested will be adequate to complete the
repairs necessary to increase the value of the house.