Penny Lane employs a hybrid business model that seeks to capture equity while minimizing tax consequences. Flipping activity by itself generates income and capital gains that is normally taxable. However, our hybrid model seeks to accumulate equity and cash flow by retaining some properties as long-term holds. This model shelters what would otherwise be taxable income and provides an efficient use of capital. Therefore, our company performance is best understood when considering assets on the Balance sheet(s) as well as Profit and Loss.
The Penny Lane team engages in Leads Management, Deal Analysis, Transaction Management, Project Management and Property Management. Each of these areas of specialty have well developed procedures and guidance documents that have preserved the best practices and lessons learned we have accumulated from our 18 year history. Team leads performance incentives are closely tied to the review and implementation of these processes for any relevant activity.
Data analytics – Information technology has revolutionizes the way we find opportunity. This
ever-changing landscape requires continuous attention and improvement in order to stay ahead of the
pack. As a leader in this space we have achieve exceptional results due in large part to our focus and emphasis on technology and data.
Multi-channel marketing – Once we have identified likely lead sources we use a multiple channels to
reach sellers. The use of many and overlapping marketing channels ensures that we reach those who
present the greatest opportunity. A preview of our marketing channels include:
Risks are present at all stages of a property transaction. We could overestimate the value of a property. We could pay too much for a property. We could underestimate the repair needs. We could experience construction delays or exceed our budget. We mitigate these risks through our reliance upon refined systems and processes, a talented team, and 40+ years of combined industry experience. Since 2003 we have developed:
These enable our company to carry-forward lessons learned, and industry best practices by usingtested and proven methods. Our participation in several industry peer groups both as a participant, and presenter enables us to assimilate advanced techniques, replicate our success, and reduce our mistakes.
We accurately asses the viability of a given project by using the following techniques:
Accurate Valuation – We use several internal and subscription-based data-sets to establish improved
and unimproved estimations of value. We also collaborate with our extended team of professionals to
ascertain feasibility, risk, project duration and cost.
Transaction Costs – As a principle in many hundreds of projects, Penny Lane is able to accurately
estimate transaction fees, commissions, inspections, and factor these into our cost algorithms.
Holding Costs – We consult various subscription data sources to understand inventory, comparable
pricing and average days on market. With this information we can predict hold time associated with of a
given property.
Project Cost/Duration Estimates – We have accumulated extensive data on material, labor and repair
costs which we incorporate into our proprietary calculations.
We protect our money partners in 4 ways:
Disposition – We disposition our investment opportunities in three primary ways:
Buy-Fix-Sell – This is a traditional house flipping model. We disposition approximately 50% of our deals
this way.
Sell via Assignment – We have developed several key relationships with area investors, construction
companies and private-equity firms who we’ll buy our deal at the contract level, allowing us to sell our
contractual rights, resulting in a short deal cycle and a nearly unlimited capacity to secure opportunities.
We disposition approximately 50% of our deals this way.
Buy-Fix- Hold – When practical we keep properties as a long-term hold to capture equity, appreciation
and cash flow potential.
Our Valuation Models
We use several valuation models to help us determine the viability of a deal. Below is an example of our valuation model for a potential Buy- Fix and Flip transaction:
In this sample analysis we are evaluating a property with an “After Repaired Value” (ARV) of ~ $875,000 after it is completely renovated with rehab costs estimated at $ 125,000. In order meet our minimum profit expectations our maximum offer for this property will be not more than $585,294.00 and projects a gross profit of $94,706. This projection targets a 40% annualized return on the capital at risk.