Maximum Security to Business Opportunity
For the past five days I’ve been in Seattle, where I attended my niece’s high school graduation. I like to refer to her as a founder of the Prison Professors program. As a fourth grader, Sophia launched a class project. She sold cookies to raise money that we could use to launch Prison Professors. Since then, we’ve built a project that has made an influence on thousands of lives. I’m happy to celebrate her graduation from the Seattle Academy of Arts and Sciences, and to watch her prepare for the next phase of her academic journey.
Before everyone in the household woke, I drove to Green Lake for a run. While running I received a call from Joshua. Last week we featured Joshua on the program. He told us that he had served 10 years in a supermax prison. While in prison, the educational courses we offer through Prison Professors inspired him. For those who’d like to watch the initial interview, check out the following link:
- From Maximum Security to Success
At the end of our conversation, I offered an opportunity to Joshua. If he could present an acceptable business plan, I pledged to help him raise the capital to launch his real estate career.
While running around the track, I had a long conversation with Joshua. I told him that I could only help him with honesty. Telling him that he did a great job wouldn’t serve anyone’s purpose if the product he produced failed to generate the resources he would need to succeed. To succeed, we need to create what? According to the courses we teach in prison, the path is quite simple:
- We must define success,
- We must document a strategy that will take us from where we are to where we want to go.
- We must put priorities into place that will help us succeed.
- We must create tools, tactics, and resources that help us bridge the gap, taking us from where we are to new levels of opportunities.
- We must execute our plan every day.
Failed Business Plan:
Joshua’s business plan didn’t succeed because it failed to take the goals of the stakeholder into consideration. Instead, he wrote a document describing what the business would do for him. It did not show why he had the skillset to succeed. Nor did the plan show how he would create value for prospective partners that could change his life.
You can read Joshua’s plan below, which I publish in verbatim:
The goal of purchasing a home to rehab and utilize as a rental is the first stepping stone into my five-year plan to successfully reintegrate myself into society after spending almost a decade incarcerated, and to obtain my first million dollars of assets. I believe that the best way to go about this is to start with one to three houses to take the first step in my plan to start generating income, as well as create equity that can be used to continue the process of acquiring real estate, fixing up homes in the Detroit community, and establishing stepping stones to apply the revenue I generate to pursue other business ventures to continue down the path of creating my empire.
After doing some research into the real estate market in Detroit, as well as the surrounding area and based on houses that are available at this time, I chose properties in the market that I feel make the most sense in meeting the goals I have set for myself on this journey.
I came across a lot of three homes being sold in Detroit. Each home is $2,500, the lot total being $7,500. The first home is a 1067 square foot 3-bedroom, 1-bathroom home. The approximate budget I believe is feasible for this home is $35,000 – $50,000 in supplies and $10,000 -$20,000 in labor with a turn around time of 8 – 12 weeks. The second home in this lot is a 1935 square foot 3-bedroom, 2.5-bathroom home. The approximate budget for this property is $50,000 – $75,000, with a labor budget of $15,000 – $25,000 and turn around time of 8 – 12 weeks. The final home in this lot is a 1106 square foot 3-bedroom, 1-bathroom home. The budget for this home is $35,000 – $50,000 in supplies, with $10,000 – $20,000 in labor with a turn around time of 8 – 12 weeks. The projected rent for these homes once completed are $1,100, $1,125, and $1,100. The all-in investment for this project would be $162,500 – $247,500. After the 8 – 12 week rehab process, these properties would start generating $3,325 per month. It would only take 48 – 74 months to re-coup the initial investment, not to mention that there is now at least $300,000 in equity between the three homes.
I also found a 1268 square foot 3-bedroom, 1-bathroom home in Highland Park. The listing price for this home is $22,000. The approximate budget for this property would be $32,000 – $52,000 for supplies and labor of $8,000 – $20,000, with a projected rehab time of 12 – 16 weeks. The total investment comes to $62,000 – $94,000. The projected rent is $1,000, so it would take 62 – 94 months to re-coup the investment on this property, but the home’s value would potentially be $150,000.
The final property that I came across is a 960 square foot 3-bedroom, 1-bathroom home in Detroit. The listing price on this property is $15,000. The budget for this property would be $28,000 – $45,000 for supplies and $7,000 – $18,000 for labor, with a rehab time of 12 – 16 weeks. The total investment cost for this project is $50,000 – $78,000. The projected rent for this property is $900. This means it would take 55 – 86 months to recoup the investment, with a rental property valued at approximately $120,000.
Please see the Home Information tab to see information on each of the homes, as well as links to the real estate listings.
To launch a new life, a person must prepare for rejection. A rejection of a plan isn’t a rejection of a person. We can always make improvements to a plan. I encouraged Joshua to improve his plan. Rather than presenting a plan that would get Joshua everything he wanted, while presenting enormous risk to an investor, I suggested that he reverse the concept.
- Contemplate how he could get everything the investor wanted, and in the process, build a successful life for himself.
We considered a SWOT analysis, beginning with an understanding of his investor. Who is he or she?
The investor would likely have the following characteristics:
- An income in excess of $400,000 per year.
- Savings in excess of $1,000,000.
- Liquid assets in excess of $2,000,000.
- A net worth in excess of $5,000,000.
- The person lacks time to get involved in projects that may interfere with his career, or quality of life.
- The person doesn’t like that the bank pays him a 1% interest rate on $1,000,000 that he holds in savings.
- The person may be willing to entertain a viable plan to help him generate a higher return.
- The person may have an interest in resolving social justice issues.
- The person may have legitimate concerns about doing business with a person that recently got out of a super-max prison.
Joshua could seize the initiative by creating a business plan that takes all fo those factors into consideration. We want him to accomplish the following:
- Identify an asset that he can purchase, remodel, and prepare for rental income. He should strive to accomplish this goal with less than $50,000 in capital.
- He should build a story to show that such an investment would generate a rental income of $1k per month for the investor, upon completion.
- He should build a story with all the answers, the investor has confidence that Joshua is the right guy to oversee such a project.
- He should show the investor why the risk would be removed because of the value that Joshua creates.
- He should create a contractual right to acquire the asset after the investor has recovered his total investment, and after the investor has received an exceptional return—in exchange for the risk that he took.
- He should create a contractual right to replicate the model, after achieving specific milestones.
If Joshua can put this plan together, responding to all questions, he will build a higher level of confidence in prospective investors.
If Joshua can help others get what they want, he can get everything that he wants. I look forward to getting Joshua’s next plan.