Von Vesting continues to wow investors. Kale Flagg explains how and why.
Presentation Solutions: Thank you for taking the time to chat with us today. Let’s cut to the chase; Von Vesting has a reputation for earning more than favorable yields for investors. How do you do it?
J. Kale Flagg: Our investment strategy is simple—“steal ’em, so we can give ’em away.” In other words, buy ultra-wholesale so we can rehab to 2012-2013 standards and amenities (so the properties will move quickly) and offer for sale at sub-market rates (again, so they’ll move quickly) while making a minimum 10-15% cash-on-cash return.
Presentation Solutions: Moving properties quickly–that explains why you are so diligent with ensuring the paper trail is clean with the title, liens, etc.
J. Kale Flagg: Exactly. Also, we have an entire department dedicated to knowing what to improve and what to leave alone.
Presentation Solutions: You tend to market aggressively, does that help the property move?
J. Kale Flagg: Yes it does. More importantly, accurately forecasting the sales price that the improved property will sell at quickly once we’ve completed the improvements is the most important decision we make on a property. We don’t market before we know these numbers.
Presentation Solutions: How do you determine profit on a sale?
J. Kale Flagg: Profit equals sales price minus disposition, carry, improvement and acquisition costs—everything works backwards from sales price so we measure our improvement budget and sales price projection accuracy on a daily basis
Presentation Solutions: It sounds tough to compute…
J. Kale Flagg: Our business model is simple—we won’t pull the trigger on a property unless we know we can earn a minimum a minimum of 10-15% cash on cash in 90 days. People often think that high returns connote high risk—but the reality is that we’re only averaging approximately 10-15% cash on cash per house flip.
Presentation Solutions: If you are “only” averaging 15%, why are your annual returns so hefty?
J. Kale Flagg: The reason for the Fund’s high annual returns is that we’ve been completing the transactions quickly (98 day average for 2011 and a little quicker then that, to date, in 2012)— which means we can use the same money 3 times in one year to buy, sell; buy, sell & buy, sell again. If the Fund can make a minimum of 10-15% on a property, and use the same money to do so three times in one year—the total return comes out to 30-45% or more annualized profit for those who can source and secure product.
Presentation Solutions: Tell us a little about the structure of Von Vesting…
J. Kale Flagg: Von Vesting Inc., under its management contract with the Fund (the American Redevelopment Fund, LP), sources, acquires, improves and re-sells single family residences on the Fund’s behalf. Von Vesting contracts LKT Construction (d.b.a., OneUP Construction), a California Licensed General Contracting Company (owned, directed and operated by Rich Von) to facilitate the property improvements; and one of several third party brokers to sell the properties via MLS.
Presentation Solutions: What exactly is the Fund?
J. Kale Flagg: The Fund is a California limited partnership, formed August 3rd, 2011 for the purpose of investing in real estate assets acquired directly or indirectly by the Partnership. Investors in the Fund become Limited Partners and hold 100% of the Fund’s equity.