Final Business

Proposal Paper

Alison Rogers

ECO/561

May 3, 2011
Dr. Jerry King

Final Business Proposal

Executive Summary

I spent some time looking for a service that I can offer to clients from the comforts of my home and still earn a decent income to support my family. After a while, I came across the real estate note business. To understand this paper, let me explain what a real estate note is. A real estate note is a promise to pay. What you and I consider a mortgage or IOU that is registered at your local county courthouse. What I do is find these notes, determine their true value based off a formula and notify my list of buyers to see who is interested in making an offer. So now, I have created my home-based service off the current need within this market. The need is for professional note finders/locators. Buyers (or investors) are looking for good clean notes to invest in but don't necessarily have the time to spend researching every note they come across. They are will to pay for the service to be completed by a professional.

Market Structure and Elasticity

Currently my market structure is pure competition on the grounds that I must compete with other notes finders in order to locate, evaluate potential notes and close deals. This type of service is elastic because of the number of competitors and the fact that the clients could perform this service themselves with ample time and research. What makes a note finder effective is that we already have access to thousands of buyers and we screen notes for the value and turn over retention (of value). These services are directly influenced by the market conditions.

How will I increase revenue?

The most effective way to increase my revenue will be through networking and marketing my services through a reputable service. I am currently under the tutelage of the Dalbey Institute to educate myself in the real estate note business. Understanding the latest trends and techniques in finding these notes and how to connect them to potential buyers is critical for the success of my business.

How will you determine the profit-maximizing quantity?

In order to calculate the quantity that will maximize profits, I must understand the economic concept of marginal analysis. Marginal analysis is the study of incremental changes in profit. The quantity that maximizes profit is where marginal profits shifts from positive to negative. So, I assume that quantity is the amount of product or service that a business owner hopes to sell. As my service demand increases, so do expenses. When the expenses increase to an amount that no longer maximizes profits, the marginal profit becomes negative.
In this particular industry, it is very hard to have your expenses overcome your profits especially if you work out of the comfort of your own home. However, it is still possible. So, determine the profit at each level of sales. Assume I sell an average note of $100,000.00. My profit is a 10% fee off the total note balance. 10% of $100,000.00 is $10,000.00. So my fee earned from that sale is $10,000 minus the expenses my business incurs while operating (utility bills, office supplies, taxes, medical benefits, etc.). So say for the sake of argument the monthly expenses to operate my business is an average of $4,000.00. Take the difference of $10,000 minus $4,000.00 and the profit for that month is $6,000.00.
Other methods to maximize my profits would be to reduce my expenses, which is discussed under the methods to minimize costs for the product/service.

How could you use the concepts of marginal cost and marginal revenue to maximize profits? What information do you need to determine this? Without this information, how would you make a decision?

Since my business is not producing an actual product but a service, I am not expending too much in material supply and demands to perform my services. I do need to use the internet and other office equipment in order to operate my business so the profit earned needs to surpass the expenses of my business's expenses in order to have a profit. But to maximize my profits I will need to run the business efficiently as to not waste any time or energy on useless endeavors. Poor notes is one way to cost me time, energy, and money (since we all know that time is money). The largest expense I risk is my personal time. Knowing how to maximize my time and learning how to identify productive and useful real estate notes will be the most effective way to maximize profits for my business.

What is your suggested mix of pricing and non-pricing strategies? Explain you answer.

I consider my style to vary between cost-plus, limit and predatory pricing. My mix in pricing and non-pricing strategies are contingent upon my sales performance. I have a set percentage I take out as a fee for my services off the real estate note balance at time of transaction. Should the sale be stalled because the buyer's offer is on the low side for the seller, I may choose to lower my percentage by a couple of points (say 8% instead of 10%) in order to get the seller to cement the deal. Now, on the flip side if the offer is high enough, I may increase my percentage (the highest has been recorded at 30% with competitors) in order to maximize my profits and not maintain the sale. A non-pricing strategy that I am working on employing is market leader strategy. “A market leader strategy focuses on being the best in the market of the basis of something other than price, such as quality, or customer service.” (E How, 2011). Educating myself of the real estate note industry will better my chances of accomplishing that. Another strategy is known as the niche strategy. The strategy focuses on a small population and offers a product or service to fit their particular needs. If I choose a target group of note holders (example: age and class of note holder) I can focus on that group’s defining traits and use them for my business advantage (a single mother with the need for the total sum the money NOW and not small payments of it over 20 plus years or the group who never wanted the note in the first place but the cash from sale up front).
Both types of strategies offer me the ability to compete on grounds other than price which in turn affords me the ability to demand a higher price from the consumer (note buyer, not seller). The translates into higher profits on few sales therefore requiring less sale volume (permitting me to be more selective in which notes I’m willing to evaluate and submit to my buyers).

Can you create or increase barriers to entry? If so, how?
This industry is growing thanks to the banks really tightening their policies on who they lend money out to. Currently, we are dealing with a $159 Billion dollar industry in the owner-financed real estate notes nationwide (Dalbey, pg 2). Creating a barrier is almost impossible as new students are being trained monthly to become successful note finders. The best defense against the incoming competition and to go up against long time professionals in this field is to be constantly involved in this field by means of education and actively networking.

How will you increase product differentiation?

The most effective was for me to increase service differentiation is to create awareness of it. Not to many note holders out there are aware they can sell their note for the money now and therefore sit on these notes. By actively advertising my services locally and on the internet I can assist in creating awareness. Also, while conducting my research within the public records offices in various county courthouses, I can send out postcard mailings to prospective clients. The largest factor for this service is to create awareness any way that I can.

Are there other ways to minimize costs for the product?

There are tons of ways to minimize costs within my business. First off is using the internet to the max. I can access hundreds of databases of public records on-line to minimize my travel or extensive calls to those offices conducting research on the real estate notes I seek. Another way is to use the internet for advertising. However, the downside to going viral is this, not everyone uses the internet (yet) and therefore the good old fashion method of reaching potential clients still remains a solid method (mailings, cold callings, etc.). This physical hands on approach would work best in local and neighboring country courthouses that do not offer access to their public records online. The best method is to perform all tasks online until profits are enough for me to add additional services or hire on more help (searching for titles or cold calling, etc.)
So, initially I can minimize waste at my office to assist in minimizing cost. For example, printing excessive amounts of forms or papers may not be productive. Having a couple of necessary blank forms on file may be beneficial over having 100 copies sitting in a file waiting to be used. Create documents as needed minimize print and fonts for in-house records to save on ink and paper. Those are all small yet helpful tips to conserve resources.

Conclusion

In the business of real estate note selling, there are multiple ways in which you can earn a decent profit for your business. Understanding how to maximize your profits through pricing and non-pricing strategies, product differentiation, and creating barriers to entry are just several methods in which you can apply. Also, understanding how to gauge the success of your business through marginal analysis will assist you in determining if your business is maximizing its profits or creating excessive waste. Being that I have recently started my own home-based business in real estate notes, I have used my experience and research for this paper in effort to help you (the reader) and myself in understanding how to promote the services of a real estate note finder as efficiently and effectively as possible.

References
McConnell, C. R. (2009). Economics: Principles, Problems, Policies (18th Ed.). McGraw-Hill.
E How, Definitions of Non-pricing strategy. Retrieved May 2, 2011 http://www.ehow.com/facts_6783614_definition-non_price-strategy.html

CERTIFICATE OF ORIGINALITY
I certify that the attached paper is my original work. I am familiar with, and acknowledge my responsibilities which are part of, the University of Phoenix Student Code of Academic Integrity. I affirm that any section of the paper which has been submitted previously is attributed and cited as such, and that this paper has not been submitted by anyone else. I have identified the sources of all information whether quoted verbatim or paraphrased, all images, and all quotations with citations and reference listings. Along with citations and reference listings, I have used quotation marks to identify quotations of fewer than 40 words and have used block indentation for quotations of 40 or more words. Nothing in this assignment violates copyright, trademark, or other intellectual property laws. I further agree that my name typed on the line below is intended to have, and shall have, the same validity as my handwritten signature. Student's signature (name typed here is equivalent to a signature):
Alison Rogers