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J. Kale Flagg on Von Vesting’s Investment Strategy

In Real Estate on December 7, 2012 at 5:40 pm
J. Kale Flagg

J. Kale Flagg

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.

Presentation Solutions: So, who controls the Fund?

J. Kale Flagg: Per the Fund’s Partnership Agreement, the Fund is managed by a General Partner—myself and Tiff Von Alvensleben are the Managers of the Fund’s General Partner.

Presentation Solutions: How do the Fund and Von Vesting coordinate financial transactions?

J. Kale Flagg: The Fund pays Von Vesting, via their management contract, a flat 3%-per-property acquisition fee to purchase, rehab and sell Fund properties.  As an example, if Von Vesting sources 100 properties and does not purchase any of them; then the Fund doesn’t pay Von Vesting any money.  The Fund only compensates Von Vesting for successful purchases that meet the Funds pre set criterias.

Presentation Solutions: What is the general area that Von Vesting tends to focus on?

J. Kale Flagg: The 1,700+ properties that have been flipped over the last 12 years by the Operators of Von Vesting have all primarily been located in the San Francisco South Bay area (where Rich and Tiff both grew up and have family in the business) or the Greater Sacramento area (where the Vons currently reside).  And there have been more then a few in Nevada and Arizona as well.

Presentation Solutions: But how do you choose since there are so many properties for sale at any given time?

J. Kale Flagg: Since flipping is about velocity, picking the neighborhoods with low average days-on-market, the right schools and minimal competitive product is key.  Our advantage is that nothing replaces local experience when it comes to residential real estate, but it is our due diligence and knowing how to comp intelligently on the front end (so the product moves quickly on the back end) that makes the difference between profit and loss.  After 12 years and over 1700 properties, streets in our target market are recognizable and most new product is in close proximity to past projects.

Presentation Solutions: This is all very interesting but we are out of time for today. Thank you, Mr. Flagg, for your time this evening. We look forward to speaking with you as Von Vesting Inc continues to grow.

J. Kale Flagg: The pleasure was mine. Thank you.

J. Kale Flagg is the COO of Von Vesting Inc. His sales and marketing experience lends Von Vesting a unique perspective to property rehabilitation and sales. For more information about Von Vesting, contact the firm directly at 916.625.0235

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