homeproperty777: Successful real estate investors always treat their investments as a business, which includes having a written business plan in place that describes the business, the goals and the strategy for meeting those goals. A good business plan acts as a road map that gives you direction and helps motivate you to stay on track, while being flexible enough to respond to your changing needs. Thinking about writing your own real estate business plan? Here’s a list to get you started.
Your Mission Statement
Your Mission Statement
The first thing to include in your business plan is your mission statement: a sentence or short paragraph that explains the purpose of your business and what benefit it provides. A good mission statement answers questions like, What do we do? How do we do it? How do we create value? Keep it clear and to the point, and avoid meaningless generalizations and fluff. Less is more in a mission statement.
Your Goals
This section of your business plan explains what you hope to accomplish by having this business. Your goals should always be specific and measurable: for example, to earn $3,000 a month in passive income; to flip two properties a month; to buy, rehab and rent four properties each year. Note that each of these goals has some sort of time frame attached, and it’s a good idea to think in terms of both short- and long-term goals. Avoid abstract goals like: to get rich selling real estate; to retire early; to be the best. If goals are fuzzy or subjective, you’ll never know when or if you achieve them.
Strategy
So you know why you’re in business and what you hope to achieve. Next, you need a strategy to reach your goals. This section of your business plan includes things like:
Your market – what types of properties will you target? What are the recent trends? Define the market: area, single-family, multi-family, commercial, price range, motivated sellers, etc. Stay focused on this market, and keep in mind, it’s better to do one thing well than five things poorly.
Your criteria – what conditions must be met before you make an investment? Consider things like loan-to-value, cash flow requirements and maximum rehab amount. Think of these conditions as your line in the sand and walk away if a deal doesn’t match up.
Finding deals – how will you find deals, and how will you market so that interested buyers, sellers and renters can find you? Be proactive and never assume that the deals will find you.
Financing – how do you plan to acquire properties? Will you use cash, conventional loans, business loans, seller financing, lease options or secure an equity partner? Think about how each method affects your return on investment.
Process – how will you will turn a property into a profit? Make a step-by-step plan including things like repairs, rent and management, and who’s going to be in charge of each step. Be specific.
Exit strategy – how and when will you exit the deal? Will you rent and hold, or do a 1031 exchange? What’s the time frame look like?
Financials
Your business plan should also include details about where you stand financially today. How much cash do you have? Do you have any equity you can tap into? If you are brand new to the business, this may seem like more of a personal financial statement. Update your financials regularly as your business grows, and be ready to present them to lenders and potential partners at a moment’s notice.
The Bottom Line
Any type of business – real estate investing included – can use a business plan to help establish and achieve short- and long-term goals, determine an action plan and show you the big picture, which can help you keep you focused on the goals, rather than on any minor setbacks you may encounter along the way. Keep in mind, there’s more than one approach to creating a business plan, but all plans need to be updated and revised periodically to include new details and to reflect your changing business needs, plans and financial situation.
Your Goals
This section of your business plan explains what you hope to accomplish by having this business. Your goals should always be specific and measurable: for example, to earn $3,000 a month in passive income; to flip two properties a month; to buy, rehab and rent four properties each year. Note that each of these goals has some sort of time frame attached, and it’s a good idea to think in terms of both short- and long-term goals. Avoid abstract goals like: to get rich selling real estate; to retire early; to be the best. If goals are fuzzy or subjective, you’ll never know when or if you achieve them.
Strategy
So you know why you’re in business and what you hope to achieve. Next, you need a strategy to reach your goals. This section of your business plan includes things like:
Your market – what types of properties will you target? What are the recent trends? Define the market: area, single-family, multi-family, commercial, price range, motivated sellers, etc. Stay focused on this market, and keep in mind, it’s better to do one thing well than five things poorly.
Your criteria – what conditions must be met before you make an investment? Consider things like loan-to-value, cash flow requirements and maximum rehab amount. Think of these conditions as your line in the sand and walk away if a deal doesn’t match up.
Finding deals – how will you find deals, and how will you market so that interested buyers, sellers and renters can find you? Be proactive and never assume that the deals will find you.
Financing – how do you plan to acquire properties? Will you use cash, conventional loans, business loans, seller financing, lease options or secure an equity partner? Think about how each method affects your return on investment.
Process – how will you will turn a property into a profit? Make a step-by-step plan including things like repairs, rent and management, and who’s going to be in charge of each step. Be specific.
Exit strategy – how and when will you exit the deal? Will you rent and hold, or do a 1031 exchange? What’s the time frame look like?
Financials
Your business plan should also include details about where you stand financially today. How much cash do you have? Do you have any equity you can tap into? If you are brand new to the business, this may seem like more of a personal financial statement. Update your financials regularly as your business grows, and be ready to present them to lenders and potential partners at a moment’s notice.
The Bottom Line
Any type of business – real estate investing included – can use a business plan to help establish and achieve short- and long-term goals, determine an action plan and show you the big picture, which can help you keep you focused on the goals, rather than on any minor setbacks you may encounter along the way. Keep in mind, there’s more than one approach to creating a business plan, but all plans need to be updated and revised periodically to include new details and to reflect your changing business needs, plans and financial situation.
